GENESIS HEALTHCARE CORPORATION REPORTS SECOND QUARTER 2007 RESULTS4/27/2007
Kennett Square, PA -- 04/27/2007 --
Genesis HealthCare Corporation (GHC) (NASDAQ: GHCI) today announced income from continuing operations of $5.8 million, or $0.29 per diluted share, and net income of $5.4 million, or $0.26 per diluted share, for the quarter ended March 31, 2007, compared with income from continuing operations of $8.3 million, or $0.43 per diluted share, and net income of $8.1 million, or $0.42 per diluted share, in the comparable period in the prior year.
Earnings in the quarter were reduced by $0.32 per diluted share due to certain transaction, severance, deferred compensation plan and tax expenses, including $5.2 million, or $0.15 per diluted share, of transaction related costs from the proposed merger with affiliates of Formation Capital, LLC and JER Partners, $2.7 million, or $0.08 per diluted share, of severance related costs, $2.0 million, or $0.06 per diluted share, of incremental stock based compensation associated with the growth in the value of GHC’s common stock held in a deferred compensation plan and $0.03 per diluted share for an increase in GHC’s effective tax rate caused by the non-deductibility of certain merger related transaction costs.
For the six months ended March 31, 2007, income from continuing operations was $16.5 million, or $0.83 per diluted share, and net income was $16.1 million, or $0.81 per diluted share, compared with income from continuing operations of $19.6 million, or $1.00 per diluted share, and net income of $19.5 million, or $1.00 per diluted share, in the comparable six month period in the prior year.
Revenue for the quarter ended March 31, 2007 grew 13.7% to $496.1 million compared to revenue of $436.3 million in the comparable period in the prior year. Approximately $30.3 million of the increase in revenue was related to acquisitions and newly consolidated joint ventures. Adjusted for these items, revenues grew 6.7%. Revenue for the six months ended March 31, 2007 grew to $972.0 million compared to revenue of $871.9 million in the comparable period in the prior year. Approximately $39.3 million of the increase in revenue was related to acquisitions and newly consolidated joint ventures. Adjusted for these items, revenues grew 6.7%.
EBITDA for the quarter ended March 31, 2007 totaled $37.3 million compared to $35.6 million in the comparable period in the prior year. EBITDA for the quarter ended March 31, 2007 was negatively impacted by $9.9 million of transaction, severance and deferred compensation plan expenses. Furthermore, the quarter was positively impacted by $5.6 million related to acquisitions and newly consolidated joint ventures. EBITDA for the quarter ended March 31, 2006 was negatively impacted by $0.2 million of debt extinguishment costs. (See attached reconciliation on page 7).
EBITDA for the six months ended March 31, 2007 totaled $79.9 million compared to $75.9 million in the comparable period in the prior year. EBITDA for the six months ended March 31, 2007 was negatively impacted by $13.5 million of transaction, severance and deferred compensation plan expenses along with debt extinguishment costs incurred in the first quarter. Furthermore, the six month period was positively impacted by $7.7 million related to acquisitions and newly consolidated joint ventures. EBITDA for the six months ended March 31, 2006 was negatively impacted by $0.2 million of debt extinguishment costs. (See attached reconciliation on page 7).
Click here for a table which provides a reconciliation of the current quarter GAAP earnings per share to Non-GAAP earnings per share.
Inpatient services net revenue grew 13.7% to $445.7 million in the quarter ended March 31, 2007 from $392.0 million in the prior year quarter. Acquisitions and newly consolidated joint ventures generated $30.3 million of the revenue growth, with the remainder attributed to an increase in non-Medicaid days mix and an increase in payor rates, while occupancy remained stable at 91.6%. Medicare rates in the quarter ended March 31, 2007 grew 5.6% to approximately $419 per patient day from the prior year quarter as a result of the October 1, 2006 inflationary increase as well as higher Medicare patient acuity. Medicaid rates in the quarter ended March 31, 2007 grew 4.4% to approximately $192 per patient day from the prior year quarter due to an increase in state Medicaid rates as well as higher patient acuity.
Inpatient services EBITDA grew 20.1% to $62.2 million in the quarter ended March 31, 2007 from $51.7 million in the comparable period in the prior year. Excluding acquisitions and the newly consolidated facilities, EBITDA grew 11.2% over the comparable period in the prior year. In addition to the revenue increases previously discussed, EBITDA growth was driven by improved cost control.
Rehabilitation services revenues grew 22.0% to $71.0 million in the quarter ended March 31, 2007 from $58.2 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 51.5% to $5.1 million in the quarter ended March 31, 2007 from $3.4 million in the prior year quarter. In addition to the revenue increases, rehabilitation EBITDA improved due to therapist and operational efficiencies.
Balance Sheet and Cash Flow
GHC ended the quarter with $475.2 million of debt and $33.1 million of cash. Included within these balances is $43.7 million of non-recourse debt and $7.8 million in cash related to consolidated variable interest entities and other partnerships. During the quarter, GHC repaid $36.5 million of debt principally under the revolving credit facility. GHC’s operating cash flow for the quarter was $41.8 million. Capital expenditures in the quarter ended March 31, 2007 totaled $26.1 million.
Acquisitions, Dispositions and Newly Consolidated Joint Ventures
Effective January 1, 2007, 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 leases the facilities for 25 years with an annual lease payment of approximately $5 million. GHC paid approximately $15 million in cash in exchange for tangible operating assets and has entered into a $53 million fixed price purchase option exercisable in 2026. The transaction is accounted for as a capital lease resulting in $40 million of capital lease obligations. The incremental interest and depreciation expense associated with this transaction totaled $1.1 million and $0.6 million, respectively in the quarter ended March 31, 2007.
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.
On June 1, 2006, GHC purchased its joint venture partners’ interests in three skilled nursing facilities located in West Virginia having a combined 208 beds.
During the second quarter, GHC closed a 90 bed skilled nursing facility which had annual revenues of approximately $5 million. Accordingly, GHC has accounted for this property as a discontinued operation in all periods presented herein.
Newly Consolidated Joint Ventures
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.
GHC’s effective tax rate of 45.9% in the quarter ended March 31, 2007 was adversely impacted by certain nondeductible transaction costs of the proposed merger.
No Earnings Conference Call, Webcast or Earnings Guidance
Genesis HealthCare will not host an earnings conference call or webcast, and will not provide 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 amended 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 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 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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