KENNETT SQUARE, Pa., Jan. 31 /PRNewswire-FirstCall/ -- Genesis HealthCare Corporation (GHC) today announced both income from continuing operations and net income of $11.7 million, or $0.59 per diluted share, for the quarter ended December 31, 2005, up from income from continuing operations of $10.3 million, or $0.51 per diluted share, and net income of $10.8 million, or $0.54 per diluted share, in the comparable period in the prior year.
Revenue for the quarter ended December 31, 2005 grew 7.9% to $430.6 million from $399.0 million in the prior year quarter. Revenue growth in the quarter is primarily attributed to third party payor rate growth, an increase in occupancy, and an increase in patient acuity.
EBITDA for the quarter ended December 31, 2005 grew 16.1% to $39.4 million, up from $33.9 million in the prior year quarter. (See attached reconciliation on page 5). EBITDA for the quarter ended December 31, 2004 was reduced by $0.5 million, or $0.02 per diluted share, due to the early extinguishment of debt.
"We had a solid quarter," stated George V. Hager, Jr., Chairman and Chief Executive Officer. "Our inpatient services segment benefited from strength in occupancy and our rehabilitation services segment appears to have turned the corner with significant growth versus the same period in the prior year. Furthermore, we continue to expand our facility renovation program with capital expenditures nearly triple that spent in last year's first quarter."
"Consistent with our stated strategy of investing in our physical assets, we incurred capital expenditures of $31.6 million this quarter," continued Hager. "These investments focus on updating a portfolio which has deferred maintenance while also renovating those sites and adding, among other things, enhanced clinical capabilities, expanded rehab gyms and improved short-stay units. These investments are intended to, over time, improve the Company's occupancy and quality mix in serving the care needs of a more medically demanding patient."
Inpatient Services
Inpatient services net revenue of $384.2 million in the quarter ended December 31, 2005 grew 8.5% from $354.1 million in the prior year quarter. Revenue growth is attributed to third party payor rate growth, an $11.4 million increase in provider assessments, growth in occupancy and higher patient acuity. Medicare rates in the quarter ended December 31, 2005 grew 7.3% to $393 per patient day from the prior year quarter as a result of the 3.1% Medicare rate increase effective October 1, 2005 as well as higher Medicare patient acuity. Our reported occupancy grew 110 basis points to 91.5% from 90.4% in the prior year quarter and grew 90 basis points from 90.6% in the immediately preceding quarter. The increase is due to census growth and a reduction in the Company's number of licensed beds. On a same store basis, adjusted for the change in licensed beds, occupancy grew 40 basis points from the prior year quarter and 20 basis points from the immediately preceding quarter.
Inpatient services EBITDA of $51.0 million in the quarter ended December 31, 2005 was up from $46.9 million in the prior year quarter. EBITDA margins were 13.3% in the quarter ended December 31, 2005 versus 13.2% in the prior year quarter. EBITDA benefited from the increase in occupancy and rate growth.
"We continue to manage aggressively our agency utilization, which declined approximately 15% on a per patient day basis this quarter versus the prior year quarter," stated James V. McKeon, Chief Financial Officer. "However, we experienced a tightening in the labor market for qualified employed nursing staff and saw acceleration in wage growth."
Rehabilitation Services
Rehabilitation services revenues grew 11.9% to $58.1 million in the quarter ended December 31, 2005 from $52.0 million in the prior year quarter. The segment benefited from the inpatient services segment increase in patient acuity as well as improved caseload.
Rehabilitation services EBITDA increased to $3.6 million in the quarter ended December 31, 2005 from $2.3 million in the prior year quarter. EBITDA growth can be attributed to improved caseload and therapist efficiency.
Balance Sheet and Cash Flow
GHC generated operating cash flow of $18.7 million in the quarter ended December 31, 2005. Cash flow was negatively impacted by growth in receivables due primarily to one extra day in the December billing cycle compared to September, the timing of provider assessment payments, delays by certain states in approving and processing Medicaid applications and claims, and higher revenue per patient day. The Company ended the quarter with $409.0 million of debt and cash of $90.4 million. During the quarter, the Company repurchased 288,400 shares of its common stock for $10.7 million, or approximately $37 per share.
Capital spending in the quarter ended December 31, 2005 increased to $31.6 million versus $11.1 million in the prior year quarter. "With a formal investment process and procedure, as well as dedicated internal renovation teams now in place, we were able to ramp-up significantly our capital investment this quarter," noted McKeon. "In the quarter, we spent $3.9 million on information systems projects, $16.5 million in ongoing routine capital spending and $11.2 million in facility renovation projects."
Reimbursement Update
Starting January 1, 2006, the Centers for Medicare and Medicaid Services' (CMS) new resource utilization group classification system, often referred to as RUGs refinement, went into effect. The new system establishes nine new RUG payment classifications, alters the case-mix weights for the remaining 44 RUG payment categories, and adjusts upward the nursing component of each reimbursement schedule. While the industry has only operated under the new classification system for one month, the Company continues to expect its Medicare payment rates will be reduced by approximately $9 per Medicare patient day.
On January 1, 2006, the moratorium on Medicare Part B therapy caps expired. Congress is expected to vote, as early as today, on legislation detailing an exceptions process for continued reimbursement of medically necessary therapy in excess of the annual allowance of $1,740 for occupational therapy and another $1,740 allowance for physical therapy and speech therapy, combined. Given the uncertainty of this issue, GHC is unable to predict the impact on the Company's financial condition and results of operations, if any.
Adoption of Share-Based Payment Accounting Pronouncement
Effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123(R), "Share-Based Payment" (SFAS 123R). In connection with the adoption of SFAS 123R, the Company recognized $0.6 million, or $0.02 per diluted share, of compensation expense associated with the vesting of employee stock options in the quarter ended December 31, 2005.
Effective Tax Rate
The Company's effective tax rate approximated 41% for the quarter ended December 31, 2005. The rate was adversely impacted by the lapsing of certain jobs-related tax credit provisions at September 30, 2005, which increased our effective tax rate almost 1%. If the credit provisions are reinstated retroactively, the Company would expect its full fiscal year effective tax rate to approximate 40%. GHC continues to carry significant net operating loss carryforwards to shield taxable income.
Outlook
The Company is maintaining its fiscal 2006 GAAP earnings from continuing operations guidance of $2.10 to $2.15 per diluted share. This guidance reflects the anticipated impact of RUGs refinement, and the impact of the Company's October 1, 2005 adoption of SFAS 123R, the latter of which is estimated to reduce fiscal 2006 earnings by approximately $0.10 per diluted share.
While the Company does not provide quarterly earnings guidance, the Company notes that the second fiscal quarter ending March 31, 2006 will be impacted by the implementation of RUGs refinement as well as certain seasonal costs including higher payroll taxes and potentially higher weather-related costs including snow removal and utilities, further compounded by the current market pressures on fossil fuels.
Conference Call
Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. Eastern Time on Wednesday, February 1, 2006 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.
About Genesis HealthCare Corporation
Genesis HealthCare Corporation 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 18 states and the District of Columbia.
Visit our website at http://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, expected reimbursement rates, including RUGs changes, our net operating loss carryforwards, our 2006 effective tax rate, agency labor utilization, wage rates, debt repayments, share repurchases, provider tax assessments, changes in state Medicaid rates, our plans to improve the operating performance of our Rehabilitation services segment and progress to date, the extent and effectiveness of our facilities renovation program, levels of lease expense, interest expense, depreciation expense, capital spending, and our anticipated results of operations for fiscal 2006. 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; 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; 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.
GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Three months ended December 31, 2005 December 31, 2004 Net revenues $430,593 $399,027 Operating expenses: Salaries, wages and benefits 261,391 248,030 Other operating expenses 124,395 109,565 Loss on early extinguishment of debt - 543 Lease expense 5,438 6,971 Depreciation and amortization expense 14,310 11,319 Interest expense 5,754 6,632 Income before income tax expense, equity in net income of unconsolidated affiliates and minority interests 19,305 15,967 Income tax expense 8,062 6,482 Income before equity in net income of unconsolidated affiliates and minority interests 11,243 9,485 Equity in net income of unconsolidated affiliates 667 1,111 Minority interests (249) (271) Income from continuing operations 11,661 10,325 Income from discontinued operations, net of taxes 25 523 Net income $11,686 $10,848 Per common share data: Basic: Income from continuing operations $0.60 $0.52 Income from discontinued operations 0.00 0.03 Net income $0.60 $0.54 Weighted average shares 19,462,199 20,022,643 Diluted: Income from continuing operations $0.59 $0.51 Income from discontinued operations 0.00 0.03 Net income $0.59 $0.54 Weighted average shares 19,739,352 20,275,164 GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO EBITDA (IN THOUSANDS) Three months ended December 31, 2005 December 31, 2004 Net income $11,686 $10,848 Add back: Income from discontinued operations, net of taxes (25) (523) Equity in net income of unconsolidated affiliates (667) (1,111) Minority interests 249 271 Income tax expense 8,062 6,482 Interest expense 5,754 6,632 Depreciation and amortization expense 14,310 11,319 EBITDA $39,369 $33,918 GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) December 31, 2005 September 30, 2005 Assets: Current assets: Cash and equivalents $90,363 $109,041 Current portion of restricted investments in marketable securities 36,162 39,875 Accounts receivable, net 205,050 184,616 Prepaid expenses and other current assets 37,344 37,185 Deferred income taxes 39,478 43,148 Total current assets 408,397 413,865 Property and equipment, net 791,209 783,359 Assets held for sale 3,911 3,911 Restricted investments in marketable securities 55,318 56,197 Deferred income taxes 6,820 7,972 Other long-term assets 95,252 94,850 Total assets $1,360,907 $1,360,154 Liabilities and Shareholders' Equity: Current liabilities: Current installments of long-term debt $4,163 $4,537 Accounts payable and accrued expenses 154,760 154,917 Current portion of self-insurance liability reserves 36,162 39,875 Total current liabilities 195,085 199,329 Long-term debt 404,839 405,633 Self-insurance liability reserves 59,248 58,995 Other long-term liabilities 41,287 39,548 Commitments and contingencies Shareholders' equity: Common stock 205 204 Additional paid-in capital 635,689 632,199 Retained earnings 74,359 62,673 Accumulated other comprehensive loss (684) (603) Treasury stock, at cost (42,787) (32,096) Common stock held in deferred compensation plan (6,334) (5,728) Total shareholders' equity 660,448 656,649 Total liabilities and shareholders' equity $1,360,907 $1,360,154 GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (IN THOUSANDS) Three months ended December 31, 2005 December 31, 2004 Cash flows from operating activities: Net income $11,686 $10,848 Net charges included in operations not requiring funds 25,086 20,802 Changes in assets and liabilities: Accounts receivable (20,128) 617 Accounts payable and accrued expenses 1,482 (10,616) Other, net 535 2,851 Total adjustments 6,975 13,654 Net cash provided by operating activities 18,661 24,502 Cash flows from investing activities: Capital expenditures (31,598) (11,126) Net sales (purchases) of restricted marketable securities 4,510 (2,187) Purchase of eldercare centers (5,023) - Proceeds from sales of eldercare assets - 5,292 Other, net 6,284 905 Net cash used in investing activities (25,827) (7,116) Cash flows from financing activities: Repayment of long-term debt (1,168) (26,393) Purchase of common stock for treasury (10,691) - Proceeds from exercise of stock options 269 1,236 Other, net 78 - Net cash used in financing activities (11,512) (25,157) Net decrease in cash and equivalents $(18,678) $(7,771) Cash and equivalents: Beginning of period 109,041 126,071 End of period $90,363 $118,300 GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (UNAUDITED) Segment Data (dollars in Three months ended thousands) (1) December 31, 2005 December 31, 2004 Inpatient services Revenue $384,171 $354,136 EBITDA - $ 51,012 46,886 EBITDA - % 13.3% 13.2% EBITDA - $ per patient day $30.05 $27.83 Rehabilitation therapy services (including intersegment amounts) Revenue $58,145 $51,975 EBITDA - $ 3,552 2,339 EBITDA - % 6.1% 4.5% Three months ended Selected Operating Statistics December 31, 2005 December 31, 2004 Occupancy - Licensed Beds 91.5% 90.4% Patient Days: Private and other 328,822 328,591 Medicare 259,872 257,817 Medicaid 1,108,725 1,098,506 Total Days 1,697,419 1,684,914 Per Diems: Private and other $217.59 $204.48 Medicare 392.62 365.94 Medicaid (Pro Forma) (2) 182.77 178.22 Nursing labor costs per patient day: Employed labor $84.82 $80.10 Agency labor 2.94 3.47 Total $87.76 $83.57 Inpatient Inpatient End of period: Licensed Beds Facility Count Owned - Skilled Nursing 15,146 120 - Assisted Living 756 7 Total Owned 15,902 127 Leased - Skilled Nursing 3,635 25 - Assisted Living 557 6 Total Leased 4,192 31 Total Owned and Leased (Consolidated) 20,094 158 Jointly Owned - Skilled Nursing 953 7 - Assisted Living 586 5 Managed - Skilled Nursing 3,136 24 - Assisted Living 611 4 - Transitional Care Units 286 11 Total Jointly Owned and Managed- (Unconsolidated) 5,572 51 (1) - The prior year segment EBITDA previously reported was adjusted to reflect incentive compensation expenses at the segment level. This adjustment was made to conform with the current quarter presentation which includes such expenses at the segment level. (2) - Medicaid per diems are presented on a pro forma basis to reflect retroactive provider assessments in the period they relate to. GENESIS HEALTHCARE CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO EBITDA (IN THOUSANDS) The following reconciliation of net income to EBITDA supports the calculation of debt to EBITDA, which has and will be included in certain presentations made to the investment community. The calculation of the ratio of debt to EBITDA includes EBITDA, which is a non-GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measure. Three months ended June 30, September 30, December 31, March 31, 2004 2004 2004 2005 Net income $6,722 $10,771 $10,848 $13,467 Add back: Loss (income) from discontinued operations, net of taxes 919 (246) (523) 164 Equity in net income of unconsolidated affiliates (746) (465) (1,111) (679) Minority interests 170 133 271 153 Income tax expense 4,873 7,245 6,482 7,897 Interest expense 6,854 6,782 6,632 6,261 Depreciation and amortization 11,336 11,941 11,319 13,206 EBITDA $30,128 $36,161 $33,918 $40,469 Loss on early extinguishment of debt (1) $425 $439 $543 $4,289 Three months ended June 30, September 30, December 31, 2005 2005 2005 Net income $7,641 $10,213 $11,686 Add back: Loss (income) from discontinued operations, net of taxes 1,350 (740) (25) Equity in net income of unconsolidated affiliates (591) (724) (667) Minority interests (72) 89 249 Income tax expense 4,775 6,878 8,062 Interest expense 5,096 9,890 5,754 Depreciation and amortization 12,723 17,839 14,310 EBITDA $30,922 $43,445 $39,369 Loss on early extinguishment of debt (1) $6,933 $- $- CALCULATION OF DEBT TO EBITDA (IN THOUSANDS, EXCEPT DEBT RATIO) March 31, June 30, September 30, December 31, 2005 2005 2005 2005 12 months trailing EBITDA (A) $140,676 $141,470 $148,754 $154,205 Total debt at end of period (B) 423,862 377,666 410,170 409,002 Ratio of debt to EBITDA (B)/(A) 3.01 2.67 2.76 2.65 CALCULATION OF DEBT TO NET INCOME (IN THOUSANDS, EXCEPT DEBT RATIO) March 31, June 30, September 30, December 31, 2005 2005 2005 2005 12 months trailing net income (C) $41,808 $42,727 $42,169 $43,007 Total debt at end of period (D) 423,862 377,666 410,170 409,002 Ratio of debt to net income (D)/(C) 10.14 8.84 9.73 9.51 (1) Loss on extinguishment of debt is included for informational purposes only.
Genesis HealthCare CorporationCONTACT: Lori Mayer, Investor Relations of Genesis HealthCare,+1-610-925-2000
Web site: http://www.genesishcc.com/
