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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Genesis Healthcare Inc | NYSE:GEN | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.4204 | 0 | 01:00:00 |
Capital Structure
Restructuring Plans
Genesis and its counterparties to the Welltower Master Lease, the Sabra Master Leases, the Welltower Bridge Loans, the Term Loans and certain other loans have entered into preliminary non-binding agreements concerning a proposed long-term restructuring of these master leases and loans (the Restructuring Plans) in an effort to strengthen significantly the capital structure of the Company.
These Restructuring Plans include the proposed sale by Sabra and Welltower of certain facilities currently leased to the Company, which the Company intends to re-lease from new third-party landlords at reduced rents. Genesis will also make commercially reasonable efforts to refinance or repay through asset sales, certain of its debt obligations with Welltower which, upon completion, is expected to result in a reduction in interest costs.
These Restructuring Plans, if and when fully consummated, are expected to reduce the Company’s current cash fixed charges between $80 million and $100 million annually. This level of reduction in fixed charges is subject to the successful sale of the Welltower and Sabra facilities to new landlords, the successful re-leasing of those facilities to Genesis at reduced rents, the successful refinancing and/or repayment of certain debt obligations and the receipt of additional concessions to be made by other credit parties. Genesis believes the transactions under the proposed restructuring could occur during the first half of 2018.
“We are very appreciative of the constructive and collaborative support of our key credit partners,” noted George V. Hager Jr., Chief Executive Officer of Genesis. “We look forward to executing on the Restructuring Plans, which upon completion, we believe will result in a significantly strengthened capital structure for the Company, providing adequate liquidity and free cash flow to allow continued investment in our people and our clinical programs.”
“We remain committed to providing outstanding care to our patients and the continued development of our value-based initiatives, which we believe are the keys to long-term shareholder value”.
Third Quarter 2017 Results
“The operating environment continues to be very challenging, with further declines this quarter in skilled patient admissions and higher levels of nursing wage inflation than in recent quarters,” noted Mr. Hager. “These factors served to further compress operating margins in the third quarter of 2017.”
“I would also like to mention that while Hurricanes Irma and Harvey had minimal financial impact on the quarter, hundreds of Genesis employees went above and beyond to ensure the safety and well-being of patients, residents, and fellow caregivers. Their generosity, compassion, and dedication was truly amazing and for that we say thank you.”
Business Development and Divestitures
Genesis continues to make progress with its strategy to exit challenging, low density markets and focus on investment and growth in core, strategic markets. Since the Company’s last earnings announcement, divestitures included:
Genesis expects to divest an additional 14 underperforming assets or assets in non-strategic markets through early 2018.
Balance Sheet and Cash Flows
Asset Impairment ChargesThe Company’s inpatient segment has experienced a decline in financial performance as a result of the ongoing challenging operating environment. Based on the Company’s annual goodwill impairment testing, management determined that the carrying value of the inpatient segment goodwill was fully impaired, resulting in a non-cash impairment charge of $360.0 million for goodwill and identifiable intangible assets recorded in the three months ended September 30, 2017. In addition, the Company determined that the carrying value of property, plant and equipment associated with certain of its inpatient facilities exceeded their estimated fair value. In accordance with generally accepted accounting principles, the Company recorded a non-cash impairment charge of $163.4 million in the three months ended September 30, 2017 representing the difference between the estimated fair value and the carrying value of such property, plant and equipment.
Financing Activities Occurring During the Third QuarterDuring the third quarter of 2017, Genesis closed on one HUD guaranteed mortgage totaling $6.4 million that was used partially to pay down the Company’s real estate loans with Welltower. Genesis expects to continue to refinance the real estate loans with lower cost and longer maturity HUD guaranteed mortgages or other permanent financing as conditions allow.
Value-Based Care Delivery
With more than two years’ experience in managing through the value-based care delivery shift, Genesis continues to learn from and strengthen its participation in value-based care delivery initiatives.
Bundled PaymentsGenesis’ Model 3 Bundled Payment Care Initiative program continues to perform above expectations generating positive results. At the start of 2017, Genesis expected to recognize $8.0 million in favorable estimated settlements for the fiscal year ended 2017. As the Company continues to refine its participation under the Model 3 program, improve efficiencies and drive outcomes, the Company expects a full year 2017 run rate of $20.5 million in favorable estimated settlements.
Medicare Shared Savings Program (MSSP)Effective January 1, 2016, Genesis HealthCare Accountable Care Organization (ACO) began participating in the MSSP through its Genesis Physician Services (GPS) division. During 2016, the Company managed approximately 14,000 Medicare fee for service beneficiaries with annualized Medicare spend of more than $784 million. During 2016, the MSSP required Genesis to save at least 2.7% of the total Medicare spend under management in order to share in up to 50% of the savings with the Centers for Medicare & Medicaid Services (CMS). At the beginning of September, Genesis was informed by CMS that it did not reach the minimum savings rate set by CMS required for gainsharing. As a result, Genesis will not receive a shared savings payout in 2017 for the 2016 performance year.
Genesis attributes the final reconciliation shortfall to unexpected changes in the national trend factor which served to increase the targeting savings hurdle.
“While disappointing, we know that gainsharing is uncommon for new MSSP participants,” noted Mr. Hager. “For 2015, CMS reported that only a quarter of first year participants received a savings payout and, including more mature ACOs, only a third of all MSSP ACOs received a shared savings payout. During 2017, we implemented a number of initiatives designed to improve performance, increase collaboration, drive healthcare efficiencies and improve select quality outcomes.”
Vitality to YouGenesis’ unique Vitality to You service offering that extends Genesis Rehabilitation Service’s therapy business into the community increased revenue for the quarter to $5.8 million, a 23% increase compared to the prior year quarter and to $16.8 million, a 35% increase for the nine months ended September 30, 2017, compared to the same period in the prior year.
Conference Call
Genesis HealthCare will hold a conference call at 8:30 a.m. Eastern Time on Thursday, November 9, 2017 to discuss financial results for the third quarter ended 2017. 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
Genesis HealthCare (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 approximately 1,700 healthcare providers in 45 states, the District of Columbia and China. References made in this release to "Genesis," "the Company," "we," "us" and "our" refer to Genesis HealthCare and each of its wholly-owned companies. Visit our website at www.genesishcc.com.
Forward-Looking StatementsThis 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:
The Company’s Annual Report on Form 10-K for the year ended December 31, 2016, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the U.S. Securities and Exchange Commission, including the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, 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, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net revenues | $ | 1,315,452 | $ | 1,418,994 | $ | 4,045,860 | $ | 4,329,570 | ||||||||
Salaries, wages and benefits | 739,404 | 834,414 | 2,303,300 | 2,534,824 | ||||||||||||
Other operating expenses | 375,587 | 350,828 | 1,090,139 | 1,062,086 | ||||||||||||
General and administrative costs | 40,732 | 46,545 | 127,041 | 139,999 | ||||||||||||
Provision for losses on accounts receivable | 25,187 | 25,602 | 72,700 | 81,776 | ||||||||||||
Lease expense | 38,670 | 35,512 | 113,004 | 109,796 | ||||||||||||
Depreciation and amortization expense | 59,390 | 61,104 | 183,986 | 190,822 | ||||||||||||
Interest expense | 124,431 | 131,812 | 373,473 | 400,853 | ||||||||||||
Loss on early extinguishment of debt | — | 15,363 | 2,301 | 15,830 | ||||||||||||
Investment income | (1,596 | ) | (934 | ) | (4,097 | ) | (2,073 | ) | ||||||||
Other loss (income) | 2,379 | (5,173 | ) | 15,602 | (48,084 | ) | ||||||||||
Transaction costs | 1,056 | 3,057 | 7,862 | 9,804 | ||||||||||||
Customer receivership | 297 | — | 35,864 | — | ||||||||||||
Long-lived asset impairments | 163,364 | — | 163,364 | — | ||||||||||||
Goodwill and identifiable intangible asset impairments | 360,046 | — | 360,046 | — | ||||||||||||
Skilled Healthcare and other loss contingency expense | — | — | — | 15,192 | ||||||||||||
Equity in net income of unconsolidated affiliates | (69 | ) | (893 | ) | (291 | ) | (2,153 | ) | ||||||||
Loss before income tax expense (benefit) | (613,426 | ) | (78,243 | ) | (798,434 | ) | (179,102 | ) | ||||||||
Income tax expense (benefit) | 1,596 | (25,888 | ) | 5,683 | (19,738 | ) | ||||||||||
Loss from continuing operations | (615,022 | ) | (52,355 | ) | (804,117 | ) | (159,364 | ) | ||||||||
Loss from discontinued operations, net of taxes | (2 | ) | (24 | ) | (70 | ) | (1 | ) | ||||||||
Net loss | (615,024 | ) | (52,379 | ) | (804,187 | ) | (159,365 | ) | ||||||||
Less net loss attributable to noncontrolling interests | 241,200 | 31,921 | 314,446 | 72,895 | ||||||||||||
Net loss attributable to Genesis Healthcare, Inc. | $ | (373,824 | ) | $ | (20,458 | ) | $ | (489,741 | ) | $ | (86,470 | ) | ||||
Loss per common share: | ||||||||||||||||
Basic and diluted: | ||||||||||||||||
Weighted-average shares outstanding for loss from continuing operations per share | 94,940 | 90,226 | 93,376 | 89,617 | ||||||||||||
Net loss per common share: | ||||||||||||||||
Loss from continuing operations attributable to Genesis Healthcare, Inc. | $ | (3.94 | ) | $ | (0.23 | ) | $ | (5.24 | ) | $ | (0.96 | ) | ||||
Loss from discontinued operations, net of taxes | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Net loss attributable to Genesis Healthcare, Inc. | $ | (3.94 | ) | $ | (0.23 | ) | $ | (5.24 | ) | $ | (0.96 | ) | ||||
GENESIS HEALTHCARE, INC. | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEET | |||||||||
(UNAUDITED) | |||||||||
(IN THOUSANDS) | |||||||||
September 30, | December 31, | ||||||||
2017 | 2016 | ||||||||
Assets: | |||||||||
Current assets: | |||||||||
Cash and equivalents | $ | 50,591 | $ | 51,408 | |||||
Accounts receivable, net of allowances for doubtful accounts | 774,052 | 832,109 | |||||||
Other current assets | 174,149 | 175,470 | |||||||
Total current assets | 998,792 | 1,058,987 | |||||||
Property and equipment, net of accumulated depreciation | 3,470,946 | 3,765,393 | |||||||
Identifiable intangible assets, net of accumulated amortization | 147,239 | 175,566 | |||||||
Goodwill | 85,642 | 440,712 | |||||||
Other long-term assets | 224,309 | 338,543 | |||||||
Total assets | $ | 4,926,928 | $ | 5,779,201 | |||||
Liabilities and Stockholders' Deficit: | |||||||||
Current liabilities: | |||||||||
Accounts payable and accrued expenses | $ | 461,521 | $ | 474,073 | |||||
Accrued compensation | 163,727 | 181,841 | |||||||
Other current liabilities | 4,877,347 | 201,646 | |||||||
Total current liabilities | 5,502,595 | 857,560 | |||||||
Long-term debt | 284,014 | 1,146,550 | |||||||
Capital lease obligations | 45,974 | 997,340 | |||||||
Financing obligations | 8,711 | 2,867,534 | |||||||
Other long-term liabilities | 614,353 | 640,405 | |||||||
Stockholders' deficit | (1,528,719 | ) | (730,188 | ) | |||||
Total liabilities and stockholders' deficit | $ | 4,926,928 | $ | 5,779,201 | |||||
GENESIS HEALTHCARE, INC. | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(UNAUDITED) | |||||||||
(IN THOUSANDS) | |||||||||
Nine months ended September 30, | |||||||||
2017 | 2016 | ||||||||
Net cash provided by operating activities (1) | $ | 67,358 | $ | 35,302 | |||||
Net cash provided by investing activities | 49,400 | 962 | |||||||
Net cash used in financing activities | (117,575 | ) | (43,967 | ) | |||||
Net decrease in cash and cash equivalents | (817 | ) | (7,703 | ) | |||||
Beginning of period | 51,408 | 61,543 | |||||||
End of period | $ | 50,591 | $ | 53,840 | |||||
(1) - Net cash provided by operating activities in the nine months ended September 30, 2017 and 2016 includes approximately $7.9 million and $9.8 million, respectively, of cash payments for transaction-related costs.
GENESIS HEALTHCARE, INC. | |||||||||||||||||
KEY PERFORMANCE AND VALUATION MEASURES | |||||||||||||||||
(UNAUDITED) | |||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Financial Results | |||||||||||||||||
Net revenues | $ | 1,315,452 | $ | 1,418,994 | $ | 4,045,860 | $ | 4,329,570 | |||||||||
EBITDA | (429,605 | ) | 114,673 | (240,975 | ) | 412,573 | |||||||||||
Adjusted EBITDAR | 147,788 | 172,141 | 488,829 | 539,842 | |||||||||||||
Adjusted EBITDA | 109,118 | 136,629 | 375,825 | 430,046 | |||||||||||||
Net loss attributable to Genesis Healthcare, Inc. | (373,824 | ) | (20,458 | ) | (489,741 | ) | (86,470 | ) | |||||||||
INPATIENT SEGMENT:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||
Occupancy Statistics - Inpatient | ||||||||||||||
Available licensed beds in service at end of period | 55,005 | 58,379 | 55,005 | 58,379 | ||||||||||
Available operating beds in service at end of period | 52,907 | 56,444 | 52,907 | 56,444 | ||||||||||
Available patient days based on licensed beds | 5,058,848 | 5,325,166 | 15,018,709 | 15,846,651 | ||||||||||
Available patient days based on operating beds | 4,872,838 | 5,160,945 | 14,479,602 | 15,403,904 | ||||||||||
Actual patient days | 4,123,001 | 4,411,152 | 12,323,181 | 13,202,437 | ||||||||||
Occupancy percentage - licensed beds | 81.5 | % | 82.8 | % | 82.1 | % | 83.3 | % | ||||||
Occupancy percentage - operating beds | 84.6 | % | 85.5 | % | 85.1 | % | 85.7 | % | ||||||
Skilled mix | 18.7 | % | 19.6 | % | 19.7 | % | 20.4 | % | ||||||
Average daily census | 44,815 | 47,947 | 45,140 | 48,184 | ||||||||||
Revenue per patient day (skilled nursing facilities) | ||||||||||||||
Medicare Part A | $ | 524 | $ | 513 | $ | 527 | $ | 513 | ||||||
Medicare total (including Part B) | 573 | 555 | 571 | 554 | ||||||||||
Insurance | 457 | 458 | 456 | 454 | ||||||||||
Private and other | 328 | 309 | 325 | 306 | ||||||||||
Medicaid | 219 | 218 | 218 | 219 | ||||||||||
Medicaid (net of provider taxes) | 199 | 199 | 199 | 199 | ||||||||||
Weighted average (net of provider taxes) | $ | 269 | $ | 270 | $ | 272 | $ | 272 | ||||||
Patient days by payor (skilled nursing facilities) | ||||||||||||||
Medicare | 439,240 | 513,720 | 1,398,286 | 1,617,227 | ||||||||||
Insurance | 293,315 | 306,366 | 917,343 | 921,519 | ||||||||||
Total skilled mix days | 732,555 | 820,086 | 2,315,629 | 2,538,746 | ||||||||||
Private and other | 257,835 | 305,545 | 779,228 | 903,951 | ||||||||||
Medicaid | 2,924,845 | 3,063,256 | 8,616,866 | 9,031,537 | ||||||||||
Total Days | 3,915,235 | 4,188,887 | 11,711,723 | 12,474,234 | ||||||||||
Patient days as a percentage of total patient days (skilled nursing facilities) | ||||||||||||||
Medicare | 11.2 | % | 12.3 | % | 11.9 | % | 13.0 | % | ||||||
Insurance | 7.5 | % | 7.3 | % | 7.8 | % | 7.4 | % | ||||||
Skilled mix | 18.7 | % | 19.6 | % | 19.7 | % | 20.4 | % | ||||||
Private and other | 6.6 | % | 7.3 | % | 6.7 | % | 7.2 | % | ||||||
Medicaid | 74.7 | % | 73.1 | % | 73.6 | % | 72.4 | % | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Facilities at end of period | ||||||||||||||
Skilled nursing facilities | ||||||||||||||
Leased | 362 | 375 | 362 | 375 | ||||||||||
Owned | 44 | 60 | 44 | 60 | ||||||||||
Joint Venture | 5 | 5 | 5 | 5 | ||||||||||
Managed * | 35 | 34 | 35 | 34 | ||||||||||
Total skilled nursing facilities | 446 | 474 | 446 | 474 | ||||||||||
Total licensed beds | 54,935 | 57,896 | 54,935 | 57,896 | ||||||||||
Assisted/Senior living facilities: | ||||||||||||||
Leased | 19 | 26 | 19 | 26 | ||||||||||
Owned | 4 | 4 | 4 | 4 | ||||||||||
Joint Venture | 1 | 1 | 1 | 1 | ||||||||||
Managed | 2 | 2 | 2 | 2 | ||||||||||
Total assisted/senior living facilities | 26 | 33 | 26 | 33 | ||||||||||
Total licensed beds | 2,208 | 2,643 | 2,208 | 2,643 | ||||||||||
Total facilities | 472 | 507 | 472 | 507 | ||||||||||
Total Jointly Owned and Managed— (Unconsolidated) | 15 | 15 | 15 | 15 | ||||||||||
REHABILITATION THERAPY SEGMENT**:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||
Revenue mix %: | ||||||||||||||
Company-operated | 37 | % | 37 | % | 37 | % | 37 | % | ||||||
Non-affiliated | 63 | % | 63 | % | 63 | % | 63 | % | ||||||
Sites of service (at end of period) | 1,525 | 1,582 | 1,525 | 1,582 | ||||||||||
Revenue per site | $ | 152,956 | $ | 156,362 | $ | 460,360 | $ | 489,854 | ||||||
Therapist efficiency % | 66 | % | 67 | % | 68 | % | 69 | % |
* In 2016 and 2017, includes 20 facilities located in Texas for which the real estate is owned by Genesis.
** Excludes respiratory therapy services.
Reasons for Non-GAAP Financial Disclosure
The following discussion includes references to Adjusted EBITDAR, EBITDA and Adjusted EBITDA, which are non-GAAP financial measures (collectively, Non-GAAP Financial Measures). A non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position and cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. We have provided reconciliations of the Non-GAAP Financial Measures to the most directly comparable GAAP financial measures.
We believe the presentation of Non-GAAP Financial Measures provides useful information to investors regarding our results of operations because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business. By excluding certain expenses and other items that may not be indicative of our core business operating results, these Non-GAAP Financial Measures:
We use Non-GAAP Financial Measures primarily as performance measures and believe that the GAAP financial measure most directly comparable to them is net income (loss) attributable to Genesis Healthcare, Inc. We use Non-GAAP Financial Measures to assess the value of our business and the performance of our operating businesses, as well as the employees responsible for operating such businesses. Non-GAAP Financial Measures are useful in this regard because they do not include such costs as interest expense, income taxes and depreciation and amortization expense which may vary from business unit to business unit depending upon such factors as the method used to finance the original purchase of the business unit or the tax law in the state in which a business unit operates. By excluding such factors when measuring financial performance, many of which are outside of the control of the employees responsible for operating our business units, we are better able to evaluate value and the operating performance of the business unit and the employees responsible for business unit performance. Consequently, we use these Non-GAAP Financial Measures to determine the extent to which our employees have met performance goals, and therefore the extent to which they may or may not be eligible for incentive compensation awards.
We also use Non-GAAP Financial Measures in our annual budget process. We believe these Non-GAAP Financial Measures facilitate internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. The presentation of these Non-GAAP Financial Measures is consistent with our past practice and we believe these measures further enable investors and analysts to compare current non-GAAP measures with non-GAAP measures presented in prior periods.
Although we use Non-GAAP Financial Measures as financial measures to assess value and the performance of our business, the use of these Non-GAAP Financial Measures is limited because they do not consider certain material costs necessary to operate the business. These costs include our lease expense (only in the case of EBITDAR and Adjusted EBITDAR), the cost to service debt, the depreciation and amortization associated with our long-lived assets, losses (gains) on extinguishment of debt, transaction costs, long-lived asset impairment charges, federal and state income tax expenses, the operating results of our discontinued businesses and the income or loss attributable to non-controlling interests. Because Non-GAAP Financial Measures do not consider these important elements of our cost structure, a user of our financial information who relies on Non-GAAP Financial Measures as the only measures of our performance could draw an incomplete or misleading conclusion regarding our financial performance. Consequently, a user of our financial information should consider net income (loss) attributable to Genesis Healthcare, Inc. as an important measure of its financial performance because it provides the most complete measure of our performance.
Other companies may define Non-GAAP Financial Measures differently and, as a result, our Non-GAAP Financial Measures may not be directly comparable to those of other companies. Non-GAAP Financial Measures do not represent net income (loss), as defined by GAAP. Non-GAAP Financial Measures should be considered in addition to, not as a substitute for, or superior to, GAAP Financial Measures.
We use the following Non-GAAP Financial Measures that we believe are useful to investors as key valuation and operating performance measures:
EBITDA
We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (interest and lease expense) and our asset base (depreciation and amortization expense) from our operating results. In addition, covenants in our debt agreements use EBITDA as a measure of financial compliance.
Adjustments to EBITDA
We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding, in the case of EBITDAR, the value of our business, and, in the case of EBITDA, our ongoing operating performance. We believe that the presentation of Adjusted EBITDA, when combined with GAAP net income (loss) attributable to Genesis Healthcare, Inc., and EBITDA, is beneficial to an investor’s complete understanding of our operating performance. In addition, such adjustments are substantially similar to the adjustments EBITDA provided for in the financial covenant calculations contained in our lease and debt agreements.
We adjust EBITDA for the following items:
(1) Skilled Healthcare and other loss contingency expense – We exclude the estimated settlement cost and any adjustments thereto regarding the four legal matters inherited by Genesis in the Skilled and Sun Transactions and disclosed in the commitments and contingencies footnote to our consolidated financial statements describing our material legal proceedings. In the nine months ended September 30, 2016, we increased our estimated loss contingency expense by $15.2 million, respectively, related to these matters. We believe these costs are non-recurring in nature as they will no longer be recognized following the final settlement of these matters. We do not exclude the estimated settlement costs associated with all other legal and regulatory matters arising in the normal course of business. Also, we do not believe the excluded costs reflect the underlying performance of our operating businesses.
(2) Regulatory defense and related costs – We exclude the costs of investigating and defending the matters associated with the Skilled Healthcare and other loss contingency expense as noted in footnote (1). We believe these costs are non-recurring in nature as they will no longer be recognized following the final settlement of these matters. Also, we do not believe the excluded costs reflect underlying performance of our operating businesses.
(3) Other non-recurring costs – In the three and nine months ended September 30, 2017, we excluded $3.5 million of costs, primarily incurred in connection with the removal of a non cash actuarially developed discount related to the settlement of workers’ compensation claims for policy years 2012 and prior. In the three and nine months ended September 30, 2016, we excluded ($0.1) million and $0.8 million, respectively, of costs related to previously reported periods and a regulatory audit associated with acquired businesses and related to pre-acquisition periods. We do not believe the excluded costs are recurring or reflect the underlying performance of our operating businesses.
See the reconciliation of net loss attributable to Genesis Healthcare, Inc. to EBITDA and Adjusted EBITDA included herein.
Adjusted EBITDAR
We use Adjusted EBITDAR as one measure in determining the value of prospective acquisitions or divestitures. Adjusted EBITDAR is also a commonly used measure to estimate the enterprise value of businesses in the healthcare industry. In addition, covenants in our lease agreements use Adjusted EBITDAR as a measure of financial compliance.
The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. See the reconciliation of net loss attributable to Genesis Healthcare, Inc. to Adjusted EBITDAR included herein.
GENESIS HEALTHCARE, INC. | |||||||||||||||||
RECONCILIATION OF NET LOSS ATTRIBUTABLE TO GENESIS HEALTHCARE, INC. TO EBITDA AND ADJUSTED EBITDA | |||||||||||||||||
(UNAUDITED) | |||||||||||||||||
(IN THOUSANDS) | |||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Net loss attributable to Genesis Healthcare, Inc. | $ | (373,824 | ) | $ | (20,458 | ) | $ | (489,741 | ) | $ | (86,470 | ) | |||||
Adjustments to compute EBITDA: | |||||||||||||||||
Loss from discontinued operations, net of taxes | 2 | 24 | 70 | 1 | |||||||||||||
Net loss attributable to noncontrolling interests | (241,200 | ) | (31,921 | ) | (314,446 | ) | (72,895 | ) | |||||||||
Depreciation and amortization expense | 59,390 | 61,104 | 183,986 | 190,822 | |||||||||||||
Interest expense | 124,431 | 131,812 | 373,473 | 400,853 | |||||||||||||
Income tax expense (benefit) | 1,596 | (25,888 | ) | 5,683 | (19,738 | ) | |||||||||||
EBITDA | $ | (429,605 | ) | $ | 114,673 | (240,975 | ) | 412,573 | |||||||||
Adjustments to compute Adjusted EBITDA: | |||||||||||||||||
Loss on extinguishment of debt | — | 15,363 | 2,301 | 15,830 | |||||||||||||
Other loss (income) | 2,379 | (5,173 | ) | 15,602 | (48,084 | ) | |||||||||||
Transaction costs | 1,056 | 3,057 | 7,862 | 9,804 | |||||||||||||
Customer receivership | 297 | — | 35,864 | — | |||||||||||||
Long-lived asset impairments | 163,364 | — | 163,364 | — | |||||||||||||
Goodwill and identifiable intangible asset impairments | 360,046 | — | 360,046 | — | |||||||||||||
Severance and restructuring | 256 | 1,123 | 4,950 | 7,939 | |||||||||||||
Losses of newly acquired, constructed, or divested businesses | 5,320 | 3,594 | 15,589 | 7,121 | |||||||||||||
Stock-based compensation | 2,440 | 3,090 | 7,206 | 6,809 | |||||||||||||
Skilled Healthcare and other loss contingency expense (1) | — | — | — | 15,192 | |||||||||||||
Regulatory defense and related costs (2) | 41 | 1,043 | 492 | 2,101 | |||||||||||||
Other non-recurring costs (3) | 3,524 | (141 | ) | 3,524 | 761 | ||||||||||||
Adjusted EBITDA | $ | 109,118 | $ | 136,629 | $ | 375,825 | $ | 430,046 | |||||||||
Additional lease payments not included in GAAP lease expense | 85,396 | 88,871 | 258,724 | 265,781 |
GENESIS HEALTHCARE, INC. | |||||||||||||||||
RECONCILIATION OF NET LOSS ATTRIBUTABLE TO GENESIS HEALTHCARE, INC. TO ADJUSTED EBITDAR | |||||||||||||||||
(UNAUDITED) | |||||||||||||||||
(IN THOUSANDS) | |||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Net loss attributable to Genesis Healthcare, Inc. | $ | (373,824 | ) | $ | (20,458 | ) | $ | (489,741 | ) | $ | (86,470 | ) | |||||
Adjustments to compute Adjusted EBITDAR: | |||||||||||||||||
Loss from discontinued operations, net of taxes | 2 | 24 | 70 | 1 | |||||||||||||
Net loss attributable to noncontrolling interests | (241,200 | ) | (31,921 | ) | (314,446 | ) | (72,895 | ) | |||||||||
Depreciation and amortization expense | 59,390 | 61,104 | 183,986 | 190,822 | |||||||||||||
Interest expense | 124,431 | 131,812 | 373,473 | 400,853 | |||||||||||||
Income tax expense (benefit) | 1,596 | (25,888 | ) | 5,683 | (19,738 | ) | |||||||||||
Lease expense | 38,670 | 35,512 | 113,004 | 109,796 | |||||||||||||
Loss on extinguishment of debt | — | 15,363 | 2,301 | 15,830 | |||||||||||||
Other loss (income) | 2,379 | (5,173 | ) | 15,602 | (48,084 | ) | |||||||||||
Transaction costs | 1,056 | 3,057 | 7,862 | 9,804 | |||||||||||||
Customer receivership | 297 | — | 35,864 | — | |||||||||||||
Long-lived asset impairments | 163,364 | — | 163,364 | — | |||||||||||||
Goodwill and identifiable intangible asset impairments | 360,046 | — | 360,046 | — | |||||||||||||
Severance and restructuring | 256 | 1,123 | 4,950 | 7,939 | |||||||||||||
Losses of newly acquired, constructed, or divested businesses | 5,320 | 3,594 | 15,589 | 7,121 | |||||||||||||
Stock-based compensation | 2,440 | 3,090 | 7,206 | 6,809 | |||||||||||||
Skilled Healthcare and other loss contingency expense (1) | — | — | — | 15,192 | |||||||||||||
Regulatory defense and related costs (2) | 41 | 1,043 | 492 | 2,101 | |||||||||||||
Other non-recurring costs (3) | 3,524 | (141 | ) | 3,524 | 761 | ||||||||||||
Adjusted EBITDAR | $ | 147,788 | $ | 172,141 | $ | 488,829 | $ | 539,842 | |||||||||
Genesis HealthCare Contact: Investor Relations 610-925-2000
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