Genesis HealthCare Corporation Reports Fiscal 2003 Year End Results2/10/2004
Kennett Square, PA -- 02/10/2004 --
- 9.5% Net Revenue Growth Over Prior Year Quarter
- 23.6% Reduction in Nursing Agency Costs Per Patient Day From Prior Year Quarter
- $32.2 Million of Operating Cash Flow Generated
Genesis HealthCare Corporation ("GHC") (NASDAQ:GHCI) today announced income from continuing operations of $7.6 million and net income of $6.0 million for the quarter ended December 31, 2003.
On a pro forma basis, assuming the December 1, 2003 spin-off of GHC from NeighborCare, Inc. occurred on October 1, 2003, income from continuing operations was $6.4 million or $0.32 per diluted share for the quarter ended December 31, 2003 (see pro forma financial information on page 10).
Both EBITDA and Adjusted EBITDA for the quarter ended December 31, 2003 were $29.5 million, compared to EBITDA and Adjusted EBITDA of $28.7 million and $27.6 million, respectively, for the comparable period in the prior year (see attached reconciliation on page 6).
GHC revenues for the quarter ended December 31, 2003 grew 9.5% to $371.2 million from $339.1 million in the comparable period in the prior year.
"We ended the quarter as a standalone company with strong financial performance and significant momentum," stated George V. Hager Jr., Chairman and Chief Executive Officer of GHC. "We are encouraged by a stabilizing reimbursement environment, led by the recovery of a portion of the 'Medicare Cliff' funding lost last year and the postponement of the rehabilitation therapy caps. At the same time, we continue to focus on providing high quality care while beginning a process to identify and implement efficiencies and improve our balance sheet."
Net revenue and EBITDA growth was principally driven by an increase in Medicare rates per patient day, which grew 11.8% to $347 for the quarter ended December 31, 2003 from $310 in the comparable period in the prior year. Medicare revenues increased as a result of the October 1, 2003 annual market basket adjustment and the implementation of a 3.26% rate adjustment to correct previous forecast errors, as well as higher Medicare patient acuity and census. In addition, revenue and EBITDA growth in the quarter ended December 31, 2003 of $12.2 million and $0.5 million, respectively, was attributed to the step acquisition of six eldercare centers, principally as a result of the ElderTrust transactions, that were not included in the comparable period in the prior year. Revenue and EBITDA growth was partially offset by the effect of payment limits or "therapy caps" on services provided by the rehabilitation therapy services segment, which were in place until December 8, 2003, and resulted in a significant decline in the EBITDA within this segment. The EBITDA of the rehabilitation therapy services segment declined in the current year quarter principally due to both the operational and financial impact of the therapy caps. Given the postponement of the therapy caps through December 2005 and a 1.5% increase in the Medicare Part B therapy fee schedule beginning January 1, 2004, management expects improvement in EBITDA of its rehabilitation therapy services segment next quarter.
Also in the quarter ended December 31, 2003, GHC made continued progress in reducing its reliance on costly temporary nurses, reducing agency labor costs by 23.6% on a per patient day basis from the comparable period in the prior year. Agency labor on a per patient day basis represented 6.6% of total nursing labor costs in the first quarter of 2004 compared with 9.0% in the same period in the prior year. Aggregate nursing labor costs grew 4.4% per patient day in the quarter ended December 31, 2003 versus the comparable period in the prior year.
From a liquidity and capital resources perspective, GHC ended the quarter with $114.3 million of cash, $196.0 million of working capital, $73.1 million of available borrowings under its revolving credit facility, and $461.8 million of indebtedness.
At this time, subject to Congressional approval, it appears that the payment add-ons authorized in the Balanced Budget Refinement Act of 2000 may continue through fiscal 2005, as cuts related to Medicare Resource Utilization Group (RUGS) refinement were not included in the President's budget introduction on February 2, 2004.
In November 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which the President signed on December 8, 2003. The law extended the moratorium on implementing payment caps on Medicare Part B rehabilitation therapy services from December 8, 2003 through calendar year 2005. Extension of the moratorium removes a significant financial threat to GHC's therapy business for the short-term as GHC previously estimated that the therapy caps would reduce annual net revenues by approximately $18.9 million and EBITDA by approximately $4.9 million.
Effective October 1, 2003, CMS increased Medicare per diems by approximately 6.26% (3% increase in the annual update factor and a 3.26% upward adjustment correcting previous forecast errors). The estimated increase to GHC's Medicare payment rate for the 3.26% upward adjustment approximates $10 per patient day or about $10.0 million in revenues and EBITDA annually.
- GHC completed all of the previously announced transactions with ElderTrust. The ElderTrust transactions consist of purchases of previously leased eldercare centers and the restructuring of existing lease contracts.
- On January 5, 2004, GHC acquired its joint venture partner's interest in two Massachusetts skilled nursing facilities, which were previously managed. GHC purchased the remaining 50% interest in one facility and 80% interest in the other for a total combined value of $6 million. The partnerships, which together operated 318 beds, had $6 million in working capital and $15.4 million in net property and equipment. Debt of the partnerships totaled $20 million, of which $7.5 million was assumed and the remaining $12.5 was repaid at closing.
Basis of Presentation
The accompanying financial statements through November 30, 2003 have been prepared on a basis which reflects the historical financial statements of GHC assuming the operations of NCI contributed in the spin-off were organized as a separate legal entity, owning certain net assets of NCI. Beginning December 1, 2003, the accompanying financial statements have been prepared on a basis which reflects the net operations of GHC as a stand alone entity. The allocation methodologies followed in preparing the accompanying financial statements prior to the December 1, 2003 spin-off may not necessarily reflect the results of operations, cash flows, or financial position of GHC in the future, or what the results of operations, cash flows or financial position would have been had GHC been a separate stand-alone entity for all periods presented.
GHC accounts for discontinued operations, including assets held for sale, under the provisions of Statement of Financial Accounting Standards, No. 144 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 144"). Under SFAS 144, discontinued businesses including assets held for sale are removed from the results of continuing operations and presented as a separate line on the statement of operations. The net revenues and loss per share of GHC's discontinued operations for the three months ended December 31, 2003 were $9.3 million and $(0.08), respectively.
Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EST on February 11, 2004 to discuss results for the quarter. Investors can access the conference call by phone at (888) 428-4478 or live via webcast through the GHC web site at http://www.genesishcc.com, where a replay of the call will also be posted for one year.
The following unaudited pro forma condensed financial statement presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" in GHC's annual report on Form 10-K filed on February 4, 2004.
The following unaudited pro forma condensed consolidated statement of operations for the quarter ended December 31, 2003 is presented as if the spin-off of GHC occurred on October 1, 2003.
The unaudited pro forma condensed financial statement is presented for informational purposes only and is not necessarily indicative of what our financial position and results of operations actually would have been for the period presented if the spin-off occurred on October 1, 2003, nor does such financial statement purport to represent the results of future periods. The pro forma adjustments are based upon available information and certain assumptions that we consider reasonable and are described in the notes accompanying the unaudited pro forma condensed financial statement. No changes in operating revenues and expenses have been made to reflect the results of any modifications to operations that might have been made had the spin-off of GHC been completed on the aforesaid effective date for purposes of the pro forma results.
About Genesis HealthCare Corporation
Genesis HealthCare (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 operating under the Genesis ElderCare banner. Genesis also supplies contract rehabilitation therapy to over 730 healthcare providers in 21 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, statements regarding the performance of our rehabilitation therapy services segment next quarter, the effect of the spin-off on our operations, expected reimbursement rates, including RUGs changes, agency labor utilization, inflationary increases in state Medicaid rates and self-insurance retention limits. Factors that could cause actual results to differ materially include, but are not limited to, the following: costs, changes in the reimbursement rates or methods of payment from Medicare or Medicaid, or the implementation of other measures to reduce reimbursement for our services; the expiration of enactments providing for additional government funding; efforts of third party payors to control costs; the impact of federal and state regulations; changes in payor mix and payment methodologies; further consolidation of managed care organizations and other third party payors; competition in our business; an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; competition for qualified staff in the healthcare industry; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; changes in interest expense; and an economic downturn or changes in the laws affecting our business in those markets in which we operate.rn
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.