Genesis HealthCare Reports Fourth Quarter And Fiscal Year End 2015 Results

KENNETT SQUARE, Pa., Feb. 22, 2016 /PRNewswire/ -- Genesis HealthCare (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 and fiscal year ended December 31, 2015.  Overall results are consistent with the preliminary results issued by the Company on January 25, 2016.

Highlights

• Fiscal 2015 Pro forma Adjusted EBITDA of $249.7 million grew 11.6% over the prior year and fourth quarter 2015 Pro Forma Adjusted EBITDA of $39.7 million grew 14.2% over the prior year quarter;
• Fiscal 2015 Pro forma Adjusted EBITDAR margins of approximately 13.0% grew 60 bps over fiscal year 2014;
• Fiscal 2015 fixed charge coverage ratio of 1.31x grew from 1.20x in fiscal year 2014; fixed charge coverage of 1.35x is anticipated at the mid-point of 2016 guidance;
• On December 1, 2015, Genesis completed the acquisition of 19 Revera, Inc. skilled nursing facilities and Revera's contract rehabilitation business.

"We are pleased to report EBITDA growth in excess of 10% for the fourth consecutive quarter," commented George V. Hager, Jr., Chief Executive Officer of Genesis. "Despite negative industry pressures, Genesis continues generating positive earnings growth, producing strong free cash flow and improving its fixed charge coverage ratio."

Mr. Hager continued, "As we look ahead, we remain focused on the long-term drivers of our business – providing high-quality, outcome-oriented care, effectively managing our costs, leveraging our scale through strategic growth opportunities and positioning Genesis to succeed in a world that rewards value based providers."

Fourth Quarter and Full Year 2015 Results

Assuming Genesis and Skilled Healthcare were fully combined in all periods presented, Genesis' adjusted revenue of $1,427.2 million in the fourth quarter of 2015 would have increased $29.5 million or 2.1% over the prior year quarter.  Revenue growth in the fourth quarter of 2015 was positively impacted by approximately $23.0 million due to the acquisition of the 19 Revera facilities on December 1, 2015.  As reported, GAAP basis revenue of $1,440.7 million in the fourth quarter of 2015 increased $247.5 million or 20.7% over the prior year quarter, principally due to the combination with Skilled Healthcare in February 2015.

Assuming Genesis and Skilled Healthcare were fully combined in all periods presented, Genesis' adjusted revenue of $5,645.3 million in the full year ended December 31, 2015 would have increased $60.1 million or 1.1% over the prior year period.  As was the case for the fourth quarter, revenue growth in the year ended December 31, 2015 was positively impacted by approximately $23.0 million due to the acquisition of the 19 Revera facilities on December 1, 2015.  As reported, GAAP basis revenue of $5,619.2 million in the year ended December 31, 2015 increased $851.1 million or 17.9% over the prior year period, principally due to the combination with Skilled Healthcare in February 2015.

Assuming Genesis and Skilled Healthcare were combined in all periods presented, adjusted EBITDAR of $161.0 million in the fourth quarter of 2015 would have increased $7.4 million or 4.8% over the prior year quarter. GAAP basis loss from continuing operations of $313.0 million in the fourth quarter of 2015 increased $186.1 million principally due to the establishment of a $217.3 million valuation allowance against our net deferred tax assets, as realization of such assets is no longer more likely than not.

Assuming Genesis and Skilled Healthcare were combined in all periods presented, adjusted EBITDAR of $733.2 million in the year ended December 31, 2015 would have increased $40.3 million or 5.8% over the prior year period. GAAP basis loss from continuing operations of $525.5 million in the year ended December 31, 2015 increased $284.4 million over the prior year period principally due to the establishment of the $217.3 million deferred tax valuation allowance previously noted, with the balance due to transaction costs incurred in the Skilled Healthcare combination and other transactions.

Recurring free cash flow in the year ended December 31, 2015 was approximately $58.0 million, derived from adjusted EBITDA of $249.7 million less $77.0 million of cash interest, $70.0 million of recurring capital expenditures and $45.0 million of recurring cash taxes. Recurring free cash flow in the year ended December 31, 2014 was approximately $33.0 million.

Business Development, Acquisitions and Divestitures

During the fourth quarter, Genesis completed its previously announced acquisition of 19 Revera skilled nursing facilities (15 facilities acquired and four facilities leased) and its contract rehabilitation business for approximately $158.0 million.  Genesis expects to acquire the real estate of five additional facilities for approximately $40.0 million upon receipt of regulatory approvals in the state of Vermont, which are still pending. Genesis has committed financing to complete the Revera transaction. In the meantime, Genesis is managing the operations of the five Vermont facilities.  The acquisition, excluding consolidation of the Vermont facilities, is expected to contribute $220.0 million and $24.0 million of year-over-year net revenue and EBITDA, respectively, in 2016.

On January 1, 2016, Genesis sold 18 Assisted Living Facilities in Kansas for $67 million and used the sale proceeds to repay $54.2 million of real estate bridge loan debt. The 18 facilities had 807 beds and aggregate revenue and EBITDA of approximately $23.0 million and $7.3 million, respectively, in 2015.

Genesis continues to look to monetize other non-strategic assets that are expected to generate $100 million to $150 million of after tax cash proceeds.  Genesis intends to use non-strategic asset sale proceeds to repay indebtedness. 

Financing Activities

The Company is focused on two near term capital strengthening priorities:  refinancing approximately $440.0 million of real estate bridge loans by the end of 2016 with lower cost HUD guaranteed mortgages or other permanent financing; and reducing the Company's overall indebtedness with a combination of non-strategic asset sale proceeds and free cash flow.

"Refinancing real estate bridge loans with more attractive long-term financing will serve to extend maturities significantly and grow our fixed charge coverage," notes Genesis Chief Financial Officer, Tom DiVittorio.  "Our HUD financing activities are on track and we expect to close on the first series of loans near the end of the first quarter of 2016."

2016 Guidance

The Company reaffirms its previously announced 2016 adjusted net revenue guidance of $5,700.0 million to $5,800.0 million,  adjusted EBITDAR guidance of $765.0 million to $795.0 million, adjusted EBITDA guidance of $267.0 million to $297.0 million, and adjusted net income guidance from continuing operations on a diluted basis of $0.19 to $0.29 per share.   

Recurring free cash flow in 2016 is projected to be approximately $64.0 million.  Projected recurring free cash flow is derived from the mid-point of the Company's 2016 adjusted EBITDA guidance of $282.0 million further adjusted by projected cash interest of $81.0 million, recurring capital expenditures of $85.0 million and cash taxes of $52.0 million.  Cash income taxes assume tax depreciation and amortization expense of approximately $72.0 million and a tax rate of 40%, which further assumes all outstanding stock units are exchanged for common stock.

The 2016 guidance assumes 156.1 million diluted weighted average common shares outstanding and common stock equivalents on a fully-exchanged basis.  The 2016 guidance is prepared on the same basis as the Company's non-GAAP financial information and therefore assumes the conversion of leases to cash basis leases and excludes the income or loss of newly acquired or constructed businesses with start-up losses or newly divested businesses.   It also excludes transaction related costs, severance and restructuring costs, regulatory defense and related costs, non-cash stock based compensation expense and non-cash impairment charges.

Conference Call

Genesis HealthCare will hold a conference call at 8:30 a.m. Eastern Time on Tuesday, February 23, 2016 to discuss financial results for the fourth quarter and fiscal year ended 2015.  Investors can access the conference call by calling (855) 849-2198 or live via a listen-only webcast through the Genesis web site at http://www.genesishcc.com/investor-relations/, where a replay of the call will also be posted for one year. 

2016 RBC Capital Markets Global Healthcare Conference

Genesis also announced today that George V. Hager, Jr., Chief Executive Officer, and Tom DiVittorio, Chief Financial Officer, are scheduled to conduct a fireside chat at the 2016 RBC Capital Markets Global Healthcare Conference on Wednesday, February 24, 2016 at 3:35 p.m. Eastern Time.  A live webcast and replay will also be available on the Company's website at www.genesishcc.com/investor-relations.

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 500 skilled nursing centers and assisted/senior living communities in 34 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to more than 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 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 acquisitions, anticipated divestitures, anticipated refinancing opportunities and anticipated synergies. 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 in Medicare reimbursement rates, or changes in the rules governing the Medicare program could have a material adverse effect on our revenues, financial condition and results of operations;
• continued efforts of federal and state governments to contain growth in Medicaid expenditures could adversely affect our revenues and profitability;
• recent federal government proposals could limit the states' use of provider tax programs to generate revenue for their Medicaid expenditures, which could result in a reduction in our reimbursement rates under Medicaid;
• revenue we receive from Medicare and Medicaid is subject to potential retroactive reduction;
• our success is 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;
• health reform legislation could adversely affect our revenue and financial condition;
• annual caps that limit the amounts that can be paid for outpatient therapy services rendered to any Medicare beneficiary may negatively affect our results of operations;
• 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;
• we face inspections, reviews, audits and investigations under federal and state government programs, such as the Department of Justice, and contracts. These investigations and audits could have adverse findings that may negatively affect our business, including our results of operations, liquidity and financial condition;
• significant legal actions, which are commonplace in our professions, could subject us to increased operating costs and substantial uninsured liabilities, which would materially and adversely affect our results of operations, liquidity and financial condition;
• 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;
• we may be unable to reduce costs to offset decreases in our patient census levels or other expenses completely;
• completed and future acquisitions may use 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 and special charges;
• 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;
• we are subject to numerous covenants and requirements under our various credit and leasing agreements and a breach of any such covenants or requirements could, unless timely and effectively remediated, lead to default and potential cross default under such agreements;
• the holders of a majority of the voting power of Genesis' common stock have entered into a voting agreement, and the voting group's interests may conflict with the interests of other holders;
• 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; and
• we are a "controlled company" within the meaning of NYSE rules and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.

The Company's Annual Report on Form 10-K for the year ended December 31, 2014, 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 Annual Report on Form 10-K for the year ended December 31, 2015 when it is filed, 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.

The following adjustments represent costs or gains associated with transactions or events that we do not believe are reflective of Skilled Healthcare Group's recurring operating business.

Genesis HealthCare Contact: 
Investor Relations
610-925-2000

SOURCE Genesis HealthCare