Genesis HealthCare Corporation Reports Second Quarter Fiscal 2005 Results5/2/2005
Kennett Square, PA -- 05/02/2005 --
- $0.66 Earnings Per Diluted Share from Continuing Operations
- PA and NJ Provider Tax Benefits Recognized
- Convertible Note Offering Completed; Cash Redeployed to Purchase Portion of 8% Notes
Genesis HealthCare Corporation ("GHC") (NASDAQ:GHCI) today announced income from continuing operations of $13.6 million, or $0.66 per diluted share, and net income of $13.5 million, or $0.65 per diluted share, for the quarter ended March 31, 2005 , up from income from continuing operations of $6.2 million, or $0.31 per diluted share, and net income of $5.6 million, or $0.28 per diluted share, in the comparable period in the prior year.
Income from continuing operations was $24.0 million, or $1.16 per diluted share, and net income was $24.3 million, or $1.18 per diluted share, for the six months ended March 31, 2005 , up from pro forma income from continuing operations of $12.4 million, or $0.62 per diluted share, and pro forma net income of $10.4 million, or $0.52 per diluted share, in the comparable period in the prior year. Pro forma results in the prior year period assume the December 1, 2003 spin-off of GHC from NeighborCare, Inc. occurred on October 1, 2003 . (See attached pro forma financial information on page 13).
Revenue for the quarter and six months ended March 31, 2005 grew 20.0% to $454.6 million from $378.7 million and 14.6% to $853.6 million from $745.0 million, respectively, principally due to the impact of the provider assessments described below.
EBITDA for the quarter ended March 31, 2005 grew 41.1% to $40.5 million, up from $28.7 million of EBITDA for the comparable period in the prior year. (See attached reconciliation on page 8). EBITDA in the quarter ended March 31, 2005 benefited from the provider assessments described below and was reduced by $4.3 million, or $0.12 per diluted share, for charges related to the early extinguishment of debt. EBITDA in the quarter ended March 31, 2004 was reduced by $0.7 million, or $0.02 per diluted share, also for charges related to the early extinguishment of debt.
EBITDA for the six months ended March 31, 2005 grew 28.8% to $74.4 million, up from $57.8 million of EBITDA for the comparable period in the prior year. (See attached reconciliation on page 8). EBITDA in the six months ended March 31, 2005 also benefited from the provider assessments described below and was reduced by $4.8 million, or $0.14 per diluted share, for charges related to the early extinguishment of debt. EBITDA in the six months ended March 31, 2004 was reduced by $0.8 million, or $0.03 per diluted share, also for charges related to the early extinguishment of debt.
In the quarter ended March 31, 2005 , GHC recognized the net benefit of Pennsylvania and New Jersey provider tax assessments. Provider assessments generate additional matching funds to state Medicaid programs. These plans usually take the form of a bed tax imposed uniformly across classes of providers within the state. In turn, the state utilizes the additional federal matching funds generated by the tax to pay increased reimbursement rates to providers for serving Medicaid patients. The Pennsylvania assessment is retroactive 21 months to July 1, 2003 , and cumulatively through March 31, 2005 resulted in revenue of $42.0 million, EBITDA of $6.1 million and net income of $3.7 million, or $0.18 per diluted share. The New Jersey assessment is retroactive nine months to July 1, 2004 , and cumulatively through March 31, 2005 resulted in revenue of $12.8 million, EBITDA of $3.0 million and net income of $1.8 million, or $0.09 per diluted share. Click here to view New Jersey and Pennsylvania Provider Tax Assessment tables.
“Our solid performance this quarter continues to be driven by higher patient acuity, cost control and progress on our operational improvement initiatives,” stated George V. Hager, Jr., Chairman and CEO. “The results for the second quarter exceeded our earnings expectations despite receiving a lower than anticipated net benefit from the Pennsylvania provider assessment.”
“With the completion of the comment period in Pennsylvania , we were finally able to recognize the benefit of the Pennsylvania assessment this quarter,” continued Hager. “We also saw the benefit of a similar effort in New Jersey , a state which has one of the lowest Medicaid reimbursement rates in the country. We are encouraged by the passage of both assessments, which will assist the industry in continuing quality improvements and investments in facilities.”
The current quarter net income was also positively impacted by approximately $0.7 million, or $0.03 per diluted share, from the recognition of a tax refund.
Inpatient Services Inpatient services net revenue of $409.8 million in the quarter ended March 31, 2005 grew 21.9%, or $73.5 million, from $336.2 million in the comparable period in the prior year. While provider assessments provided the largest benefit in the quarter, higher patient acuity and strong rate growth, coupled with an increase in operating beds contributed to the remainder of the revenue growth. Medicare rates grew 5.8% as a result of the October 1, 2004 Medicare rate increases, as well as higher Medicare patient acuity.
Inpatient services EBITDA of $56.3 million in the quarter ended March 31, 2005 grew 47.1%, or $18.0 million, from $38.2 million in the comparable period in the prior year. The Pennsylvania and New Jersey provider tax assessments contributed $9.1 million to the EBITDA growth. The Company’s operational improvement plan continues to benefit the inpatient services segment as agency labor costs decreased this quarter by 24.7% on a per patient day basis versus the comparable period in the prior year, primarily due to a reduction in professional (RN/LPN) agency utilization. This improvement was achieved while continuing to increase patient acuity without a significant change in overall nursing hours per patient day.
Rehabilitation services revenues grew to $53.1 million in the quarter ended March 31, 2005 versus $50.9 million in the comparable period in the prior year. Rehabilitation services EBITDA decreased to $3.7 million in the quarter ended March 31, 2005 versus $6.1 million in the comparable period in the prior year due to continued pressure on labor costs associated with a shortage of therapists.
Balance Sheet and Cash Flow
GHC generated operating cash flow of $34.4 million in the quarter. The Company ended the quarter with $423.9 million of debt. During the quarter, GHC completely repaid the remaining $119.7 million of the Term Loan B component of the senior credit facility with the net proceeds of the newly issued $180.0 million aggregate principal amount of 2.5% senior subordinated convertible debentures due 2025. GHC used certain of the net proceeds to repurchase $20.1 million of common stock and $23.5 million of 8% senior subordinated notes due 2013.
Subsequent to quarter end, GHC repurchased an additional $47.3 million of its 8% senior subordinated notes. Consequently, GHC’s pro forma cash and debt balances approximate $79.0 million and $377.0 million, respectively.
“We have been very active this quarter in the redeployment of our capital and the refinement of our capital structure,” stated James V. McKeon, Chief Financial Officer. “These transactions, along with a $50.0 million expansion of our revolving credit facility, will create both immediate earnings accretion and offer us more organizational and financial flexibility going forward.”
Capital spending in the quarter was $12.0 million. “Our facility and information system modernization efforts are intensifying and we expect capital expenditures of $50 to $60 million in fiscal 2005,” continued McKeon. “Our capital spending plan includes expansion of clinical capabilities, investments in our physical plant and significant improvements to our information systems and infrastructure.”
During the quarter, GHC continued to groom its portfolio. The Company terminated a skilled nursing facility lease in New Jersey , purchased a previously leased New Jersey skilled nursing facility, and acquired its joint venture partner’s interest in a Massachusetts skilled nursing facility. On a net basis, GHC expects these transactions will decrease continuing operations annual revenues by $2.6 million, increase EBITDA by $1.9 million, increase net income by $0.7 million, and resulted in increased indebtedness of $9.5 million.
“In February, the President’s budget proposed a $1.5 billion reduction to the Medicare budget through RUGs refinement,” stated Hager. “While it is still too early to comment on the ultimate outcome of RUGs refinement, any decrease in reimbursement would be detrimental to an industry that has made great strides in improving quality of care and is in need of significant capital investment to improve aging physical plant and systems infrastructure. At Genesis, we remain committed to investing in the amenities that improve quality of life and the systems that improve care management.”
GHC is revising its fiscal 2005 earnings guidance to a range of $2.40 to $2.45 per diluted share from continuing operations. It should be noted that this guidance is on a GAAP basis and, therefore, includes debt extinguishment costs ($0.14) and a tax refund ($0.03) recognized through March 31, 2005 . This guidance also includes the net benefit of the Pennsylvania and New Jersey provider assessments related to prior fiscal years.
GHC previously indicated that its earnings guidance included $2.0 million of projected costs associated with Sarbanes-Oxley compliance efforts and $0.6 million for a fourth quarter charge to expense options in accordance with new accounting provisions. In April, the Securities and Exchange Commission deferred adoption of the new accounting provisions until GHC’s first fiscal quarter of 2006. However, because the Company expects to incur approximately $0.6 million of higher than anticipated costs for Sarbanes-Oxley compliance efforts, overall earnings guidance is unaffected by these two developments.
Basis of Presentation
The accompanying financial information through November 30, 2003 was prepared on a basis which reflects the historical financial information 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 information has 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 information 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. In January 2005, GHC classified as discontinued a skilled nursing facility having 186 beds following termination of its lease. The annual revenues and pretax income of this center approximated $12.3 million and $1.4 million, respectively.
Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. Eastern Time on Tuesday, May 3, 2005 to discuss the results. Investors can access the conference call by phone at (888) 798-1823 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.
Genesis HealthCare Corporation 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 12 eastern states. Genesis also supplies contract rehabilitation therapy to over 650 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, the effect of the spin-off on our operations, expected reimbursement rates, including RUGs changes, agency labor utilization, voluntary debt repayments, share repurchases, provider tax assessments, changes in state Medicaid rates, levels of capital spending, and our anticipated results of operations for fiscal 2005. 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; 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 and availability of 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.
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.