Genesis Healthcare, Inc. - FORM 8-K - EX-99.1

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EX-99.2 - EX-99.2 - Genesis Healthcare, Inc.	ex-99d2.htm
8-K - 8-K - Genesis Healthcare, Inc.	f8-k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

Genesis HealthCare Contact:

Investor Relations

610-925-2000

GENESIS HEALTHCARE REPORTS SOLID THIRD QUARTER 2018 RESULTS

KENNETT SQUARE, PA – (November 7, 2018) – 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 third quarter ended September 30, 2018.

Third Quarter 2018 Results

US GAAP revenue in the third quarter of 2018 was $1.22 billion compared to $1.32 billion in the third quarter of 2017;

US GAAP net loss attributable to Genesis Healthcare, Inc. in the third quarter of 2018 was $58.1 million compared to $373.8 million in the third quarter of 2017; and

Adjusted EBITDA in the third quarter of 2018 was $113.5 million compared to $109.1 million in the third quarter of 2017.

“We are very pleased to report solid results for the third consecutive quarter, as we continued to build on our first half momentum,” noted George V. Hager, Jr., Chief Executive Officer of Genesis. “Adjusted EBITDAR on a same store basis in the third quarter of 2018 grew 2.6% from the third quarter of 2017, marking the first time we will report same store Adjusted EBITDAR growth since 2015. Third quarter 2018 Adjusted EBITDAR less cash lease payments also beat FactSet consensus estimates for the third consecutive quarter and more importantly showed year-over-year growth of $16.2 million or 68%.”

“Focused efforts and execution to reduce our cost of service and overhead structure across both our skilled nursing and rehabilitation services business segments along with the divestiture of underperforming facilities continues to produce value resulting in over 50 basis points of Adjusted EBITDAR margin expansion in the third quarter of 2018 as compared to the same period last year,” continued Hager.

Portfolio Optimization

Genesis continues to progress with its strategy to exit challenging facilities and certain low density markets in order to focus on investment and growth in core, strategic markets. During the third quarter, Genesis divested, exited or closed the operations of seven facilities. Including the facilities divested in the first half of 2018, Genesis exited the operations of a total of 26 facilities since the start of the year, with approximate annual net revenue of $266.4 million, Adjusted EBITDA of $0.2 million and a pre-tax net loss of $35.7 million. Genesis estimates these transactions resulted in the reduction of approximately $20.5 million of annual cash lease payments.

Genesis expects it will continue to exit the operations of challenging facilities and markets in the fourth quarter of 2018. The Company expects to exit the operations of an additional 29 facilities by the end of the year. In total, these 29 facilities generated approximate annual net revenue of $212.3 million, Adjusted EBITDA of $7.8 million and a pre-tax net loss of $3.2 million. These divestitures will result in nearly $100 million of debt repayment and the reduction of $0.3 million of annual cash lease payments.

Portfolio Expansion

The Company is excited to report expansion of the services it provides to patients and residents in the following core, strategic markets.

On November 1, 2018, Genesis acquired the operations of eight skilled nursing facilities and one assisted living facility in New Mexico and Arizona, increasing our presence in markets we view as favorable. The nine new facilities have approximately 1,000 beds and generate approximate annual net revenue of $60 million. The facilities are leased from one of the Company’s major REIT partners. Genesis expects no material impact to EBITDA in the next 12 months.

In August 2018, Genesis opened its 10th stand-alone PowerBack Rehabilitation location in a new 120-bed state-of-the-art rehabilitation facility in Exton, PA. PowerBack Rehabilitation offers 100% all short stay rehabilitation so patients can return home as soon as possible.

Other Updates - Adoption and Impact of Revenue Recognition Accounting Standard

On January 1, 2018, Genesis adopted FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606). Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of applying ASC 606 to the three and nine months ended September 30, 2018 was a $20.6 million and $67.4 million implicit price concession, respectively, directly reducing net revenues, which previously would have been recorded as a provision for losses on accounts receivable.

If the provisions of ASC 606 were applied on a pro forma basis to the three and nine months ended September 30, 2017, reported net revenue would have been $1,290.3 million and $3,973.2 million, respectively, with no impact to net loss attributed to Genesis Healthcare, Inc.

Conference Call

Genesis Healthcare, Inc. will hold a conference call at 8:30 a.m. Eastern Time on Thursday, November 8, 2018. 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.

Stifel 2018 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 Stifel 2018 Healthcare Conference on Tuesday, November 13, 2018 at 11:45 a.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, 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 more than 400 skilled nursing facilities and assisted/senior living communities in 29 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to approximately 1,500 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, 2017, 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, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)


	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Net revenues	$	1,217,271	$	1,315,452	$	3,790,703	$	4,045,860
Salaries, wages and benefits		680,604		739,404		2,122,128		2,303,300
Other operating expenses		371,064		400,086		1,125,779		1,162,223
General and administrative costs		35,482		41,420		114,404		127,657
Lease expense		32,366		38,670		97,548		113,004
Depreciation and amortization expense		53,038		59,390		168,036		183,986
Interest expense		115,695		124,431		348,687		373,473
Loss on early extinguishment of debt		—		—		9,785		2,301
Investment income		(2,178)		(1,596)		(4,856)		(4,097)
Other (income) loss		(20,207)		2,379		(42,360)		15,602
Transaction costs		11,361		1,056		26,567		7,862
Customer receivership and other related charges		—		297		—		35,864
Long-lived asset impairments		32,390		163,364		88,008		163,364
Goodwill and identifiable intangible asset impairments		929		360,046		2,061		360,046
Equity in net (income) loss of unconsolidated affiliates		(152)		(69)		106		(291)
Loss before income tax (benefit) expense		(93,121)		(613,426)		(265,190)		(798,434)
Income tax (benefit) expense		(1,220)		1,596		(1,759)		5,683
Loss from continuing operations		(91,901)		(615,022)		(263,431)		(804,117)
Loss from discontinued operations, net of taxes		—		(2)		—		(70)
Net loss		(91,901)		(615,024)		(263,431)		(804,187)
Less net loss attributable to noncontrolling interests		33,773		241,200		97,153		314,446
Net loss attributable to Genesis Healthcare, Inc.	$	(58,128)	$	(373,824)	$	(166,278)	$	(489,741)
Loss per common share:
Basic and diluted:
Weighted-average shares outstanding for loss from continuing operations per share		102,489		94,940		100,461		93,376
Net loss per common share:
Loss from continuing operations attributable to Genesis Healthcare, Inc.	$	(0.57)	$	(3.94)	$	(1.66)	$	(5.24)
Loss from discontinued operations, net of taxes		—		—		—		—
Net loss attributable to Genesis Healthcare, Inc.	$	(0.57)	$	(3.94)	$	(1.66)	$	(5.24)

GENESIS HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS)


	September 30,		December 31,
	2018		2017
Assets:
Current assets:
Cash and equivalents	$	23,170	$	54,525
Restricted cash and equivalents		48,675		4,113
Accounts receivable, net of allowances for doubtful accounts		642,993		724,138
Other current assets		176,206		157,131
Total current assets		891,044		939,907
Property and equipment, net of accumulated depreciation		2,919,584		3,413,599
Restricted cash and equivalents		56,255		—
Identifiable intangible assets, net of accumulated amortization		125,386		142,976
Goodwill		85,642		85,642
Other long-term assets		313,463		205,741
Total assets	$	4,391,374	$	4,787,865

Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable and accrued expenses	$	454,898	$	519,493
Accrued compensation		165,309		167,368
Other current liabilities		302,770		212,333
Total current liabilities		922,977		899,194

Long-term debt		1,087,948		1,050,337
Capital lease obligations		950,473		1,025,355
Financing obligations		2,727,250		2,929,483
Other long-term liabilities		641,457		563,628
Stockholders' deficit		(1,938,731)		(1,680,132)
Total liabilities and stockholders' deficit	$	4,391,374	$	4,787,865

GENESIS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)


	Nine months ended September 30,
	2018		2017
Net cash provided by operating activities (1)	$	14,066	$	67,358
Net cash (used in) provided by investing activities		(54,877)		53,367
Net cash provided by (used in) financing activities		110,273		(117,575)
Net increase in cash, cash equivalents and restricted cash and equivalents		69,462		3,150
Beginning of period		58,638		63,460
End of period	$	128,100	$	66,610

(1) - Net cash provided by operating activities in the nine months ended September 30, 2018 and 2017 includes approximately $16.7 million and $7.9 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,
	2018		2017		2018		2017
Financial Results (in thousands)
Net revenues	$	1,217,271	$	1,315,452	$	3,790,703	$	4,045,860
EBITDA		75,612		(429,605)		251,533		(240,975)
Adjusted EBITDAR		145,886		147,788		459,829		488,829
Adjusted EBITDA		113,520		109,118		362,281		375,825
Net loss attributable to Genesis Healthcare, Inc.		(58,128)		(373,824)		(166,278)		(489,741)

INPATIENT SEGMENT:


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Occupancy Statistics - Inpatient
Available licensed beds in service at end of period		51,634			55,005			51,634			55,005
Available operating beds in service at end of period		49,553			52,907			49,553			52,907
Available patient days based on licensed beds		4,750,328			5,058,848			14,096,082			15,018,709
Available patient days based on operating beds		4,555,745			4,872,838			13,522,878			14,479,602
Actual patient days		3,838,454			4,123,001			11,424,759			12,323,181
Occupancy percentage - licensed beds		80.8	%		81.5	%		81.0	%		82.1	%
Occupancy percentage - operating beds		84.3	%		84.6	%		84.5	%		85.1	%
Skilled mix		17.9	%		18.7	%		19.1	%		19.7	%
Average daily census		41,722			44,815			41,849			45,140
Revenue per patient day (skilled nursing facilities)
Medicare Part A	$	522		$	524		$	525		$	527
Insurance		456			457			458			456
Private and other		337			328			336			325
Medicaid		223			219			223			218
Medicaid (net of provider taxes)		204			199			204			199
Weighted average (net of provider taxes)	$	270		$	269		$	274		$	272
Patient days by payor (skilled nursing facilities)
Medicare		378,968			439,240			1,203,234			1,398,286
Insurance		273,200			293,315			854,666			917,343
Total skilled mix days		652,168			732,555			2,057,900			2,315,629
Private and other		222,890			257,835			670,908			779,228
Medicaid		2,758,817			2,924,845			8,098,284			8,616,866
Total Days		3,633,875			3,915,235			10,827,092			11,711,723
Patient days as a percentage of total patient days (skilled nursing facilities)
Medicare		10.4	%		11.2	%		11.1	%		11.9	%
Insurance		7.5	%		7.5	%		8.0	%		7.8	%
Skilled mix		17.9	%		18.7	%		19.1	%		19.7	%
Private and other		6.1	%		6.6	%		6.2	%		6.7	%
Medicaid		76.0	%		74.7	%		74.7	%		73.6	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Facilities at end of period
Skilled nursing facilities
Leased		337			362			337			362
Owned		44			44			44			44
Joint Venture		5			5			5			5
Managed *		33			35			33			35
Total skilled nursing facilities		419			446			419			446
Total licensed beds		51,543			54,935			51,543			54,935
Assisted/Senior living facilities:
Leased		19			19			19			19
Owned		4			4			4			4
Joint Venture		1			1			1			1
Managed		2			2			2			2
Total assisted/senior living facilities		26			26			26			26
Total licensed beds		2,209			2,208			2,209			2,208
Total facilities		445			472			445			472

Total Jointly Owned and Managed— (Unconsolidated)		15			15			15			15

REHABILITATION THERAPY SEGMENT**:


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Revenue mix %:
Company-operated		37	%		37	%		37	%		37	%
Non-affiliated		63	%		63	%		63	%		63	%
Sites of service (at end of period)		1,327			1,525			1,327			1,525
Revenue per site	$	152,273		$	152,956		$	476,010		$	460,360
Therapist efficiency %		68	%		66	%		68	%		68	%

* In 2018 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:

allow investors to evaluate our performance from management’s perspective, resulting in greater transparency with respect to supplemental information used by us in our financial and operational decision making;

facilitate comparisons with prior periods and reflect the principal basis on which management monitors financial performance;

facilitate comparisons with the performance of others in the post-acute industry;

provide better transparency as to the measures used by management and others who follow our industry to estimate the value of our company; and

allow investors to view our financial performance and condition in the same manner as our significant landlords and lenders require us to report financial information to them in connection with determining our compliance with financial covenants.

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 Adjusted EBITDAR), the cost to service debt, the depreciation and amortization associated with our long-lived assets, losses on early 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 noncontrolling 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 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 expense) and our asset base (depreciation and amortization expense) from our operating results. In addition, financial covenants in our debt agreements use EBITDA as a measure of 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 our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with GAAP net 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 to EBITDA provided for in the financial covenant calculations contained in our lease and debt agreements.

We adjust EBITDA for the following items:

Loss on early extinguishment of debt. We recognize gains or losses on the early extinguishment of debt when we refinance our debt prior to its original term, requiring us to write-off any unamortized deferred financing fees. We exclude the effect of gains or losses recorded on the early extinguishment of debt because we believe these gains and losses do not accurately reflect the underlying performance of our operating businesses.

Other (income) loss. We primarily use this income statement caption to capture gains and losses on the sale or disposition of assets. We exclude the effect of such gains and losses because we believe they do not accurately reflect the underlying performance of our operating businesses.

Transaction costs. In connection with our acquisition and disposition transactions, we incur costs consisting of investment banking, legal, transaction-based compensation and other professional service costs. We exclude acquisition and disposition related transaction costs expensed during the period because we believe these costs do not reflect the underlying performance of our operating businesses.

Customer receivership and other related charges. We excluded the non-cash costs related to $35.6 million of charges recorded in the nine months ended September 30, 2017 related to customer receivership proceedings and the related respective write-down of unpaid accounts receivable. We believe these charges are caused by the challenging operating environment, particularly for highly levered customers of our rehabilitation therapy business. Accordingly, we believe these costs do not accurately reflect the underlying performance of our operating businesses.

Long-lived asset impairments. We exclude non-cash long-lived asset impairment charges because we believe including them does not reflect the ongoing performance of our operating businesses. Additionally, such impairment charges represent accelerated depreciation expense, and depreciation expense is also excluded from EBITDA.

Goodwill and identifiable intangible asset impairments. We exclude non-cash goodwill and identifiable intangible asset impairment charges because we believe including them does not reflect the ongoing operating performance of our operating businesses.

Severance and restructuring. We exclude severance costs from planned reduction in force initiatives associated with restructuring activities intended to adjust our cost structure in response to changes in the business environment. We believe these costs do not reflect the underlying performance of our operating businesses. We do not exclude severance costs that are not associated with such restructuring activities.

(Income) losses of newly acquired, constructed or divested businesses. The acquisition and construction of new businesses is an element of our growth strategy. Many of the businesses we acquire have a history of operating losses and continue to generate operating losses in the months that follow our acquisition. Newly constructed or developed businesses also generate losses while in their start-up phase. We view these losses as both temporary and an expected component of our long-term investment in the new venture. We adjust these losses when computing Adjusted EBITDA in order to better analyze the performance of our mature ongoing business. The activities of such businesses are adjusted when computing Adjusted EBITDA until such time as a new business generates positive Adjusted EBITDA. The divestiture of underperforming or non-strategic facilities is also an element of our business strategy. We eliminate the results of divested facilities beginning in the quarter in which they become divested. We view the income or losses associated with the wind-down of such divested facilities as not indicative of the performance of our ongoing operating business.

Stock-based compensation. We exclude stock-based compensation expense because it does not result in an outlay of cash and such non-cash expenses do not reflect the underlying performance of our operating businesses.

Other Items. From time to time we incur costs or realize gains that we do not believe reflect the underlying performance of our operating businesses. In the current reporting periods, we incurred the following expenses that we believe are non-recurring in nature and do not reflect ongoing operating performance of the Company or our operating businesses.

(1)

Regulatory defense and related costs – We exclude the costs of investigating and defending the inherited legal matters associated with prior transactions. 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.

(2)

Other non-recurring costs - In the three and nine months ended September 30, 2018, we excluded $8.5 million of costs attributable to the write down of receivables in our non-core physician services business and the impairment of unrealized incentives associated with a government program rewarding the meaningful use of technology in delivery of healthcare. This incentive was estimated to be earned and recognized between 2015 and 2016 within our physician services line of business. 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. We do not believe the excluded costs 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, financial covenants in our lease agreements use Adjusted EBITDAR as a measure of 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,
	2018		2017		2018		2017

Net loss attributable to Genesis Healthcare, Inc.	$	(58,128)	$	(373,824)	$	(166,278)	$	(489,741)
Adjustments to compute EBITDA:
Loss from discontinued operations, net of taxes		—		2		—		70
Net loss attributable to noncontrolling interests		(33,773)		(241,200)		(97,153)		(314,446)
Depreciation and amortization expense		53,038		59,390		168,036		183,986
Interest expense		115,695		124,431		348,687		373,473
Income tax (benefit) expense		(1,220)		1,596		(1,759)		5,683
EBITDA	$	75,612	$	(429,605)		251,533		(240,975)
Adjustments to compute Adjusted EBITDA:
Loss on early extinguishment of debt		—		—		9,785		2,301
Other (income) loss		(20,207)		2,379		(42,360)		15,602
Transaction costs		11,361		1,056		26,567		7,862
Customer receivership and other related charges		—		297		—		35,864
Long-lived asset impairments		32,390		163,364		88,008		163,364
Goodwill and identifiable intangible asset impairments		929		360,046		2,061		360,046
Severance and restructuring		1,023		256		7,357		4,950
Losses of newly acquired, constructed, or divested businesses		1,385		5,320		3,560		15,589
Stock-based compensation		2,176		2,440		6,732		7,206
Regulatory defense related costs (1)		463		41		603		492
Other non-recurring costs (2)		8,388		3,524		8,435		3,524
Adjusted EBITDA	$	113,520	$	109,118	$	362,281	$	375,825

Additional lease payments not included in GAAP lease expense	$	73,614	$	85,396	$	226,110	$	258,724
Total cash lease payments made pursuant to operating leases, capital leases and financing obligations		105,980		124,066		323,658		371,728

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,
	2018		2017		2018		2017

Net loss attributable to Genesis Healthcare, Inc.	$	(58,128)	$	(373,824)	$	(166,278)	$	(489,741)
Adjustments to compute Adjusted EBITDAR:
Loss from discontinued operations, net of taxes		—		2		—		70
Net loss attributable to noncontrolling interests		(33,773)		(241,200)		(97,153)		(314,446)
Depreciation and amortization expense		53,038		59,390		168,036		183,986
Interest expense		115,695		124,431		348,687		373,473
Income tax (benefit) expense		(1,220)		1,596		(1,759)		5,683
Lease expense		32,366		38,670		97,548		113,004
Loss on early extinguishment of debt		—		—		9,785		2,301
Other (income) loss		(20,207)		2,379		(42,360)		15,602
Transaction costs		11,361		1,056		26,567		7,862
Customer receivership and other related charges		—		297		—		35,864
Long-lived asset impairments		32,390		163,364		88,008		163,364
Goodwill and identifiable intangible asset impairments		929		360,046		2,061		360,046
Severance and restructuring		1,023		256		7,357		4,950
Losses of newly acquired, constructed, or divested businesses		1,385		5,320		3,560		15,589
Stock-based compensation		2,176		2,440		6,732		7,206
Regulatory defense related costs (1)		463		41		603		492
Other non-recurring costs (2)		8,388		3,524		8,435		3,524
Adjusted EBITDAR	$	145,886	$	147,788	$	459,829	$	488,829

Genesis Healthcare, Inc. - FORM 8-K - EX-99.1 - November 7, 2018

Attached files

Genesis Healthcare, Inc. Reports