GENESIS HEALTHCARE CORPORATION REPORTS FIRST QUARTER 2007 RESULTS2/8/2007
Kennett Square, PA -- 02/08/07 --
• Earnings Exceed Expectations Due to Strong Performance in Inpatient and Rehab Businesses
• Quality Mix Improves Significantly
• Strong Operating Cash Flow of $42.5 Million
Genesis HealthCare Corporation (GHC) (NASDAQ: GHCI) today announced income from continuing operations of $10.6 million, or $0.54 per diluted share, and net income of $10.7 million, or $0.54 per diluted share, for the quarter ended December 31, 2006, compared with income from continuing operations of $11.3 million, or $0.57 per diluted share, and net income of $11.4 million, or $0.58 per diluted share, in the comparable period in the prior year.
“Our performance this quarter was strong,” stated George V. Hager, Jr., Chairman and Chief Executive Officer. “Earnings exceeded our expectations as momentum in our core business continues through operational improvements supported by new system enhancements implemented throughout the past year and enhanced clinical capabilities as a consequence of our facility renovation program, supplemented by $0.01 per share related to acquisitions completed in the quarter. Adjusted earnings from continuing operations were $0.66 per diluted share for the quarter. GAAP income from continuing operations of $0.54 per diluted share in the quarter were negatively impacted by $0.09 per diluted share of transaction related costs, $0.02 per diluted share for debt extinguishment costs and $0.01 per diluted share for an increase in our effective tax rate.”
“I am pleased that we have succeeded in simultaneously growing quality mix and occupancy,” continued Hager. “We are excited to see that our facility modernization efforts and the delivery of specialty services are beginning to gain traction as these efforts will continue throughout the remainder of the year. Also importantly, as we grow we have remained focused on expense control and routine costs which were well managed during the quarter. Finally, I am pleased that our efforts to improve the profitability of our Rehabilitation Services business have been highly successful as our new management team, integrated systems and an improved approach to customer relationship management have all led to business growth and improved operations.”
Revenue for the quarter ended December 31, 2006 grew 9.2% to $477.0 million compared to revenue of $437.0 million in the comparable period in the prior year. Approximately $9.0 million of the increase in revenue was related to acquisitions and newly consolidated joint ventures. Adjusted for these items, revenues grew 7.1%.
EBITDA for the quarter ended December 31, 2006 totaled $42.5 million compared to $40.4 million in the comparable period in the prior year. EBITDA for the quarter ended December 31, 2006 was positively impacted by $2.1 million related to acquisitions and newly consolidated joint ventures, and negatively impacted by $2.8 million of transaction costs and $0.8 million of debt extinguishment costs (See attached reconciliation on page 6).
The following table provides a reconciliation of the current quarter GAAP earnings per share to Non-GAAP earnings per share.
Inpatient services net revenue grew 8.7% to $427.4 million in the quarter ended December 31, 2006 from $393.2 million in the prior year quarter. Acquisitions and newly consolidated joint ventures generated $9.0 million of the revenue growth, with the remainder attributed to a 140 basis point improvement in quality days mix, a 20 basis point improvement in occupancy and an increase in rates. Medicare rates in the quarter ended December 31, 2006 grew 6.4% to approximately $417 per patient day from the prior year quarter as a result of the October 1, 2006 inflationary increase, the positive impact of RUGs refinement as well as higher Medicare patient acuity. Medicaid rates in the quarter ended December 31, 2006 grew 5.4% to approximately $192 per patient day from the prior year quarter due to an increase in state Medicaid rates, provider assessments as well as higher patient acuity. GHC’s occupancy grew to 91.7% compared to 91.5% in the prior year quarter.
Inpatient services EBITDA grew 16.7% to $61.4 million in the quarter ended December 31, 2006 from $52.6 million in the comparable period in the prior year. Excluding the acquisitions and the newly consolidated facilities, EBITDA grew 12.7% over the comparable period in the prior year. In addition to the revenue increases previously discussed, EBITDA growth was driven by cost control, effective labor management and operating efficiencies.
Rehabilitation services revenues grew 16.6% to $67.8 million in the quarter ended December 31, 2006 from $58.1 million in the prior year quarter. Revenues benefited from new business, higher pricing and higher patient acuity in the inpatient business.
Rehabilitation services EBITDA grew 19.4% to $5.6 million in the quarter ended December 31, 2006 from $4.7 million in the prior year quarter. In addition to the revenue increases, Rehabilitation EBITDA improved due to therapist and operational efficiencies gained through newly implemented systems.
Balance Sheet and Cash Flow
GHC ended the quarter with $471.7 million of debt and $66.3 million of cash. Included within these balances is $44.1 million of non-recourse debt and $9.1 million in cash related to consolidated variable interest entities and other partnerships. GHC’s operating cash flow for the quarter was strong at $42.5 million. Capital expenditures in the quarter ended December 31, 2006 totaled $27.1 million.
Acquisitions and Newly Consolidated Joint Ventures
On June 1, 2006, GHC purchased its joint ventures partners’ interests in three skilled nursing facilities located in West Virginia having a combined 208 beds.
On November 1, 2006 GHC completed the acquisition of a skilled nursing facility in Maryland with 115 beds, and on December 1, 2006 acquired two additional skilled nursing facilities and four assisted living facilities with a combined complement of 405 beds in West Virginia.
Finally, on January 1, 2007, following quarter-end, GHC completed a lease and purchase option agreement for 11 facilities in Maine with 748 skilled nursing and 220 residential care beds. Under the agreement, GHC will lease the facilities for 25 years with an annual lease payment of approximately $5 million. Additionally, GHC paid approximately $15 million in cash in exchange for tangible operating assets and a $53 million fixed price purchase option exercisable in 2026. The transaction is accounted for as a capital lease.
Effective October 1, 2006, GHC began consolidating two partnerships in accordance with EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” One of the partnerships is a jointly owned and managed skilled nursing facility having 112 beds. The second partnership owns the real estate of a skilled nursing facility that is leased to GHC.
Effective October 1, 2006, CMS implemented a 3.1% market basket increase, however after considering revisions to the geographic wage index factors, the increase was only 2.7% to GHC.
Effective January 1, 2007, the Medicare Part B Therapy Cap exceptions process was renewed for one year. Also effective January 1, 2007, Part B physician fee schedules were adjusted resulting in a reduction in the payment rates for nursing home physician and therapy services. These rate changes are expected to reduce GHC’s annual revenue, EBITDA and pre-tax income by approximately $5.0 million, principally in GHC’s rehabilitation services segment.
GHC’s effective tax rate of 40.8% in the current quarter was adversely impacted by certain nondeductible transaction costs of the proposed merger and favorably impacted by the retroactive restoration of certain jobs-related tax credits for post-2005 new hires. Without these items, GHC’s effective tax rate would have been approximately 40.4%.
No Earnings Conference Call or Webcast, Discontinuing Earnings Guidance
Finally, on January 15, 2007, Genesis HealthCare entered into an agreement and plan of merger with affiliates of Formation Capital, LLC and JER Partners for $63 per share. In light of the pending merger, Genesis HealthCare will not host an earnings conference call or webcast, and is discontinuing fiscal 2007 earnings guidance.
Genesis HealthCare Financial Statements
About Genesis HealthCare Corporation
Genesis HealthCare Corporation (NASDAQ: GHCI) is one of the nation’s largest long-term care providers with over 200 skilled nursing centers and assisted living residences in 13 eastern states. Genesis also supplies contract rehabilitation therapy to over 600 healthcare providers in 20 states and the District of Columbia.
Visit our website at www.genesishcc.com.
Statements made in this release, our website and in our other public filings and releases, which are not historical facts contain "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "may," “target,” “appears” and similar expressions. Such forward- looking statements include, without limitation, closure/timing of transactions including the agreement and plan of merger, expected reimbursement rates, our net operating loss carryforwards, our effective tax rate, agency labor utilization, wage rates, debt repayments, share repurchases, provider tax assessments, changes in state Medicaid rates, our plans to improve the operating performance of our Rehabilitation services segment and progress to date, the extent and effectiveness of our facilities renovation program, our expected income from continuing operations, earnings per diluted share, EBITDA and capital expenditures for fiscal 2007. Factors that could cause actual results to differ materially include, but are not limited to, the following: costs, changes in the reimbursement rates methods and timing/method of payment from Medicare or Medicaid, or the implementation of other measures to reduce reimbursement for our services; community-based care trends, capitation or other risk sharing reimbursement trends, efforts of third party payors to control costs; the impact of federal and state regulations; changes in payor mix and payment methodologies; competition in our business; the capital intensive nature of our inpatient services segment and the need for extensive capital expenditures in order to improve our physical infrastructure; an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; competition for and availability of qualified staff in the healthcare industry and risks of potential strikes; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; our ability to fulfill debt obligations; our covenants which limit our discretion in the operation of our business; an economic downturn or changes in the laws affecting our business in those markets in which we operate; the impact of new accounting pronouncements; the impact of implementing new information systems; the impact of acquisitions; the impact to our ongoing business caused by the diversion of management’s attention prior to the completion of the merger; when and if the proposed merger will be completed; financial and other implications if the proposed merger is terminated; and other matters beyond our control.
The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by us are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
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