Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition as of the dates and for the periods presented and should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q. As used in this MD&A, the words “we,” “our,” “us” and the “Company,” and similar terms, refer collectively to Genesis Healthcare, Inc. and its wholly-owned subsidiaries, unless the context requires otherwise. This MD&A should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as the financial information and MD&A contained in the our Annual Report (defined below).
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements or characterizations of historical fact, are 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 the Company’s expectations and beliefs regarding its future operations and financial performance. Historical results may not indicate future performance. Our forward-looking statements are based on current expectations and projections about future events, 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 the Company may differ materially from that expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, particularly in Item 1A, “Risk Factors,” which was filed with the SEC on March 16, 2018 (the Annual Report), as well as others that are discussed in this Form 10-Q. These risks and uncertainties could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. Our business is also subject to the risks that affect many other companies, such as employment relations, natural disasters, general economic conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. Any forward-looking statements contained herein are made only as of the date of this report. The Company disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.
Business Overview
Genesis is a healthcare services company that through its subsidiaries owns and operates skilled nursing facilities, assisted living facilities and a rehabilitation therapy business. We have an administrative services company that provides a full complement of administrative and consultative services that allows our affiliated operators and third-party operators with whom we contract to better focus on delivery of healthcare services. At June 30, 2018, we provided inpatient services through 451 skilled nursing, senior/assisted living and behavioral health centers located in 30 states. Revenues of our owned, leased and otherwise consolidated centers constitute approximately 86% of our revenues.
We also provide a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by us, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 11% of our revenues.
We provide an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of our revenues.
Recent Transactions and Events
Restructuring Transactions
Overview
During the six months ended June 30, 2018, we entered into a number of agreements, amendments and new financing facilities further described below (the Restructuring Transactions) in an effort to strengthen significantly our capital structure. In total, the Restructuring Transactions are estimated to reduce our annual cash fixed charges by approximately $62.0 million beginning in 2018 and provided $70.0 million of additional cash and borrowing availability, increasing our liquidity and financial flexibility.
In connection with the Restructuring Transactions, we entered into a new asset based lending facility agreement, replacing our prior revolving credit facilities (the Revolving Credit Facilities) and eliminating its forbearance agreement. Also in connection with the Restructuring Transactions, we amended the financial covenants in all of our material loan agreements and all but two of our material master leases. Financial covenants beginning in 2018 were amended to account for changes in our capital structure as a result of the Restructuring Transactions and to account for the current business climate. We received waivers from the counterparties to two of our material master leases, for which agreements to amend financial covenants were not attained, with respect to compliance with financial covenants.
The new asset based lending facility agreement and real estate loans are financed through MidCap Funding IV Trust and MidCap Financial Trust (collectively, MidCap), respectively.
Asset Based Lending Facilities
On March 6, 2018, we entered into a new asset based lending facility agreement with MidCap. The agreement provides for a $555 million asset based lending facility comprised of (a) a $325 million first lien term loan facility, (b) a $200 million first lien revolving credit facility and (c) a $30 million delayed draw term loan facility (collectively, the ABL Credit Facilities).
The ABL Credit Facilities have a five year term and proceeds were used to replace and repay in full our existing $525 million Revolving Credit Facilities scheduled to mature on February 2, 2020. The ABL Credit Facilities include a springing maturity clause that would accelerate its maturity 90 days prior to the maturity of the Term Loan Agreements, Welltower Real Estate Loans or MidCap Real Estate Loans, in the event those agreements are not extended or refinanced. The revolving credit facility includes a swinging lockbox arrangement whereby we transfer all funds deposited within designated lockboxes to MidCap on a daily basis and then draw from the revolving credit facility as needed. In accordance with U.S. GAAP, we have presented the entire revolving credit facility borrowings balance of $83.8 million in current installments of long-term debt at June 30, 2018. Despite this classification, we expect that we will have the ability to borrow and repay on the revolving credit facility through its maturity on March 6, 2023.
Borrowings under the term loan and revolving credit facility components of the ABL Credit Facilities bear interest at a 90-day LIBOR rate (subject to a floor of 0.5%) plus an applicable margin of 6%. Borrowings under the delayed draw component bear interest at a 90-day LIBOR rate (subject to a floor of 1%) plus an applicable margin of 11%. Borrowing levels under the term loan and revolving credit facility components of the ABL Credit Facilities are limited to a borrowing base that is computed based upon the level of eligible accounts receivable.
The ABL Credit Facilities contain representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default and security interests that are customarily required for similar financings.
Term Loan Amendment
On March 6, 2018, we entered into an amendment to the term loan with affiliates of Welltower Inc. (Welltower) and Omega Healthcare Investors, Inc. (Omega) (the Term Loan Amendment) pursuant to which we borrowed an additional $40 million to be used for certain debt repayment and general corporate purposes (the 2018 Term Loan).
The 2018 Term Loan will mature July 29, 2020 and bears interest at a rate equal to 10.0% per annum, with up to 5% per annum to be paid in kind. The Term Loan Amendment also changes the interest rate applicable to the initial loans funded on July 29, 2016 to be equal to 14% per annum, with up to 9% per annum to be paid in kind.
Among other things, the Term Loan Amendment eliminates any principal amortization payments on any of the loans prior to maturity and modifies the financial covenants beginning in 2018.
Welltower Master Lease Amendment
On February 21, 2018, we entered into a definitive agreement with Welltower to amend the Welltower Master Lease (the Welltower Master Lease Amendment). The Welltower Master Lease Amendment reduces our annual base rent payment by $35.0 million effective retroactively as of January 1, 2018, reduces the annual rent escalator from approximately 2.9% to 2.5% on April 1, 2018 and further reduces the annual rent escalator to 2.0% beginning January 1, 2019. In addition, the Welltower Master Lease Amendment extends the initial term of the master lease by five years to January 31, 2037 and extends the renewal term of the master lease by five years to December 31, 2048. The Welltower Master Lease Amendment also provides a potential upward rent reset, conditioned upon achievement of certain upside operating metrics, effective January 1, 2023. If triggered, the incremental rent from the rent reset is capped at $35.0 million.
Omnibus Agreement
On February 21, 2018, we entered into an Omnibus Agreement with Welltower and Omega, pursuant to which Welltower and Omega committed to provide up to $40.0 million in new term loans and amend the current term loan to, among other things, accommodate a refinancing of our existing asset based credit facility, in each case subject to certain conditions, including the completion of a restructuring of certain of our other material debt and lease obligations. See
Term Loan Amendment
above.
The Omnibus Agreement also provides that upon satisfying certain conditions, including raising new capital that is used to pay down certain indebtedness owed to Welltower and Omega, (a) $50.0 million of outstanding indebtedness owed to Welltower will be written off and (b) we may request conversion of not more than $50.0 million of the outstanding balance of our Welltower real estate loans into equity. If the proposed equity conversion would result in any adverse REIT qualification, status or compliance consequences to Welltower, then the debt that would otherwise be converted to equity shall instead be converted into a loan incurring paid in kind interest at 2% per annum compounded quarterly, with a term of ten years commencing on the date the applicable conditions precedent to the equity conversion have been satisfied. Moreover, we agreed to support Welltower in connection with the sale of certain of Welltower’s interests in facilities covered by the Welltower Master Lease, including negotiating and entering into definitive new master lease agreements with third party buyers.
In connection with the Omnibus Agreement, we agreed to issue warrants to Welltower and Omega to purchase 900,000 shares and 600,000 shares, respectively, of our Class A Common Stock at an exercise price equal to $1.33 per share. Issuance of the warrant to Welltower is subject to the satisfaction of certain conditions. The warrants may be exercised at any time during the period commencing six months from the date of issuance and ending five years from the date of issuance.
Welltower Real Estate Loans Amendment
On February 21, 2018, we entered into an amendment (the Real Estate Loan Amendments) to the Welltower real estate loan (Welltower Real Estate Loans) agreements. The Real Estate Loan Amendments adjust the annual interest rate beginning February 15, 2018 to 12%, of which 7% will be paid in cash and 5% will be paid in kind. Previously, these loans carried a 10.25% cash pay interest rate that increased by 0.25% annually on January 1.
In connection with the Real Estate Loan Amendments, we agreed to make commercially reasonable efforts to secure commitments by April 1, 2018 to repay no less than $105.0 million of the Welltower Real Estate Loans. In the event we are unsuccessful securing such commitments or otherwise reducing the outstanding obligation of the Welltower Real Estate Loans, the cash pay component of the interest rate will be increased by approximately $2 million annually while the paid in kind component of the interest rate will be decreased by a corresponding amount. As of June 30, 2018, we secured repayments or commitments totaling approximately $82 million.
MidCap Real Estate Loans
On March 30, 2018, we entered into two real estate loans with MidCap (MidCap Real Estate Loans) with combined available proceeds of $75.0 million, $73.0 million of which was drawn as of June 30, 2018. The MidCap Real Estate Loans are secured by 18 skilled nursing facilities and are subject to a five-year term maturing on March 30, 2023. The maturity of the MidCap Real Estate Loans will accelerate in the event the ABL Credit Facilities are repaid in full and terminated. The loans, which are interest only in the first year, are subject to an annual interest rate equal to LIBOR (subject to a floor of 1.5%) plus an applicable margin of 5.85%. Beginning April 1, 2019, mandatory principal payments shall commence with the balance of the loans to be repaid at maturity. Proceeds from the MidCap Real Estate Loans were used to repay partially the Welltower Real Estate Loans.
Lease Transactions and Divestitures
Sabra Divestitures
On April 1, 2018, we divested five skilled nursing facilities. All five of the skilled nursing facilities, three located in Massachusetts and two located in Kentucky, were terminated from their respective master lease agreements with Sabra Health Care REIT, Inc. (Sabra). The five skilled nursing facilities generated annual revenues of $28.5 million and pre-tax net loss of $2.9 million. On May 4, 2018, Sabra completed the sale and lease termination of one skilled nursing facility in California that had been closed in 2017. We recognized a net gain on the write off of certain lease liabilities, offset by exit costs, of $0.7 million on the six skilled nursing facilities.
On June 1, 2018, Sabra completed the sale and lease termination of 12 skilled nursing facilities located in Florida and New Hampshire. As a result of the sale, we will receive an annual rent credit of $12.0 million for the remainder of the lease term. We continue to operate these facilities under a new lease with a new landlord, Next Healthcare. See Note 16 – “
Related Party Transactions.
” As a result of the sale, we recognized accelerated depreciation expense of $6.0 million on the property and equipment sold and a gain on the write off of certain lease liabilities of $7.0 million.
On June 29, 2018, Sabra completed the sale and lease termination of eight skilled nursing facilities and one assisted/senior living facility located in seven different states. As a result of the sale, we will receive an annual rent credit of $7.4 million for the remainder of the lease term. We continue to operate these facilities under a lease agreement with a new landlord. The new lease has a ten-year initial term, one five-year renewal option and initial annual rent of $7.4 million As a result of the sale, we recognized accelerated depreciation expense of $3.6 million on the property and equipment sold and a gain on the write off of certain lease liabilities of $2.9 million.
Second Spring Divestitures
On June 1, 2018 and on June 13, 2018, Second Spring Healthcare Investments (Second Spring) completed the sale and lease termination of eight skilled nursing facilities located in Pennsylvania and four skilled nursing facilities located in New Jersey, respectively. The combined 12 skilled nursing facilities generated annual revenues of $146.2 million and pre-tax net loss of $19.3 million. As a result of the sale and lease termination, the Company recognized a capital lease net asset and obligation write-down of $16.8 million, a financing obligation net asset write-down of $113.3 million and a financing obligation write-down of $134.5 million. The resulting gain of $21.2 million was offset by $6.3 million of exit costs. In the three months ended June 30, 2018, there was accelerated depreciation expense of $5.3 million on the property and equipment sold.
Other Lease Amendments and Divestitures
For the six months ended June 30, 2018, we divested or amended the lease agreements to six other skilled nursing facilities. The lease agreement to one behavioral outpatient clinic expired on June 30, 2018. As a result of these lease amendments and divestitures, we recognized a loss for exit costs and the write off of certain lease assets of $3.3 million.
In total for the six months ended June 30, 2018, we recorded a net gain on lease transactions and divestitures of $22.2 million which is included in other (income) loss on the consolidated statements of operations.
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
Centers for Medicare and Medicaid Services (CMS) Final Rules
On July 31, 2018, CMS released final payment and quality measure rules for skilled nursing facilities prospective payment services (SNF PPS) Medicare Part A fee for services. The final rules address three specific issue areas, discussed below, related to the fiscal year 2019 requirements. Additionally, the rule introduced changes in the payment and case-mix methodology for Part A skilled nursing services, which will be implemented at the beginning of fiscal year 2020 (October 1, 2019).
Skilled Nursing Facility Medicare Part A Payment Rates
The final rules establish a market basket increase of 2.4% as mandated under the Bipartisan Budget Act of 2018 effective October 1, 2018. Reimbursement for fiscal year 2019 will be based on the current payment methodology using the Resource Utilization Group, Version IV (RUG-IV) model with no significant changes in the patient classification system.
Skilled Nursing Facility Quality Measures
Reporting Program (SNF QRP):
Current performance measures mandated for the SNF QRP for fiscal year 2019 were established in the final SNF PPS rules adopted on August 4, 2017 (FY 2018 SNF PPS Rules). The final rules summarize these requirements, finalize adoption of a new measure removal factor for previously adopted SNF QRP measures, review the quality measures currently adopted for the fiscal year 2020 SNF QRP and finalize the intention to specify new measures to be adopted no later than October 1, 2019 for the fiscal year 2022 SNF QRP. The SNF QRP applies to freestanding skilled nursing facilities, skilled nursing facilities affiliated with acute care facilities, and all non-critical access hospital swing-bed rural hospitals. Under the SNF QRP, a skilled nursing facility’s annual market basket percentage is reduced by two percentage points if the skilled nursing facility does not submit quality measure data in accordance with thresholds set by the The Improving Medicare Post-Acute Care Transformation Act of 2014. Final fiscal year 2019 SNF PPS rules (FY 2019 SNF PPS Rules) specified that skilled nursing facilities that do not meet the SNF QRP requirements for a program year will receive a notice of non-compliance.
Skilled Nursing Facility Value-Based Purchasing Program (SNF-VBP Program)
The Protecting Access to Medicare Act of 2014, enacted on April 1, 2014, authorized a SNF-VBP Program that requires CMS to adopt a SNF-VBP Program payment adjustment for skilled nursing facilities effective October 1, 2018. The FY 2018 SNF PPS Rules provide detailed instructions for the SNF-VBP Program. The FY 2018 SNF PPS Rules adopted the Skilled Nursing Facility Readmission Measure as the skilled nursing facility 30-day all-cause readmission measure for the SNF-VBP Program. The FY 2019 SNF PPS Rules reiterate these instructions and affirm that effective October 1, 2018, skilled nursing facilities will experience a two percent withhold to fund the incentive payment pool. Simultaneously, based upon performance, skilled nursing facilities will have an opportunity to have their reimbursement rates adjusted for incentive payments based on their performance under the SNF-VBP Program.
All skilled nursing facilities will receive two scores, one for achievement and the other for improvement of their hospital readmission measure over the designated reporting period. All skilled nursing facilities will be ranked from high to low based on the higher of the two scores. The highest ranked facilities will receive the highest payments, and the lowest ranked facilities will receive payments that are less than what they otherwise would have received without the SNF-VBP Program.
The FY 2019 SNF PPS Rules also account for social risk factors in the SNF-VBP Program and finalizes the numerical values for the skilled nursing facility 30-day all-cause readmission measure for the fiscal year 2021 SNF-VBP Program, based on the fiscal year 2017 baseline period, finalizes scoring policy for skilled nursing facilities without sufficient baseline period data, finalizes SNF-VBP Program scoring adjustment for low-volume skilled nursing facilities and establishes an extraordinary circumstances exception policy for the SNF-VBP Program.
New Patient-Driven Payment Model (PDPM)
This final rule replaces the existing case-mix classification methodology, the Resource Utilization Groups, Version IV (RUG-IV) model, with a revised case-mix methodology called the Patient-Driven Payment Model (PDPM) beginning on October 1, 2019. CMS finalized the PDPM to replace the current Medicare Part A fee for service skilled nursing facility payment model, RUG IV. PDPM is a per diem payment, comprised of the sum of five payment components. Payments taper for physical therapy and occupational therapy beginning on day 20 and then every seven days of the Medicare stay. Payments taper for non-therapy ancillary services beginning on day three of the Medicare stay. There are two required minimum data set (MDS) assessments, the admission assessment and discharge assessment. There is one optional MDS assessment, the interim payment assessment. Under PDPM, physical therapists, occupational therapists and speech-language pathologists can deliver up to 25 percent of a patient’s treatment time using concurrent or group therapy modalities combined.
PDPM is expected to better account for patient characteristics by relating payment to patients' conditions and clinical needs rather than on volume-based services. The PDPM is required to be budget neutral relative to the current RUG-IV model such that aggregate Medicare outlays to skilled nursing facilities is not intended to change. The new model is designed to more accurately reflect resource utilization without incentivizing inappropriate care delivery.
Decisions Regarding
Skilled Nursing Facility
Payment
In addition to setting the payment rules for skilled nursing facility services using the SNF-VBP Program, CMS annually adjusts its payment rules for other acute and post-acute service providers including hospitals and home health agencies using a similar SNF-VBP Program. It is important to understand the Medicare program and its reimbursement rates and rules are subject to frequent change. These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which Medicare reimburses us for our services. Budget pressures often lead the federal government to reduce or place limits on reimbursement rates under Medicare. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins.
Requirements of Participation
On October 4, 2016, CMS published a final rule to make major changes to improve the care and safety of residents in long-term care facilities that participate in the Medicare and Medicaid programs. The policies in this final rule are targeted at reducing unnecessary hospital readmissions and infections, improving the quality of care, and strengthening safety measures for residents in these facilities.
Changes finalized in this rule include:
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Strengthening the rights of long-term care facility residents.
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Ensuring that long-term care facility staff members are properly trained on caring for residents with dementia and in preventing elder abuse.
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Ensuring that long-term care facilities take into consideration the health of residents when making decisions on the kinds and levels of staffing a facility needs to properly take care of its residents.
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Ensuring that staff members have the right skill sets and competencies to provide person-centered care to residents. The care plans developed for residents will take into consideration their goals of care and preferences.
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Improving care planning, including discharge planning for all residents with involvement of the facility’s interdisciplinary team and consideration of the caregiver’s capacity, giving residents information they need for follow-up after discharge, and ensuring that instructions are transmitted to any receiving facilities or services.
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Updating the long-term care facility’s infection prevention and control program, including requiring an infection prevention and control officer and an antibiotic stewardship program that includes antibiotic use protocols and a system to monitor antibiotic use.
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The regulations became effective on November 28, 2016. CMS is implementing the regulations using a phased approach. The phases are as follows:
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Phase 1: The regulations included in Phase 1 were implemented by November 28, 2016.
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Phase 2: The regulations included in Phase 2 were implemented by November 28, 2017.
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Phase 3: The regulations included in Phase 3 must be implemented by November 28, 2019.
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Some regulatory sections are divided among more than one phase, and some of the more extensive new requirements have been placed in later phases to allow facilities time to successfully prepare to achieve compliance.
The total costs associated with implementing the new regulations have been absorbed into our general operating costs. Failure to comply with the new regulations could result in exclusion from the Medicare and Medicaid programs and have an adverse impact on our business, financial condition or results of operations. We have substantially complied with the regulations imposed through the Phase 1 and Phase 2 implementation.
Key Performance and Valuation Measures
In order to assess our financial performance between periods, we evaluate certain key performance and valuation measures for each of our operating segments separately for the periods presented. Results and statistics may not be comparable period-over-period due to the impact of acquisitions and dispositions, or the impact of new and lost therapy contracts.
The following is a glossary of terms for some of our key performance and valuation measures and non-GAAP measures:
“Actual Patient Days” is defined as the number of residents occupying a bed (or units in the case of an assisted/senior living center) for one qualifying day in that period.
“Adjusted EBITDA” is defined as EBITDA adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental performance measure. See “
Reasons for Non-GAAP Financial Disclosure”
for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAP measures.
“Adjusted EBITDAR” is defined as EBITDAR adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental valuation measure. See “
Reasons for Non-GAAP Financial Disclosure”
for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAP measures.
“Available Patient Days” is defined as the number of available beds (or units in the case of an assisted/senior living center) multiplied by the number of days in that period.
“Average Daily Census” or “ADC” is the number of residents occupying a bed (or units in the case of an assisted/senior living center) over a period of time, divided by the number of calendar days in that period.
“EBITDA” is defined as EBITDAR less lease expense. See “
Reasons for Non-GAAP Financial Disclosure”
for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAP measures.
“EBITDAR” is defined as net income or loss attributable to Genesis Healthcare, Inc. before net income or loss of non-controlling interests, net income or loss from discontinued operations, depreciation and amortization expense, interest expense and lease expense. See “
Reasons for Non-GAAP Financial Disclosure”
for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAP measures.
“Insurance” refers collectively to commercial insurance and managed care payor sources, including Medicare Advantage beneficiaries, but does not include managed care payors serving Medicaid residents, which are included in the Medicaid category.
“Occupancy Percentage” is measured as the percentage of Actual Patient Days relative to the Available Patient Days.
“Skilled Mix” refers collectively to Medicare and Insurance payor sources.
“Therapist Efficiency” is computed by dividing billable labor minutes related to patient care by total labor minutes for the period.
Key performance and valuation measures for our businesses are set forth below, followed by a comparison and analysis of our financial results:
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Three months ended June 30,
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Six months ended June 30,
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2018
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2017
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2018
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2017
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Financial Results (in thousands)
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Net revenues
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$
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1,272,360
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$
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1,341,276
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$
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2,573,432
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$
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2,730,408
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EBITDA
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117,707
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81,815
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175,921
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188,630
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Adjusted EBITDAR
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163,326
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175,351
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313,943
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341,041
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Adjusted EBITDA
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131,215
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137,117
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248,761
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266,707
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Net loss attributable to Genesis Healthcare, Inc.
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(39,612)
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(65,156)
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(108,150)
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(115,917)
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INPATIENT SEGMENT:
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Three months ended June 30,
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Six months ended June 30,
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2018
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2017
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2018
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2017
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Occupancy Statistics - Inpatient
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Available licensed beds in service at end of period
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52,303
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55,247
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52,303
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55,247
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Available operating beds in service at end of period
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50,182
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53,265
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50,182
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53,265
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Available patient days based on licensed beds
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4,759,573
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5,027,477
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9,466,843
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10,004,387
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Available patient days based on operating beds
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4,567,679
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4,849,175
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9,087,860
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9,651,290
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Actual patient days
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3,840,181
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4,102,031
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7,681,223
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8,224,551
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Occupancy percentage - licensed beds
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80.7
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%
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81.6
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%
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81.1
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%
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82.2
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%
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Occupancy percentage - operating beds
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84.1
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%
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84.6
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%
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84.5
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%
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85.2
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%
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Skilled mix
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18.9
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%
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19.7
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%
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19.6
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%
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20.3
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%
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Average daily census
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42,200
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45,077
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42,438
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45,440
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Revenue per patient day (skilled nursing facilities)
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Medicare Part A
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$
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528
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$
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530
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$
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526
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$
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527
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Insurance
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461
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461
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458
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456
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Private and other
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337
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328
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|
335
|
|
|
323
|
|
Medicaid
|
|
|
223
|
|
|
218
|
|
|
|
223
|
|
|
218
|
|
Medicaid (net of provider taxes)
|
|
|
204
|
|
|
198
|
|
|
|
204
|
|
|
198
|
|
Weighted average (net of provider taxes)
|
|
$
|
274
|
|
$
|
272
|
|
|
$
|
275
|
|
$
|
273
|
|
Patient days by payor (skilled nursing facilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare
|
|
|
400,370
|
|
|
462,145
|
|
|
|
834,094
|
|
|
959,782
|
|
Insurance
|
|
|
285,935
|
|
|
304,107
|
|
|
|
591,221
|
|
|
624,418
|
|
Total skilled mix days
|
|
|
686,305
|
|
|
766,252
|
|
|
|
1,425,315
|
|
|
1,584,200
|
|
Private and other
|
|
|
227,920
|
|
|
259,577
|
|
|
|
454,823
|
|
|
522,875
|
|
Medicaid
|
|
|
2,726,538
|
|
|
2,872,360
|
|
|
|
5,405,661
|
|
|
5,713,784
|
|
Total Days
|
|
|
3,640,763
|
|
|
3,898,189
|
|
|
|
7,285,799
|
|
|
7,820,859
|
|
Patient days as a percentage of total patient days (skilled nursing facilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare
|
|
|
11.0
|
%
|
|
11.9
|
%
|
|
|
11.4
|
%
|
|
12.3
|
%
|
Insurance
|
|
|
7.9
|
%
|
|
7.8
|
%
|
|
|
8.2
|
%
|
|
8.0
|
%
|
Skilled mix
|
|
|
18.9
|
%
|
|
19.7
|
%
|
|
|
19.6
|
%
|
|
20.3
|
%
|
Private and other
|
|
|
6.3
|
%
|
|
6.7
|
%
|
|
|
6.2
|
%
|
|
6.7
|
%
|
Medicaid
|
|
|
74.8
|
%
|
|
73.6
|
%
|
|
|
74.2
|
%
|
|
73.0
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Facilities at end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled nursing facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
341
|
|
|
363
|
|
|
|
341
|
|
|
363
|
|
Owned
|
|
|
44
|
|
|
44
|
|
|
|
44
|
|
|
44
|
|
Joint Venture
|
|
|
5
|
|
|
5
|
|
|
|
5
|
|
|
5
|
|
Managed *
|
|
|
35
|
|
|
35
|
|
|
|
35
|
|
|
35
|
|
Total skilled nursing facilities
|
|
|
425
|
|
|
447
|
|
|
|
425
|
|
|
447
|
|
Total licensed beds
|
|
|
52,232
|
|
|
55,105
|
|
|
|
52,232
|
|
|
55,105
|
|
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
|
|
|
2,182
|
|
|
|
2,209
|
|
|
2,182
|
|
Total facilities
|
|
|
451
|
|
|
473
|
|
|
|
451
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Jointly Owned and Managed— (Unconsolidated)
|
|
|
15
|
|
|
15
|
|
|
|
15
|
|
|
15
|
|
REHABILITATION THERAPY SEGMENT**:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
Revenue mix %:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated
|
|
|
37
|
%
|
|
38
|
%
|
|
|
37
|
%
|
|
38
|
%
|
Non-affiliated
|
|
|
63
|
%
|
|
62
|
%
|
|
|
63
|
%
|
|
62
|
%
|
Sites of service (at end of period)
|
|
|
1,424
|
|
|
1,528
|
|
|
|
1,424
|
|
|
1,528
|
|
Revenue per site
|
|
$
|
158,619
|
|
$
|
149,634
|
|
|
$
|
315,914
|
|
$
|
307,594
|
|
Therapist efficiency %
|
|
|
68
|
%
|
|
68
|
%
|
|
|
68
|
%
|
|
68
|
%
|
* 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 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 our 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 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:
|
·
|
|
(Gain) loss on early extinguishment of debt.
We recognize 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 losses or gains 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 restructuring, acquisition and disposition transactions, we incur costs consisting of investment banking, legal, transaction-based compensation and other professional service costs. We exclude restructuring, 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 of a $35.6 million charge recorded in the three and six months ended June 30, 2017 related to customer receivership proceedings and the related respective write-down of unpaid accounts receivable. We believe these charges were 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 period, we incurred the following expenses that we believe are non-recurring in nature and do not reflect the ongoing operating performance of 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 the underlying performance of our operating businesses.
|
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. included herein.
The following table provides a reconciliation of the non-GAAP performance measurement EBITDA and Adjusted EBITDA from net loss attributable to Genesis Healthcare, Inc., the most directly comparable financial measure presented in accordance with GAAP (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Genesis Healthcare, Inc.
|
|
$
|
(39,612)
|
|
$
|
(65,156)
|
|
|
$
|
(108,150)
|
|
$
|
(115,917)
|
Adjustments to compute EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
—
|
|
|
47
|
|
|
|
—
|
|
|
68
|
Net loss attributable to noncontrolling interests
|
|
|
(23,245)
|
|
|
(40,394)
|
|
|
|
(63,380)
|
|
|
(73,246)
|
Depreciation and amortization expense
|
|
|
63,495
|
|
|
60,227
|
|
|
|
114,998
|
|
|
124,596
|
Interest expense
|
|
|
117,955
|
|
|
124,288
|
|
|
|
232,992
|
|
|
249,042
|
Income tax (benefit) expense
|
|
|
(886)
|
|
|
2,803
|
|
|
|
(539)
|
|
|
4,087
|
EBITDA
|
|
$
|
117,707
|
|
$
|
81,815
|
|
|
|
175,921
|
|
|
188,630
|
Adjustments to compute Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on early extinguishment of debt
|
|
|
(501)
|
|
|
2,301
|
|
|
|
9,785
|
|
|
2,301
|
Other (income) loss
|
|
|
(22,220)
|
|
|
4,190
|
|
|
|
(22,152)
|
|
|
13,224
|
Transaction costs
|
|
|
3,112
|
|
|
3,781
|
|
|
|
15,207
|
|
|
6,806
|
Customer receivership and other related charges
|
|
|
—
|
|
|
35,566
|
|
|
|
—
|
|
|
35,566
|
Long-lived asset impairments
|
|
|
27,257
|
|
|
—
|
|
|
|
55,617
|
|
|
—
|
Goodwill and identifiable intangible asset impairments
|
|
|
1,132
|
|
|
—
|
|
|
|
1,132
|
|
|
—
|
Severance and restructuring
|
|
|
3,493
|
|
|
514
|
|
|
|
6,333
|
|
|
4,694
|
(Income) losses of newly acquired, constructed, or divested businesses
|
|
|
(925)
|
|
|
6,276
|
|
|
|
2,175
|
|
|
10,269
|
Stock-based compensation
|
|
|
2,129
|
|
|
2,480
|
|
|
|
4,556
|
|
|
4,766
|
Regulatory defense and other related costs (1)
|
|
|
31
|
|
|
194
|
|
|
|
187
|
|
|
451
|
Adjusted EBITDA
|
|
$
|
131,215
|
|
$
|
137,117
|
|
|
$
|
248,761
|
|
$
|
266,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional lease payments not included in GAAP lease expense
|
|
$
|
74,564
|
|
$
|
86,704
|
|
|
$
|
152,496
|
|
$
|
173,328
|
Total cash lease payments made pursuant to operating leases, capital leases and financing obligations
|
|
|
106,675
|
|
|
124,938
|
|
|
|
217,678
|
|
|
247,662
|
The following table provides a reconciliation of the non-GAAP valuation measurement Adjusted EBITDAR from net loss attributable to Genesis Healthcare, Inc., the most directly comparable financial measure presented in accordance with GAAP (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Genesis Healthcare, Inc.
|
|
$
|
(39,612)
|
|
$
|
(65,156)
|
|
|
$
|
(108,150)
|
|
$
|
(115,917)
|
Adjustments to compute Adjusted EBITDAR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
—
|
|
|
47
|
|
|
|
—
|
|
|
68
|
Net loss attributable to noncontrolling interests
|
|
|
(23,245)
|
|
|
(40,394)
|
|
|
|
(63,380)
|
|
|
(73,246)
|
Depreciation and amortization expense
|
|
|
63,495
|
|
|
60,227
|
|
|
|
114,998
|
|
|
124,596
|
Interest expense
|
|
|
117,955
|
|
|
124,288
|
|
|
|
232,992
|
|
|
249,042
|
Income tax (benefit) expense
|
|
|
(886)
|
|
|
2,803
|
|
|
|
(539)
|
|
|
4,087
|
Lease expense
|
|
|
32,111
|
|
|
38,234
|
|
|
|
65,182
|
|
|
74,334
|
(Gain) loss on early extinguishment of debt
|
|
|
(501)
|
|
|
2,301
|
|
|
|
9,785
|
|
|
2,301
|
Other (income) loss
|
|
|
(22,220)
|
|
|
4,190
|
|
|
|
(22,152)
|
|
|
13,224
|
Transaction costs
|
|
|
3,112
|
|
|
3,781
|
|
|
|
15,207
|
|
|
6,806
|
Customer receivership and other related charges
|
|
|
—
|
|
|
35,566
|
|
|
|
—
|
|
|
35,566
|
Long-lived asset impairments
|
|
|
27,257
|
|
|
—
|
|
|
|
55,617
|
|
|
—
|
Goodwill and identifiable intangible asset impairments
|
|
|
1,132
|
|
|
—
|
|
|
|
1,132
|
|
|
—
|
Severance and restructuring
|
|
|
3,493
|
|
|
514
|
|
|
|
6,333
|
|
|
4,694
|
(Income) losses of newly acquired, constructed, or divested businesses
|
|
|
(925)
|
|
|
6,276
|
|
|
|
2,175
|
|
|
10,269
|
Stock-based compensation
|
|
|
2,129
|
|
|
2,480
|
|
|
|
4,556
|
|
|
4,766
|
Regulatory defense and other related costs (1)
|
|
|
31
|
|
|
194
|
|
|
|
187
|
|
|
451
|
Adjusted EBITDAR
|
|
$
|
163,326
|
|
$
|
175,351
|
|
|
$
|
313,943
|
|
$
|
341,041
|
Results of Operations
Same-store Presentation
We continue to execute on a strategic plan which includes expansion in core markets and operating segments which we believe will enhance the value of our business in the ever-changing landscape of national healthcare. We are also focused on “right-sizing” our operations to fit that new environment and to divest underperforming and non-strategic assets, many of which came to us as part of larger acquisitions in recent years to achieve the net overall growth strategy.
We define our same-store inpatient operations as those skilled nursing and assisted living centers which have been operated by us, in a steady-state, for each comparable period in this Results of Operations discussion. We exclude from that definition those skilled nursing and assisted living facilities recently acquired that were not operated by us for the entire period, as well as those that were divested prior to or during the most recent period presented. In cases where we are developing new skilled nursing or assisted living centers, those operations are excluded from our “same-store” inpatient operations until the revenue driven by operating patient census is stable in the comparable periods.
Since the nature of our rehabilitation therapy services operations experiences high volume of both new and terminated contracts in an annual cycle, and the scale and significance of those contracts can be very different to both the revenue and operating expenses of that business, a same-store presentation based solely on the contract or gym count does not provide an accurate depiction of the business. Accordingly, we do not reference same-store figures in this MD&A with regard to that business.
The volume of services delivered in our other services businesses can also be affected by strategic transactional activity. To the extent there are businesses to be excluded to achieve same-store comparability those will be noted in the context of the Results of Operations discussion.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers and all related amendments (ASC 606). The requirements of ASC 606 were effective for us beginning January 1, 2018 and were applied using the modified retrospective method. Because prior year periods were not restated through this methodology, the new presentation could affect the direct, same-store comparability of revenue and operating expense, however, there is no impact to comparability of EBITDA for all
periods presented. See Note 4 – “
Net
Revenues and Accounts Receivable.
” The impact of the adoption of ASC 606 will be noted in these Results of Operations where comparability issues exist.
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
A summary of our unaudited results of operations for the three months ended June 30, 2018 as compared with the same period in 2017 follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Increase / (Decrease)
|
|
|
|
Revenue
|
|
Revenue
|
|
Revenue
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled nursing facilities
|
|
$
|
1,065,310
|
|
83.8
|
%
|
$
|
1,130,525
|
|
84.2
|
%
|
$
|
(65,215)
|
|
(5.8)
|
%
|
Assisted/Senior living facilities
|
|
|
23,742
|
|
1.9
|
%
|
|
24,125
|
|
1.8
|
%
|
|
(383)
|
|
(1.6)
|
%
|
Administration of third party facilities
|
|
|
2,300
|
|
0.2
|
%
|
|
2,319
|
|
0.2
|
%
|
|
(19)
|
|
(0.8)
|
%
|
Elimination of administrative services
|
|
|
(743)
|
|
(0.1)
|
%
|
|
(385)
|
|
—
|
%
|
|
(358)
|
|
93.0
|
%
|
Inpatient services, net
|
|
|
1,090,609
|
|
85.8
|
%
|
|
1,156,584
|
|
86.2
|
%
|
|
(65,975)
|
|
(5.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehabilitation therapy services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total therapy services
|
|
|
234,674
|
|
18.4
|
%
|
|
242,917
|
|
18.1
|
%
|
|
(8,243)
|
|
(3.4)
|
%
|
Elimination intersegment rehabilitation therapy services
|
|
|
(88,887)
|
|
(7.0)
|
%
|
|
(94,496)
|
|
(7.0)
|
%
|
|
5,609
|
|
(5.9)
|
%
|
Third party rehabilitation therapy services
|
|
|
145,787
|
|
11.4
|
%
|
|
148,421
|
|
11.1
|
%
|
|
(2,634)
|
|
(1.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other services
|
|
|
51,345
|
|
4.0
|
%
|
|
44,221
|
|
3.3
|
%
|
|
7,124
|
|
16.1
|
%
|
Elimination intersegment other services
|
|
|
(15,381)
|
|
(1.2)
|
%
|
|
(7,950)
|
|
(0.6)
|
%
|
|
(7,431)
|
|
93.5
|
%
|
Third party other services
|
|
|
35,964
|
|
2.8
|
%
|
|
36,271
|
|
2.7
|
%
|
|
(307)
|
|
(0.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,272,360
|
|
100.0
|
%
|
$
|
1,341,276
|
|
100.0
|
%
|
$
|
(68,916)
|
|
(5.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Increase / (Decrease)
|
|
|
|
|
|
|
Margin
|
|
|
|
|
Margin
|
|
|
|
|
|
|
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient services
|
|
$
|
124,687
|
|
11.4
|
%
|
$
|
144,663
|
|
12.5
|
%
|
$
|
(19,976)
|
|
(13.8)
|
%
|
Rehabilitation therapy services
|
|
|
32,328
|
|
13.8
|
%
|
|
(16,908)
|
|
(7.0)
|
%
|
|
49,236
|
|
(291.2)
|
%
|
Other services
|
|
|
1,036
|
|
2.0
|
%
|
|
214
|
|
0.5
|
%
|
|
822
|
|
384.1
|
%
|
Corporate and eliminations
|
|
|
(40,344)
|
|
—
|
%
|
|
(46,154)
|
|
—
|
%
|
|
5,810
|
|
(12.6)
|
%
|
EBITDA
|
|
$
|
117,707
|
|
9.3
|
%
|
$
|
81,815
|
|
6.1
|
%
|
$
|
35,892
|
|
43.9
|
%
|
A summary of our unaudited condensed consolidating statement of operations follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2018
|
|
|
|
|
|
|
Rehabilitation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient
|
|
Therapy
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Services
|
|
Services
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
Net revenues
|
|
$
|
1,091,352
|
|
$
|
234,674
|
|
$
|
51,325
|
|
$
|
20
|
|
$
|
(105,011)
|
|
$
|
1,272,360
|
|
Salaries, wages and benefits
|
|
|
489,778
|
|
|
187,946
|
|
|
28,030
|
|
|
—
|
|
|
—
|
|
|
705,754
|
|
Other operating expenses
|
|
|
439,224
|
|
|
14,400
|
|
|
21,943
|
|
|
—
|
|
|
(105,012)
|
|
|
370,555
|
|
General and administrative costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,046
|
|
|
—
|
|
|
39,046
|
|
Lease expense
|
|
|
31,494
|
|
|
—
|
|
|
316
|
|
|
301
|
|
|
—
|
|
|
32,111
|
|
Depreciation and amortization expense
|
|
|
56,750
|
|
|
3,138
|
|
|
168
|
|
|
3,439
|
|
|
—
|
|
|
63,495
|
|
Interest expense
|
|
|
93,028
|
|
|
13
|
|
|
9
|
|
|
24,905
|
|
|
—
|
|
|
117,955
|
|
Gain on extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(501)
|
|
|
—
|
|
|
(501)
|
|
Investment income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,631)
|
|
|
—
|
|
|
(1,631)
|
|
Other income
|
|
|
(22,220)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,220)
|
|
Transaction costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,112
|
|
|
—
|
|
|
3,112
|
|
Long-lived asset impairments
|
|
|
27,257
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,257
|
|
Goodwill and identifiable intangible asset impairments
|
|
|
1,132
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,132
|
|
Equity in net (income) loss of unconsolidated affiliates
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(352)
|
|
|
390
|
|
|
38
|
|
(Loss) income before income tax benefit
|
|
|
(25,091)
|
|
|
29,177
|
|
|
859
|
|
|
(68,299)
|
|
|
(389)
|
|
|
(63,743)
|
|
Income tax benefit
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(886)
|
|
|
—
|
|
|
(886)
|
|
(Loss) income from continuing operations
|
|
$
|
(25,091)
|
|
$
|
29,177
|
|
$
|
859
|
|
$
|
(67,413)
|
|
$
|
(389)
|
|
$
|
(62,857)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
|
|
|
|
|
Rehabilitation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient
|
|
Therapy
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Services
|
|
Services
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
Net revenues
|
|
$
|
1,156,969
|
|
$
|
242,917
|
|
$
|
44,144
|
|
$
|
77
|
|
$
|
(102,831)
|
|
$
|
1,341,276
|
|
Salaries, wages and benefits
|
|
|
508,509
|
|
|
201,944
|
|
|
28,949
|
|
|
—
|
|
|
—
|
|
|
739,402
|
|
Other operating expenses
|
|
|
462,158
|
|
|
22,308
|
|
|
14,681
|
|
|
—
|
|
|
(102,831)
|
|
|
396,316
|
|
General and administrative costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,151
|
|
|
—
|
|
|
41,151
|
|
Lease expense
|
|
|
37,449
|
|
|
7
|
|
|
300
|
|
|
478
|
|
|
—
|
|
|
38,234
|
|
Depreciation and amortization expense
|
|
|
51,837
|
|
|
3,866
|
|
|
172
|
|
|
4,352
|
|
|
—
|
|
|
60,227
|
|
Interest expense
|
|
|
103,325
|
|
|
14
|
|
|
10
|
|
|
20,939
|
|
|
—
|
|
|
124,288
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,301
|
|
|
—
|
|
|
2,301
|
|
Investment income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,392)
|
|
|
—
|
|
|
(1,392)
|
|
Other loss
|
|
|
4,190
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,190
|
|
Transaction costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,781
|
|
|
—
|
|
|
3,781
|
|
Customer receivership and other related charges
|
|
|
—
|
|
|
35,566
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,566
|
|
Equity in net (income) loss of unconsolidated affiliates
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(563)
|
|
|
475
|
|
|
(88)
|
|
(Loss) income before income tax expense
|
|
|
(10,499)
|
|
|
(20,788)
|
|
|
32
|
|
|
(70,970)
|
|
|
(475)
|
|
|
(102,700)
|
|
Income tax expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,803
|
|
|
—
|
|
|
2,803
|
|
(Loss) income from continuing operations
|
|
$
|
(10,499)
|
|
$
|
(20,788)
|
|
$
|
32
|
|
$
|
(73,773)
|
|
$
|
(475)
|
|
$
|
(105,503)
|
|
Net Revenues
Net revenues for the three months ended June 30, 2018 decreased by $68.9 million, or 5.1%, as compared with the three months ended June 30, 2017.
Inpatient Services
– Revenue decreased $66.0 million, or 5.7%, in the three months ended June 30, 2018 as compared with the same period in 2017. On a same-store basis, excluding 24 divested underperforming facilities and the development of two additional facilities on comparability, and the $19.0 million revenue reduction for the adoption of ASC 606, inpatient services revenue declined $21.0 million, or 1.9%. This same-store decrease is principally due to a decline in the occupancy and skilled mix of legacy Genesis inpatient facilities, partially offset by increased payment rates. We attribute the decline in occupancy and skilled mix principally to the impact of healthcare reforms resulting in lower lengths of stay among our skilled patient population and lower admissions caused by initiatives among acute care providers, managed care payers and conveners to divert certain skilled nursing referrals to home health or other community based care settings.
For an expanded discussion regarding the factors influencing our census decline, see Item 1, “
Business – Recent Legislative, Regulatory and other Governmental Actions Affecting Revenue
” in our Annual Report on Form 10-K filed with the SEC, as well as “
Key Performance and Valuation Measures
” in this MD&A for quantification of the census trends and revenue per patient day.
Rehabilitation Therapy Services
– Revenue decreased $2.6 million, or 1.8% comparing the three months ended June 30, 2018 with the same period in 2017. Of that decrease, $22.5 million is due to lost contract business, offset by $18.8 million attributed to new contracts. The adoption of ASC 606 resulted in a reduction of revenue of $2.9 million. The remaining increase of $4.0 million is principally due to higher rates to existing contract customers and increased Medicare Part B rates, partially offset by reduced volume of services provided to existing customers.
Other Services
– Revenue decreased $0.3 million, or 0.8% in the three months ended June 30, 2018 as compared with the same period in 2017. Our other services revenue, comprised mainly of our physician services and staffing services businesses, was relatively flat with increased service revenue in the physician service business offset by some regional reduction in volumes of our staffing services business.
EBITDA
EBITDA for the three months ended June 30, 2018 increased by $35.9 million, or 43.9%, as compared with the three months ended June 30, 2017. Excluding the impact of (gain) loss on extinguishment of debt, other (income) loss, transaction costs, long-lived asset impairments and goodwill and identifiable intangible asset impairments, EBITDA decreased $1.2 million, or 0.9% when compared with the same period in 2017. The adoption of ASC 606 did not affect comparability of EBITDA or EBITDA as adjusted among the periods presented. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.
Inpatient Services
– EBITDA decreased by $20.0 million, or 13.8% for the three months ended June 30, 2018 as compared with the same period in 2017. Excluding the impact of other (income) loss, long-lived asset impairments and identifiable intangible asset impairments, EBITDA as adjusted decreased $18.0 million, or 12.1% when compared with the same period in 2017. On a same store basis, the inpatient EBITDA as adjusted decreased $19.1 million. Of that same-store decline, our self-insurance programs resulted in an increase of $8.9 million EBITDA as adjusted in the three months ended June 30, 2018 as compared with the same period in 2017. While our self-insurance programs are performing as anticipated with reduced volumes related to the implementation of our portfolio optimization strategies and within normal claims reporting patterns of our same-store operations, we are also seeing reduced pressures in particular in our general and professional liability claims experience. We believe this is due to the combination of tort reforms in key states that have had historically high rates of claims volume and severity as well as a recognition by the plaintiffs firms that this industry cannot sustain the level of claims historically brought by them. Reductions in salaries, wages and benefits, beyond those related to self-insured workers compensation and health benefits, are principally attributed to the transition from in-house to fully outsourced dietary support functions in the second fiscal quarter of 2017. That transition resulted in a shift of a commensurate amount of cost to purchased services expense in other operating expenses. This reduction in salaries is partially offset with nursing wage inflation which increased 3.3% in the three months ended June 30, 2018 as compared with the same period in 2017. On a same-store basis, lease expense for the three months ended June 30, 2018 as compared with the same period in 2017 decreased $4.2 million. This reduction is principally due to the benefit of one-quarter of the Sabra rent reduction, offset by the non-cash straight-line adjustments to those operating leases. See “
Restructuring Transactions – Sabra Master Leases
” in this MD&A. The remaining $32.2 million decrease in EBITDA, as adjusted, of the segment is attributed to the continued pressures on skilled mix and overall occupancy of our inpatient facilities described above under “
Net Revenues
,” and accelerating nursing wage inflation previously discussed.
Rehabilitation Therapy Services
– EBITDA increased by $49.2 million, or 291.2%, for the three months ended June 30, 2018 as compared with the same period in 2017. Excluding the impact of other loss and customer receivership and other related charges EBITDA as adjusted increased $13.7 million, or 73.3% when compared with the same period in 2017. New therapy contracts and net pricing increases exceeded lost contracts by $2.2 million. Startup losses of our operations in China for the three months ended June 30, 2018 decreased $2.1 million as compared with the same period in 2017. The remaining increase of EBITDA as adjusted of $9.4 million is principally attributed to overhead cost reductions, favorable average costs of labor and rate increases, partially offset by therapist efficiency which declined to 68.2% in the three months ended June 30, 2018 compared with 68.0% in the comparable period in the prior year.
Currently, we operate through affiliates in China a total of 13 locations comprised of the four rehabilitation clinics in Guangzhou, Shanghai and Hong Kong, a rehabilitation facility, and inpatient and outpatient rehabilitation services in five hospital joint ventures and three nursing homes. Startup and development costs of these Chinese ventures are expected to exceed revenues for the remainder of fiscal 2018.
Other Services
— EBITDA increased $0.8 million, or 384.1%, for the three months ended June 30, 2018 as compared with the same period in 2017. This increase was principally driven by increased productivity in our physician services business.
Corporate and Eliminations
— EBITDA increased $5.8 million, or 12.6%, for the three months ended June 30, 2018 as compared with the same period in 2017. EBITDA of our corporate function includes other income, charges, gains or losses associated with transactions that in our chief operating decision maker’s view are outside of the scope of our reportable segments. These other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $3.5 million of the net increase in EBITDA. Corporate overhead costs decreased $2.1 million, or 5.1%, in the three months ended June 30, 2018 as compared with the same period in 2017. This decrease is principally due to the focus on cost containment to address market pressures on our business. The remaining increase in EBITDA of $0.2 million is primarily the result of an increase in investment earnings from our unconsolidated affiliates accounted for on the equity method.
Loss on early extinguishment of debt
– On March 6, 2018, we entered into a new asset based lending facility agreement, qualifying as an extinguishment of the previous revolving credit facility. An overaccrual of fees associated with the extinguishment was reversed in the three months ended June 30, 2018. See Note 3 – “
Significant Transactions and Events – Restructuring Transactions
” and Note 8 – “
Long-term Debt.
”
Other (income) loss
— Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other (income) loss for the three months ended June 30, 2018 principally represents non-cash gains on leases exited or modified in the period. Other loss recognized for the three months ended June 30, 2017 was a net $4.2 million, attributable primarily to non-cash exit costs of leases exited in that period.
Transaction costs
— In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the three months ended June 30, 2018 and 2017 were $3.1 million and $3.8 million, respectively.
Long-lived asset impairments
— In the three months ended June 30, 2018 we recognized impairments of property and equipment of $27.3 million. For more information about the conditions of the business which contributed to these impairments, see “
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
” and “
Financial Condition and Liquidity Considerations
” in this MD&A, as well as Note 14 – “
Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.
”
Goodwill and identifiable intangible asset impairments
— In the three months ended June 30, 2018 we recognized impairments of identifiable intangible favorable lease assets of $1.1 million. For more information about the conditions of the business which contributed to these impairments, see “
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
” and “
Financial Condition and Liquidity Considerations
” in this MD&A, as well as Note 14 – “
Asset Impairment Charges -
Identifiable Intangible Assets with a Definite Useful Life.
”
Other Expense
The following discussion applies to the consolidated expense categories between consolidated EBITDA and (loss) income from continuing operations of all reportable segments, other services, corporate and eliminations in our consolidating statement of operations for the three months ended June 30, 2018 as compared with the same period in 2017.
Depreciation and amortization
— Each of our reportable segments, other services and corporate overhead have depreciating property, plant and equipment, including depreciation on leased properties accounted for as capital leases or as a financing
obligation. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense increased $3.3 million in the three months ended June 30, 2018 as compared with the same period in 2017. On a same-store basis, depreciation and amortization decreased $2.7 million in the three months ended June 30, 2018 as compared with the same period in 2017. The three months ended June 30, 2017 included $2.2 million of amortization expense related to intangible management contracts of third party operations in Texas. Those contracts became impaired during third quarter 2017 when the Texas MPAP program failed to be renewed, resulting in $0 amortization expense in the three months ended June 30, 2018. The remaining decrease of $0.5 million is principally due to the classification of assets held for sale, which did not depreciate in the current period, the impact of reduced carrying values of recently impaired assets, and partially offset by the impact of recent lease amendments in the inpatient services segment.
Interest expense
— Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as capital leases or financing obligations. Interest expense decreased $6.3 million in the three months ended June 30, 2018 as compared with the same period 2017. On a same store basis, interest expense is down $5.6 million in the three months ended June 30, 2018 as compared with the same period in 2017. That decrease is principally attributed to the net impact of the Restructuring Transactions, which lowered the debt service payments required under the Welltower Master Lease Amendment, which is accounted for as a financing obligation, and resulted in a lower effective interest rate. That reduction in financing lease interest is partially offset by the increased cost of our revolving credit facilities. See “
Restructuring Transactions
” in this MD&A.
Income tax expense
— For the three months ended June 30, 2018, we recorded an income tax benefit of $0.9 million from continuing operations representing an effective tax rate of 1.4% compared to an income tax expense of $2.8 million from continuing operations, representing an effective tax rate of (2.7)% for the same period in 2017. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2018, we have determined that the valuation allowance is still necessary.
Net Loss Attributable to Genesis Healthcare, Inc.
The following discussion applies to categories between loss from continuing operations and net loss attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the three months ended June 30, 2018 as compared with the same period in 2017.
Net loss attributable to noncontrolling interests
— On February 2, 2015, FC-GEN combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 4.8 million Class C common stock, leaving a remaining direct noncontrolling economic interest of 36.8%. For the three months ended June 30, 2018 and 2017, a loss of $23.8 million and $40.9 million, respectively, has been attributed to the Class C common stock.
In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any variable interest entities (VIEs) where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the three months ended June 30, 2018 and 2017, income of $0.5 million and $0.6 million, respectively, has been attributed to these unaffiliated third parties.
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
A summary of our unaudited results of operations for the six months ended June 30, 2018 as compared with the same period in 2017 follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Increase / (Decrease)
|
|
|
|
Revenue
|
|
Revenue
|
|
Revenue
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled nursing facilities
|
|
$
|
2,160,612
|
|
83.9
|
%
|
$
|
2,300,450
|
|
84.1
|
%
|
$
|
(139,838)
|
|
(6.1)
|
%
|
Assisted/Senior living facilities
|
|
|
47,246
|
|
1.8
|
%
|
|
48,077
|
|
1.8
|
%
|
|
(831)
|
|
(1.7)
|
%
|
Administration of third party facilities
|
|
|
4,552
|
|
0.2
|
%
|
|
4,752
|
|
0.2
|
%
|
|
(200)
|
|
(4.2)
|
%
|
Elimination of administrative services
|
|
|
(1,470)
|
|
—
|
%
|
|
(769)
|
|
—
|
%
|
|
(701)
|
|
91.2
|
%
|
Inpatient services, net
|
|
|
2,210,940
|
|
85.9
|
%
|
|
2,352,510
|
|
86.1
|
%
|
|
(141,570)
|
|
(6.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehabilitation therapy services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total therapy services
|
|
|
471,251
|
|
18.3
|
%
|
|
499,134
|
|
18.3
|
%
|
|
(27,883)
|
|
(5.6)
|
%
|
Elimination intersegment rehabilitation therapy services
|
|
|
(181,633)
|
|
(7.1)
|
%
|
|
(195,026)
|
|
(7.1)
|
%
|
|
13,393
|
|
(6.9)
|
%
|
Third party rehabilitation therapy services
|
|
|
289,618
|
|
11.2
|
%
|
|
304,108
|
|
11.2
|
%
|
|
(14,490)
|
|
(4.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other services
|
|
|
99,853
|
|
3.9
|
%
|
|
90,267
|
|
3.3
|
%
|
|
9,586
|
|
10.6
|
%
|
Elimination intersegment other services
|
|
|
(26,979)
|
|
(1.0)
|
%
|
|
(16,477)
|
|
(0.6)
|
%
|
|
(10,502)
|
|
63.7
|
%
|
Third party other services
|
|
|
72,874
|
|
2.9
|
%
|
|
73,790
|
|
2.7
|
%
|
|
(916)
|
|
(1.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,573,432
|
|
100.0
|
%
|
$
|
2,730,408
|
|
100.0
|
%
|
$
|
(156,976)
|
|
(5.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Increase / (Decrease)
|
|
|
|
|
|
|
Margin
|
|
|
|
|
Margin
|
|
|
|
|
|
|
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
Dollars
|
|
Percentage
|
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient services
|
|
$
|
222,130
|
|
10.0
|
%
|
$
|
276,847
|
|
11.8
|
%
|
$
|
(54,717)
|
|
(19.8)
|
%
|
Rehabilitation therapy services
|
|
|
54,658
|
|
11.6
|
%
|
|
4,481
|
|
0.9
|
%
|
|
50,177
|
|
1,119.8
|
%
|
Other services
|
|
|
1,183
|
|
1.2
|
%
|
|
315
|
|
0.3
|
%
|
|
868
|
|
275.6
|
%
|
Corporate and eliminations
|
|
|
(102,050)
|
|
—
|
%
|
|
(93,013)
|
|
—
|
%
|
|
(9,037)
|
|
9.7
|
%
|
EBITDA
|
|
$
|
175,921
|
|
6.8
|
%
|
$
|
188,630
|
|
6.9
|
%
|
$
|
(12,709)
|
|
(6.7)
|
%
|
A summary of our unaudited condensed consolidating statement of operations follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
|
|
|
|
|
Rehabilitation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient
|
|
Therapy
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Services
|
|
Services
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
Net revenues
|
|
$
|
2,212,410
|
|
$
|
471,251
|
|
$
|
99,800
|
|
$
|
53
|
|
$
|
(210,082)
|
|
$
|
2,573,432
|
|
Salaries, wages and benefits
|
|
|
996,808
|
|
|
387,777
|
|
|
56,939
|
|
|
—
|
|
|
—
|
|
|
1,441,524
|
|
Other operating expenses
|
|
|
895,025
|
|
|
28,816
|
|
|
40,957
|
|
|
—
|
|
|
(210,083)
|
|
|
754,715
|
|
General and administrative costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,921
|
|
|
—
|
|
|
78,921
|
|
Lease expense
|
|
|
63,928
|
|
|
—
|
|
|
643
|
|
|
611
|
|
|
—
|
|
|
65,182
|
|
Depreciation and amortization expense
|
|
|
101,080
|
|
|
6,332
|
|
|
337
|
|
|
7,249
|
|
|
—
|
|
|
114,998
|
|
Interest expense
|
|
|
186,647
|
|
|
27
|
|
|
18
|
|
|
46,300
|
|
|
—
|
|
|
232,992
|
|
Loss on early extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,785
|
|
|
—
|
|
|
9,785
|
|
Investment income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,678)
|
|
|
—
|
|
|
(2,678)
|
|
Other (income) loss
|
|
|
(22,230)
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
(22,152)
|
|
Transaction costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,207
|
|
|
—
|
|
|
15,207
|
|
Long-lived asset impairments
|
|
|
55,617
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55,617
|
|
Goodwill and identifiable intangible asset impairments
|
|
|
1,132
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,132
|
|
Equity in net (income) loss of unconsolidated affiliates
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(506)
|
|
|
764
|
|
|
258
|
|
(Loss) income before income tax benefit
|
|
|
(65,597)
|
|
|
48,299
|
|
|
828
|
|
|
(154,836)
|
|
|
(763)
|
|
|
(172,069)
|
|
Income tax benefit
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(539)
|
|
|
—
|
|
|
(539)
|
|
(Loss) income from continuing operations
|
|
$
|
(65,597)
|
|
$
|
48,299
|
|
$
|
828
|
|
$
|
(154,297)
|
|
$
|
(763)
|
|
$
|
(171,530)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
|
|
|
Rehabilitation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient
|
|
Therapy
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Services
|
|
Services
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
Net revenues
|
|
$
|
2,353,279
|
|
$
|
499,134
|
|
$
|
89,940
|
|
$
|
327
|
|
$
|
(212,272)
|
|
$
|
2,730,408
|
|
Salaries, wages and benefits
|
|
|
1,089,932
|
|
|
414,696
|
|
|
59,268
|
|
|
—
|
|
|
—
|
|
|
1,563,896
|
|
Other operating expenses
|
|
|
901,002
|
|
|
43,645
|
|
|
29,762
|
|
|
—
|
|
|
(212,272)
|
|
|
762,137
|
|
General and administrative costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,237
|
|
|
—
|
|
|
86,237
|
|
Lease expense
|
|
|
72,766
|
|
|
14
|
|
|
595
|
|
|
959
|
|
|
—
|
|
|
74,334
|
|
Depreciation and amortization expense
|
|
|
107,817
|
|
|
7,613
|
|
|
339
|
|
|
8,827
|
|
|
—
|
|
|
124,596
|
|
Interest expense
|
|
|
206,642
|
|
|
28
|
|
|
19
|
|
|
42,353
|
|
|
—
|
|
|
249,042
|
|
Loss on early extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,301
|
|
|
—
|
|
|
2,301
|
|
Investment income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,501)
|
|
|
—
|
|
|
(2,501)
|
|
Other loss (income)
|
|
|
12,732
|
|
|
732
|
|
|
—
|
|
|
(240)
|
|
|
—
|
|
|
13,224
|
|
Transaction costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,806
|
|
|
—
|
|
|
6,806
|
|
Customer receivership and other related charges
|
|
|
—
|
|
|
35,566
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,566
|
|
Equity in net (income) loss of unconsolidated affiliates
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,131)
|
|
|
909
|
|
|
(222)
|
|
Loss before income tax expense
|
|
|
(37,612)
|
|
|
(3,160)
|
|
|
(43)
|
|
|
(143,284)
|
|
|
(909)
|
|
|
(185,008)
|
|
Income tax expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,087
|
|
|
—
|
|
|
4,087
|
|
Loss from continuing operations
|
|
$
|
(37,612)
|
|
$
|
(3,160)
|
|
$
|
(43)
|
|
$
|
(147,371)
|
|
$
|
(909)
|
|
$
|
(189,095)
|
|
Net Revenues
Net revenues for the six months ended June 30, 2018 decreased by $157.0 million, or 5.7%, as compared with the six months ended June 30, 2017.
Inpatient Services
– Revenue decreased $141.6 million, or 6.0%, in the six months ended June 30, 2018 as compared with the same period in 2017. On a same-store basis, excluding 49 divested underperforming facilities and the development of two additional facilities on comparability, and the $40.3 million revenue reduction for the adoption of ASC 606, inpatient services revenue declined $22.0 million, or 1.0%. This same-store decrease is principally due to a decline in the occupancy and skilled mix of legacy Genesis inpatient facilities, partially offset by increased payment rates. We attribute the decline in occupancy and skilled mix principally to the impact of healthcare reforms resulting in lower lengths of stay among our skilled patient population and lower admissions caused by initiatives among acute care providers, managed care payers and conveners to divert certain skilled nursing referrals to home health or other community based care settings.
For an expanded discussion regarding the factors influencing our census decline, see Item 1, “
Business – Recent Legislative, Regulatory and other Governmental Actions Affecting Revenue
” in our Annual Report on Form 10-K filed with the SEC, as well as “
Key Performance and Valuation Measures
” in this MD&A for quantification of the census trends and revenue per patient day.
Rehabilitation Therapy Services
– Revenue decreased $14.5 million, or 4.8% comparing the six months ended June 30, 2018 with the same period in 2017. Of that decrease, $48.9 million is due to lost contract business, offset by $39.6 million attributed to new contracts. The adoption of ASC 606 resulted in a reduction of revenue of $6.2 million. The remaining increase of $1.0 million is principally due to higher rates to existing contract customers and increased Medicare Part B rates, partially offset by reduced volume of services provided to existing customers.
Other Services
– Revenue decreased $0.9 million, or 1.2% in the six months ended June 30, 2018 as compared with the same period in 2017. Our other services revenue, comprised mainly of our physician services and staffing services businesses, was relatively flat with increased service revenue in the physician service business offset by some regional reduction in volumes of our staffing services business.
EBITDA
EBITDA for the six months ended June 30, 2018 decreased by $12.7 million, or 6.7%, as compared with the six months ended June 30, 2017. Excluding the impact of (gain) loss on extinguishment of debt, other (income) loss, transaction costs , customer receivership and related charges, long-lived asset impairments and goodwill and identifiable intangible asset impairments, EBITDA decreased $11.0 million, or 4.5% when compared with the same period in 2017. The adoption of ASC 606 did not affect comparability of EBITDA or EBITDA as adjusted among the periods presented. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.
Inpatient Services
– EBITDA decreased by $54.7 million, or 19.8% for the six months ended June 30, 2018 as compared with the same period in 2017. Excluding the impact of other loss, long-lived asset impairments and goodwill and identifiable intangible asset impairments, EBITDA as adjusted decreased $32.9 million, or 11.4% when compared with the same period in 2017. On a same store basis, the inpatient EBITDA as adjusted decreased $14.1 million. Of that same-store decline, our self-insurance programs resulted in an increase of $19.1 million EBITDA as adjusted in the six months ended June 30, 2018 as compared with the same period in 2017. While our self-insurance programs are performing as anticipated with reduced volumes related to the implementation of our portfolio optimization strategies and within normal claims reporting patterns of our same-store operations, we are also seeing reduced pressures in particular in our general and professional liability claims experience. We believe this is due to the combination of tort reforms in key states that have had historically high rates of claims volume and severity as well as a recognition by the plaintiffs firms that this industry cannot sustain the level of claims historically brought by them. Reductions in salaries, wages and benefits, beyond those related to self-insured workers compensation and health benefits, are principally attributed to the transition from in-house to fully outsourced dietary support functions in the second fiscal quarter of 2017. That transition resulted in a shift of a commensurate amount of cost to purchased services expense in other operating expenses. On a same-store basis, lease expense for the six months ended June 30, 2018 as compared with the same period in 2017 decreased $5.4 million. This reduction is principally due to the benefit of two quarters of the Sabra rent reduction, offset by the non-cash straight-line adjustments to those operating leases. See “
Restructuring Transactions – Sabra Master Leases
” in this MD&A. The remaining $57.4 million decrease in EBITDA, as adjusted, of the segment is attributed to the continued pressures on skilled mix and overall occupancy of our inpatient facilities described above under “
Net Revenues
.” Nursing wage inflation was relatively flat comparing the six months ended June 30, 2018 as compared with the same period in 2017.
Rehabilitation Therapy Services
– EBITDA increased by $50.2 million, or 1,119.8%, for the six months ended June 30, 2018 as compared with the same period in 2017. Excluding the impact of customer receivership and other related charges, EBITDA as adjusted increased $13.9 million, or 34.0% when compared with the same period in 2017. New therapy contracts and service fees exceeded lost contracts by $0.5 million. Startup losses of our operations in China for the six months ended June 30, 2018 decreased $3.2 million as compared with the same period in 2017. The remaining increase of EBITDA as adjusted of $10.2 million is principally attributed to overhead cost reductions, favorable average costs of labor and rate increases, partially offset by contraction of services to existing customers referenced above in “Net Revenues”, higher average costs of labor and by therapist efficiency which declined to 67.9% in the six months ended June 30, 2018 compared with 68.0% in the comparable period in the prior year.
Currently, we operate through affiliates in China a total of 13 locations comprised of the four rehabilitation clinics in Guangzhou, Shanghai and Hong Kong, a rehabilitation facility, and inpatient and outpatient rehabilitation services in five hospital joint ventures and three nursing homes. Startup and development costs of these Chinese ventures are expected to exceed revenues for the remainder of fiscal 2018.
Other Services
— EBITDA increased $0.9 million for the six months ended June 30, 2018 as compared with the same period in 2017. This improvement was principally driven by increased productivity in our physician service business.
Corporate and Eliminations
— EBITDA decreased $9.0 million, or 9.7%, for the six months ended June 30, 2018 as compared with the same period in 2017. EBITDA of our corporate function includes other income, charges, gains or losses associated with transactions that in our chief operating decision maker’s view are outside of the scope of our reportable segments. These other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $19.6 million of the net decrease in EBITDA. Corporate overhead costs decreased $7.3 million, or 8.5%, in the six months ended June 30, 2018 as compared with the same period in 2017. This decrease is principally due to the focus on cost containment to address market pressures on our business. The remaining decrease in EBITDA of $0.2 million is primarily the result of a reduction in investment earnings from our unconsolidated affiliates accounted for on the equity method.
(Gain) loss on early extinguishment of debt
– On March 6, 2018, we entered into a new asset based lending facility agreement, qualifying as an extinguishment of the previous revolving credit facility, and resulting in the write-off of $9.8 million of deferred financing fees related to the previous revolving credit facility. See Note 3 – “
Significant Transactions and Events – Restructuring Transactions
” and Note 8 – “
Long-term Debt.
”
Other (income) loss
— Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other income, net, of $22.2 million for the six months ended June 30, 2018 principally represents non-cash gains on leases exited or modified in the period. Other loss recognized for the three months ended June 30, 2017 of $13.2 million, is principally attributable to the non-cash exit costs of leases exited in that period.
Transaction costs
— In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the six months ended June 30, 2018 and 2017 were $15.2 million and $6.8 million, respectively.
Long-lived asset impairments
— In the six months ended June 30, 2018 we recognized impairments of property and equipment of $55.6 million. For more information about the conditions of the business which contributed to these impairments, see “
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
” and “
Financial Condition and Liquidity Considerations
” in this MD&A, as well as Note 14 – “
Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.
”
Goodwill and identifiable intangible asset impairments
— In the six months ended June 30, 2018 we recognized impairments of identifiable intangible favorable lease assets of $1.1 million. For more information about the conditions of the business which contributed to these impairments, see “
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
” and “
Financial Condition and Liquidity Considerations
” in this MD&A, as well as Note 14 – “
Asset Impairment Charges -
Identifiable Intangible Assets with a Definite Useful Life.
”
Other Expense
The following discussion applies to the consolidated expense categories between consolidated EBITDA and (loss) income from continuing operations of all reportable segments, other services, corporate and eliminations in our consolidating statement of operations for the six months ended June 30, 2018 as compared with the same period in 2017.
Depreciation and amortization
— Each of our reportable segments, other services and corporate overhead have depreciating property, plant and equipment, including depreciation on leased properties accounted for as capital leases or as a financing obligation. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense decreased $9.6 million in the six months ended June 30, 2018 as compared with the same period in 2017. On a same-store basis, depreciation and amortization decreased $11.1 million in the six months ended June 30, 2018 as compared with the same period in 2017 The six months ended June 30, 2017 included $4.4 million of amortization expense related to intangible management contracts of third party operations in Texas. Those contracts became impaired during third quarter 2017 when the Texas MPAP program failed to be renewed, resulting in $0 amortization expense in the six months ended June 30, 2018. Depreciation and amortization expense in the six months ended June 30, 2018 decreased by $3.6 million for the combined impact of impairments of property and equipment and reassessed useful lives of certain long-lived assets. The remaining decrease of $7.1 million is principally due to divestiture activity in the inpatient services segment.
Interest expense
— Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as capital leases or financing obligations. Interest expense decreased $16.1 million in the six months ended June 30, 2018 as compared with the same period 2017. On a same store basis, interest expense is down $16.1 million in the six months ended June 30, 2018 as compared with the same period in 2017. That decrease is principally attributed to the net impact of the Restructuring Transactions, which lowered the debt service payments required under the Welltower Master Lease Amendment, which is accounted for as a financing obligation, and resulted in a lower effective interest rate. See “
Restructuring Transactions
” in this MD&A.
Income tax expense
— For the six months ended June 30, 2018, we recorded an income tax benefit of $0.5 million from continuing operations representing an effective tax rate of 0.3% compared to an income tax expense of $4.1 million from continuing operations, representing an effective tax rate of (2.2)% for the same period in 2017. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2018, we have determined that the valuation allowance is still necessary.
Net Loss Attributable to Genesis Healthcare, Inc.
The following discussion applies to categories between loss from continuing operations and net loss attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the six months ended June 30, 2018 as compared with the same period in 2017.
Net loss attributable to noncontrolling interests
— On February 2, 2015, FC-GEN combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 4.8 million Class C common stock, leaving a remaining direct noncontrolling economic interest of 36.8%. For the six months ended June 30, 2018 and 2017, a loss of $64.4 million and $74.3 million, respectively, has been attributed to the Class C common stock.
In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any variable interest entities (VIEs) where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to
receive a majority of the entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the six months ended June 30, 2018 and 2017, income of $1.0 million and $1.1 million, respectively, has been attributed to these unaffiliated third parties.
Liquidity and Capital Resources
Cash Flow and Liquidity
The following table presents selected data from our consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Net cash provided by operating activities
|
|
|
$
|
11,469
|
|
$
|
69,127
|
|
Net cash (used in) provided by investing activities
|
|
|
|
(35,082)
|
|
|
43,736
|
|
Net cash provided by (used in) financing activities
|
|
|
|
108,047
|
|
|
(98,261)
|
|
Net increase in cash, cash equivalents and restricted cash and equivalents
|
|
|
|
84,434
|
|
|
14,602
|
|
Beginning of period
|
|
|
|
58,638
|
|
|
63,460
|
|
End of period
|
|
|
$
|
143,072
|
|
$
|
78,062
|
|
Net cash provided by operating activities in the six months ended June 30, 2018 decreased $57.7 million compared with the same period in 2017. The decrease in cash provided by operations is principally due to an increase in trade payable disbursements in the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. The Restructuring Transactions executed in the first quarter of 2018, as well as the acceleration of payments for self-insurance programs, resulted in significant paydown of trade payables that had accumulated through December 31, 2017.
Net cash used in investing activities in the six months ended June 30, 2018 was $35.1 million compared to net cash provided by investing activities of $43.7 million in the six months ended June 30, 2017. There were no asset sales in the six months ended June 30, 2018 compared to $79.6 million of asset sales in the same period in 2017. Routine capital expenditures for the six months ended June 30, 2018 decreased by $6.7 million as compared with the same period in the prior year. The remaining incremental use of cash in the six months ended June 30, 2018 as compared to the same period in the prior year of $5.9 million was due primarily to purchases exceeding sales and maturities of marketable securities.
Net cash provided by financing activities in the six months ended June 30, 2018 was $108.0 million compared to net cash used in financing activities of $98.3 million in the six months ended June 30, 2017. The net increase in cash provided by financing activities of $206.3 million is principally attributed to debt borrowings exceeding debt repayments in the six months ended June 30, 2018 as compared to the same period in 2017. In the six months ended June 30, 2018, we had proceeds from the issuance of debt of $562.4 million, which includes $438.0 million from the ABL Credit Facilities, $73.0 million from the MidCap Real Estate Loans, $40.0 million from the 2018 Term Loan and $10.9 million from the refinancing of a bridge loan with a HUD insured loan. In the six months ended June 30, 2017, we received $17.5 million in proceeds from HUD insured financing on two skilled nursing facilities. Repayment of long-term debt in the six months ended June 30, 2018 was $457.4 million compared to $99.4 million in the same period of the prior year. The increase in cash used was due primarily to $363.2 million in the retirement of our prior Revolving Credit Facilities, $69.8 million in the paydown of Welltower Real Estate Loans and $9.9 million in the payoff of a bridge loan with the proceeds from a HUD-insured refinancing. In the six months ended June 30, 2017, we used $72.1 million of the proceeds from the sale of 18 skilled nursing facilities located in Kansas, Missouri, Nebraska and Iowa and the aforementioned $17.5 million in HUD proceeds to repay indebtedness. The remaining increase in cash used to repay long-term debt of $4.7 million relates to an increase in routine debt payments. In the six months ended June 30, 2018, we had net borrowings under the revolving credit facilities of $20.8 million as compared with $19.3 million of net repayments under the revolving credit facilities in the same period in 2017. In the six months ended June 30, 2018, we paid debt issuance costs of $16.7 million, which includes $13.6 million in fees for the ABL Credit Facilities and $2.9 million in fees for the MidCap Real Estate Loans, compared to $2.7 million in debt issuance costs paid in the same period in 2017. In the six months ended June 30, 2017, we received $6.1 million in tenant improvement allowances from landlords. The remaining increase in net cash used in financing activities of $0.6 million is due primarily to debt settlement costs in the six months ended June 30, 2018.
Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our ABL Credit Facilities.
The objectives of our capital planning strategy are to ensure we maintain adequate liquidity and flexibility. Pursuing and achieving those objectives allows us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment. Maintaining adequate liquidity is a function of our results of operations, unrestricted cash and cash equivalents and our available borrowing capacity.
At June 30, 2018, we had cash and cash equivalents of $78.9 million and available borrowings under our ABL Credit Facilities of $55.6 million. During the six months ended June 30, 2018, we maintained liquidity sufficient to meet our working capital, capital expenditure and development activities.
Restructuring Transactions
Overview
During the quarter ended June 30, 2018, we entered into a number of agreements, amendments and new financing facilities further described below in an effort to strengthen significantly our capital structure. In total, the Restructuring Transactions are estimated to reduce our annual cash fixed charges by approximately $62.0 million beginning in 2018 and provided $70.0 million of additional cash and borrowing availability, increasing our liquidity and financial flexibility.
In connection with the Restructuring Transactions, we entered into a new asset based lending facility agreement, replacing our prior Revolving Credit Facilities and eliminating its forbearance agreement. Also in connection with the Restructuring Transactions, we amended the financial covenants in all of our material loan agreements and all but two of our material master leases. Financial covenants beginning in 2018 were amended to account for changes in our capital structure as a result of the Restructuring Transactions and to account for the current business climate. We received waivers from the counterparties to two of our material master leases, for which agreements to amend financial covenants were not attained, with respect to compliance with financial covenants.
Asset Based Lending Facilities
On March 6, 2018, we entered into a new asset based lending facility agreement with MidCap. The agreement provides for a $555 million asset based lending facility comprised of (a) a $325 million first lien term loan facility, (b) a $200 million first lien revolving credit facility and (c) a $30 million delayed draw term loan facility.
The ABL Credit Facilities have a five-year term and proceeds were used to replace and repay in full our existing $525 million Revolving Credit Facilities scheduled to mature on February 2, 2020. The ABL Credit Facilities include a springing maturity clause that would accelerate its maturity 90 days prior to the maturity of the Term Loan Agreements, Welltower Real Estate Loans or MidCap Real Estate Loans, in the event those agreements are not extended or refinanced. The revolving credit facility includes a swinging lockbox arrangement whereby we transfer all funds deposited within designated lockboxes to MidCap on a daily basis and then draw from the revolving credit facility as needed. In accordance with U.S. GAAP, we have presented the entire revolving credit facility borrowings balance of $83.8 million in current installments of long-term debt at June 30, 2018. Despite this classification, we expect that we will have the ability to borrow and repay on the revolving credit facility through its maturity on March 6, 2023.
Borrowings under the term loan and revolving credit facility components of the ABL Credit Facilities bear interest at a 90-day LIBOR rate (subject to a floor of 0.5%) plus an applicable margin of 6%. Borrowings under the delayed draw component bear interest at a 90-day LIBOR rate (subject to a floor of 1%) plus an applicable margin of 11%. Borrowing levels under the term loan and revolving credit facility components of the ABL Credit Facilities are limited to a borrowing base that is computed based upon the level of eligible accounts receivable.
The ABL Credit Facilities contain representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default and security interests that are customarily required for similar financings.
Term Loan Amendment
On March 6, 2018, we entered into an amendment to the term loan with affiliates of Welltower and Omega (the Term Loan Amendment) pursuant to which we borrowed an additional $40 million to be used for certain debt repayment and general corporate purposes (the 2018 Term Loan).
The 2018 Term Loan will mature July 29, 2020 and bears interest at a rate equal to 10.0% per annum, with up to 5% per annum to be paid in kind. The Term Loan Amendment also changes the interest rate applicable to the initial loans funded on July 29, 2016 to be equal to 14% per annum, with up to 9% per annum to be paid in kind.
Among other things, the Term Loan Amendment eliminates any principal amortization payments on any of the loans prior to maturity and modifies the financial covenants beginning in 2018.
Welltower Master Lease Amendment
On February 21, 2018, we entered into a definitive agreement with Welltower to amend the Welltower Master Lease (the Welltower Master Lease Amendment). The Welltower Master Lease Amendment reduces our annual base rent payment by $35 million effective retroactively as of January 1, 2018, reduces the annual rent escalator from approximately 2.9% to 2.5% on April 1, 2018 and further reduces the annual rent escalator to 2.0% beginning January 1, 2019. In addition, the Welltower Master Lease Amendment extends the initial term of the master lease by five years to January 31, 2037 and extends the renewal term of the master lease by five years to December 31, 2048. The Welltower Master Lease Amendment also provides a potential upward rent reset, conditioned upon achievement of certain upside operating metrics, effective January 1, 2023. If triggered, the incremental rent from the rent reset is capped at $35 million.
Omnibus Agreement
On February 21, 2018, we entered into an Omnibus Agreement with Welltower and Omega, pursuant to which Welltower and Omega committed to provide up to $40 million in new term loans and amend the current term loan to, among other things, accommodate a refinancing of our existing asset based credit facility, in each case subject to certain conditions, including the completion of a restructuring of certain of our other material debt and lease obligations. See
Term Loan Amendment
above.
The Omnibus Agreement also provides that upon satisfying certain conditions, including raising new capital that is used to pay down certain indebtedness owed to Welltower and Omega, (a) $50 million of outstanding indebtedness owed to Welltower will be written off and (b) we may request conversion of not more than $50 million of the outstanding balance of our Welltower real estate loans into equity. If the proposed equity conversion would result in any adverse REIT qualification, status or compliance consequences to Welltower, then the debt that would otherwise be converted to equity shall instead be converted into a loan incurring paid in kind interest at 2% per annum compounded quarterly, with a term of ten years commencing on the date the applicable conditions precedent to the equity conversion have been satisfied. Moreover, we agreed to support Welltower in connection with the sale of certain of Welltower’s interests in facilities covered by the Welltower Master Lease, including negotiating and entering into definitive new master lease agreements with third party buyers.
In connection with the Omnibus Agreement, we agreed to issue warrants to Welltower and Omega to purchase 900,000 shares and 600,000 shares, respectively, of our Class A Common Stock at an exercise price equal to $1.33 per share. Issuance of the warrant to Welltower is subject to the satisfaction of certain conditions. The warrants may be exercised at any time during the period commencing six months from the date of issuance and ending five years from the date of issuance.
Welltower Real Estate Loans Amendment
On February 21, 2018, we entered into an amendment (the Real Estate Loan Amendments) to the Welltower real estate loan (Welltower Real Estate Loans) agreements. The Real Estate Loan Amendments adjust the annual interest rate beginning February 15, 2018 to 12%, of which 7% will be paid in cash and 5% will be paid in kind. Previously, these loans carried a 10.25% cash pay interest rate that increased by 0.25% annually on January 1.
In connection with the Real Estate Loan Amendments, we agreed to make commercially reasonable efforts to secure commitments by April 1, 2018 to repay no less than $105.0 million of the Welltower Real Estate Loans. In the event we are unsuccessful securing such commitments or otherwise reducing the outstanding obligation of the Welltower Real Estate Loans, the cash pay component of the interest rate will be increased by approximately $2.0 million annually while the paid in kind component of the interest rate will be decreased by a corresponding amount. As of June 30, 2018, we secured repayments or commitments totaling approximately $82 million.
MidCap Real Estate Loans
On March 30, 2018, we entered into the MidCap Real Estate Loans which have combined available proceeds of $75.0 million, $73.0 million of which was drawn as of June 30, 2018. The MidCap Real Estate Loans are secured by 18 skilled nursing facilities and are subject to a five-year term maturing on March 30, 2023. The maturity of the MidCap Real Estate Loans will accelerate in the event the ABL Credit Facilities are repaid in full and terminated. The loans, which are interest only in the first year, are subject to an annual interest rate equal to LIBOR (subject to a floor of 1.5%) plus an applicable margin of 5.85%. Beginning April 1, 2019, mandatory principal payments shall commence with the balance of the loans to be repaid at maturity. Proceeds from the MidCap Real Estate Loans were used to repay partially the Welltower Real Estate Loans.
Sabra Master Leases
In 2017, we entered into a definitive agreement with Sabra resulting in permanent and unconditional annual cash rent savings of $19 million, which became effective January 1, 2018. Sabra continues to pursue and we continue to support Sabra’s previously announced sale of our leased assets. At the closing of such sales, we expect to enter into lease agreements with new landlords for a majority of the assets currently leased with Sabra. For the six months ended June 30, 2018, we have terminated the Sabra lease agreement of 20 skilled nursing facilities and one assisted/senior living facility but continue to operate these facilities under new lease arrangements with different landlords. For the six months ended June 30, 2018, we have terminated the Sabra lease agreement and fully divested of six skilled nursing facilities.
Other Financing Activities
HUD Insured Refinancings
During the six months ended June 30, 2018, we completed one mortgage refinancing through HUD totaling $10.9 million and retired fully a real estate loan of $9.9 million.
Divestiture of Non-Strategic Facilities
Consistent with our strategy to divest assets in non-strategic markets, we have exited the inpatient operations of 20 skilled nursing facilities in five states, including:
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·
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The closure of one skilled nursing facility located in Massachusetts on February 28, 2018 that was subject to a master lease agreement with Welltower. A loss was recognized totaling $0.3 million.
|
|
·
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|
The sale of five skilled nursing facilities located in Massachusetts and Kentucky on April 1, 2018 that were subject to a master lease agreement with
Sabra
. A gain was recognized totaling $0.3 million.
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·
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|
The lease expiration of one skilled nursing facility located in California on June 1, 2018. A loss was recognized totaling $0.9 million.
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·
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The sale and lease termination of eight skilled nursing facilities located in Pennsylvania and four skilled nursing facilities located in New Jersey on June 1, 2018 and June 13, 2018, respectively. These skilled nursing facilities were subject to a master lease agreement with Second Spring Healthcare Investments (
Second Spring)
. A gain was recognized totaling $14.9 million.
|
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·
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|
The lease expiration of one behavioral outpatient clinic located in California on July 1, 2018. A loss was recognized totaling $0.2 million.
|
|
·
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The sale and lease termination of three skilled nursing facilities located in Indiana and Maryland on August 1, 2018 that were subject to a master lease agreement with Welltower.
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·
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|
The sale and lease termination of one skilled nursing facility located in Pennsylvania on August 1, 2018 that was subject to a master lease agreement with Second Spring.
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·
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The sale and lease termination of one skilled nursing facility located in Texas on August 1, 2018.
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Financial Covenants
The ABL Credit Facilities, the Term Loan Agreement and the Welltower Real Estate Loans (collectively, the Credit Facilities) each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio and maximum capital expenditures. At June 30, 2018, we were in compliance with all of the financial covenants contained in the Credit Facilities.
We have master lease agreements with Welltower, Sabra and Omega (collectively, the Master Lease Agreements). Our Master Lease Agreements each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and minimum liquidity. At June 30, 2018, we were in compliance with the covenants contained in the Master Lease Agreements.
We have a master lease agreement with Second Spring involving 52 of our facilities. We did not meet a financial covenant contained in this master lease agreement at June 30, 2018. We received a waiver for this covenant breach.
We have a master lease agreement with Cindat Best Years Welltower JV LLC involving 28 of our facilities. We did not meet certain financial covenants contained in this master lease agreement at June 30, 2018. We received a waiver for this covenant breach.
At June 30, 2018, we did not meet certain financial covenants contained in seven leases related to 45 of our facilities, which are not included in the Restructuring Transactions. We are and expect to continue to be current in the timely payment of our obligations under such leases. These leases do not have cross default provisions, nor do they trigger cross default provisions in any of our other loan or lease agreements. We will continue to work with the related credit parties to amend such leases and the related financial covenants. We do not believe the breach of such financial covenants has a material adverse impact on us at June 30, 2018.
Our ability to maintain compliance with our covenants depends in part on management’s ability to increase revenue and control costs. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with our quarterly covenant compliance requirements. Should we fail to comply with our covenants at a future measurement date, we would, absent necessary and timely waivers and/or amendments, be in default under certain of our existing credit agreements. To the extent any cross-default provisions may apply, the default would have an even more significant impact on our financial position.
Concentration of Credit Risk
We are exposed to the credit risk of our third-party customers, many of whom are in similar lines of business as us and are exposed to the same systemic industry risks of operations, as we, resulting in a concentration of risk. These include organizations that utilize our rehabilitation services, staffing services and physician service offerings, engaged in similar business activities or having economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in regulatory and systemic industry conditions.
Management assesses its exposure to loss on accounts at the customer level. The greatest concentration of risk exists in our rehabilitation services business where we have over 200 distinct customers, many being chain operators with more than one location. The four largest customers of our rehabilitation services business comprise $62.1 million, approximately 54%, of the net outstanding contract receivables in the rehabilitation services business at June 30, 2018. One customer, which is a related party of ours, comprises $36.5 million, approximately 32%, of the net outstanding contract receivables in the rehabilitation services business at June 30, 2018. An adverse event impacting the solvency of several of these large customers resulting in their insolvency or other economic distress would have a material impact on us.
Financial Condition and Liquidity Considerations
The accompanying consolidated financial statements have been prepared on the basis we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern for 12 months following the date our financial statements were issued (August 9, 2018). Management considered the recent results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due before August 9, 2019. Based upon such considerations, management determined that we are able to continue as a going concern for 12 months following the date of issuance of these financial statements (August 9, 2018).
Our results of operations have been negatively impacted by the persistent pressure of healthcare reforms enacted in recent years. This challenging operating environment has been most acute in our inpatient segment, but also has had a detrimental effect on our rehabilitation therapy segment and its customers. In recent years, we have implemented a number of cost mitigation strategies to offset the negative financial implications of this challenging operating environment. These strategies have been successful in recent years, however, the negative impact of continued reductions in skilled patient admissions, shortening lengths of stay, escalating wage inflation and professional liability losses, combined with the increased cost of capital through escalating lease payments accelerated in 2017.
In response to these issues, we entered into a number of agreements, amendments and new financing facilities described under
Restructuring Transactions
above. In total, these agreements and amendments are estimated to reduce our annual cash fixed charges by approximately $62.0 million beginning in 2018. The new financing agreements provided $70.0 million of additional cash and borrowing availability, increasing our liquidity and financial flexibility. In connection with the Restructuring Transactions, we entered into the ABL Credit Facilities agreement, replacing our prior Revolving Credit Facilities. Also in connection with the Restructuring Transactions, we amended the financial covenants in all of our material loan agreements and all but two of our material master leases. Financial covenants beginning in 2018 were amended to account for changes in our capital structure as a result of the Restructuring Transactions and to account for the current business climate. We received waivers from the counterparties to two of our material master leases, for which agreements to amend financial covenants were not attained, with respect to compliance with financial covenants.
Risk and Uncertainties
Should we fail to comply with our debt and lease covenants at a future measurement date, we could, absent necessary and timely waivers and/or amendments, be in default under certain of our existing debt and lease agreements. To the extent any cross-default provisions may apply, the default could have an even more significant impact on our financial position.
Although we are in compliance and project to be in compliance with our material debt and lease covenants, the ongoing uncertainty related to the impact of healthcare reform initiatives may have an adverse impact on our ability to remain in compliance with our covenants. Such uncertainty includes, changes in reimbursement patterns, patient admission patterns, bundled payment arrangements, as well as potential changes to the Patient Protection and Affordable Care Act of 2010 currently being considered in Congress, among others.
There can be no assurance that the confluence of these and other factors will not impede our ability to meet our debt and lease covenants in the future.
Contractual Obligations
The following table sets forth our contractual obligations, including principal and interest, but excluding non-cash amortization of discounts or premiums and debt issuance costs established on these instruments, as of June 30, 2018 (in thousands).
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More than
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Total
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1 Yr.
|
|
2-3 Yrs.
|
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4-5 Yrs.
|
|
5 Yrs.
|
|
Asset based lending facilities
|
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$
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539,694
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$
|
111,296
|
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$
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55,010
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$
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373,388
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$
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—
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Term loan agreements
|
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221,620
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|
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8,876
|
|
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212,744
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|
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—
|
|
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—
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Real estate loans
|
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|
410,610
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|
|
23,355
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|
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50,174
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337,081
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|
|
—
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HUD insured loans
|
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427,078
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14,270
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28,540
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28,540
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355,728
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Notes payable
|
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105,861
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10,249
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78,628
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|
16,984
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|
|
—
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Mortgages and other secured debt (recourse)
|
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|
12,799
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|
|
10,846
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|
|
1,953
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—
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—
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Mortgages and other secured debt (non-recourse)
|
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24,035
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2,511
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|
4,923
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4,527
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|
|
12,074
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Financing obligations
|
|
|
7,931,428
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|
234,780
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|
|
483,389
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|
|
487,007
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|
|
6,726,252
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|
Capital lease obligations
|
|
|
3,863,996
|
|
|
91,414
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|
|
181,912
|
|
|
189,910
|
|
|
3,400,760
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Operating lease obligations
|
|
|
953,430
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|
|
121,271
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|
|
239,895
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|
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191,376
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|
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400,888
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$
|
14,490,551
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$
|
628,868
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|
$
|
1,337,168
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|
$
|
1,628,813
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|
$
|
10,895,702
|
|
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates. To the extent these interest rates increase, our interest expense will increase, which will make our interest payments and funding other fixed costs more expensive, and our available cash flow may be adversely affected. We routinely monitor risks associated with fluctuations in interest rates and consider the use of derivative financial instruments to hedge these exposures. We do not enter into derivative financial instruments for trading or speculative purposes nor do we enter into energy or commodity contracts.
Interest Rate Exposure—Interest Rate Risk Management
Our ABL Credit Facilities and MidCap Real Estate Loans expose us to variability in interest payments due to changes in interest rates. As of June 30, 2018, there is no derivative financial instrument in place to limit that exposure.
A 1% increase in the applicable interest rate on our variable-rate debt would result in an approximately $5.0 million increase in our annual interest expense.
Our investments in marketable securities as of June 30, 2018 consisted of investment grade government and corporate debt securities and money market funds that have maturities of five years or less. These investments expose us to investment income risk, which is affected by changes in the general level of U.S. and international interest rates and securities markets risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Interest rates are near historic lows, with a risk of interest rates increasing before our current investments mature. While we have the ability and intent to hold our investments to maturity today, rising interest rates could impact our ability to liquidate our investments for a profit and could adversely affect the cost of replacing those investments at the time of maturity with investment of similar return and risk profile. Despite the complex nature of exposure to the securities markets, given the low risk profile, we do not believe a 1% increase in interest rates alone would have a material impact on our net investment income returns.
Item 4.
Controls and Procedures
Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of end of the period covered by this report, the disclosure controls and procedures were effective at that reasonable assurance level.
Changes in Internal Control Over Financial Reporting
Management determined that there were no changes in our internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1.
Legal Proceedings
For information regarding certain pending legal proceedings to which we are a party or our property is subject, see Note 12
—
“
Commitments and Contingencies—Legal Proceedings
,” to our consolidated financial statements included elsewhere in this report, which is incorporated herein by reference.
Item 1A.
Risk Factors
There have been no material changes or additions to the risk factors previously disclosed in Part I, Item 1A, “
Risk Factors
” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which was filed with the SEC on March 16, 2018.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
None.
Item 5.
Other Information
None.
Item 6.
Exhibits
(a)
Exhibits
.
________________
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*
|
Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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GENESIS HEALTHCARE, INC.
|
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Date:
|
August 9, 2018
|
By
|
/S/ GEORGE V. HAGER, JR.
|
|
|
|
George V. Hager, Jr.
|
|
|
|
Chief Executive Officer
|
|
|
|
|
Date:
|
August 9, 2018
|
By
|
/S/ THOMAS DIVITTORIO
|
|
|
|
Thomas DiVittorio
|
|
|
|
Chief Financial Officer
|
|
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|
(Principal Financial Officer and Authorized Signatory)
|
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