Form 8-K Genesis Healthcare, Inc. For: May 09

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 9, 2016 

Genesis Healthcare, Inc.

(Exact name of registrant as specified in its charter)

(610) 444-6350

(Registrant’s telephone number, including area code)

Not Applicable 

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Item 2.02Results of Operations and Financial Condition.  

On May 9, 2016, Genesis Healthcare, Inc. (“Genesis”) issued the press release furnished herewith as Exhibit 99.1 reporting its operating results for the quarter ended March 31, 2016.

Certain information contained in the press release furnished as Exhibit 99.1 with this Current Report on Form 8-K refers to Non-GAAP measures and other definitions specific to Genesis’ businesses.  

Definitions of key performance indicators and Non-GAAP measures used in the press release:

The following is a glossary of terms for some key performance indicators and Non-GAAP measures used in reference to Genesis:

“Actual Patient Days” is defined as the number of residents occupying a bed (or units in the case of an assisted living center) for one qualifying day in that period.

“Adjusted EBITDA” is defined as EBITDA adjusted for (1) the conversion to cash basis leases (2) newly acquired or constructed businesses with start-up losses and (3) other adjustments. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of Genesis’ uses of, and the limitations associated with non-GAAP measures.

“Adjusted EBITDAR” is defined as EBITDAR adjusted for (1) the conversion to cash basis leases (2) newly acquired or constructed businesses with start-up losses and (3) other adjustments. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of Genesis’ 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 Genesis’ uses of, and the limitations associated with non-GAAP measures.

“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 before depreciation and amortization expense, interest expense, lease expense, loss (gain) on extinguishment of debt, other (income) loss, transaction costs, long-lived asset impairment, Skilled Healthcare and other loss contingency expense, income tax expense (benefit) and loss from discontinued operations. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of Genesis’ uses of, and the limitations associated with non-GAAP measures.

“Insurance” refers collectively to commercial insurance and managed care payor sources, but does not include managed care payers 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.

“Pro Forma Adjusted EBITDA” is defined as Adjusted EBITDA further adjusted to assume on a pro forma basis that Genesis and Skilled Healthcare Group, Inc. are combined for all periods presented.  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.

“Pro Forma Adjusted EBITDAR” is defined as Adjusted EBITDAR further adjusted to assume on a pro forma basis that Genesis and Skilled Healthcare Group, Inc. are combined for all periods presented.    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.

“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.

Reasons for Non-GAAP Financial Disclosure:

The press release includes references to EBITDAR, Adjusted EBITDAR, Pro Forma Adjusted EBITDAR, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA which are non-GAAP financial measures (collectively, the Non-GAAP Financial Measures). For purposes of SEC Regulation G, 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. Pursuant to the requirements of Regulation G, Genesis has provided reconciliations of the Non-GAAP Financial Measures to the most directly comparable GAAP financial measures.

Genesis’ management believes that the presentation of these Non-GAAP Financial Measures provides useful information to investors regarding Genesis’ results of operations because these financial measures are useful for trending, analyzing and benchmarking the performance and value of its business. By excluding certain expenses and other items that may not be indicative of its core business operating results, these Non-GAAP Financial Measures:

Genesis uses the Non-GAAP Financial Measures primarily as performance measures and believes that the GAAP financial measure most directly comparable to them is net income (loss). Genesis uses the Non-GAAP Financial Measures as measures to assess the relative performance of its operating businesses, as well as the employees responsible for operating such businesses. The 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 Genesis’ business units, management is better able to evaluate the operating performance of the business unit and the employees responsible for business unit performance. Consequently, management uses these non-GAAP measures to determine the extent to which Genesis’ employees have met performance goals, and therefore may or may not be eligible for incentive compensation awards.

Genesis also uses the Non-GAAP Financial Measures in its annual budget process. Genesis believes these non-GAAP 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 Genesis’ past practice and Genesis believes these measures further enable investors and analysts to compare current non-GAAP measures with non-GAAP measures presented in prior periods.

Although Genesis uses the Non-GAAP Financial Measures as financial measures to assess the performance of Genesis’ business, the use of these non-GAAP measures is limited because they do not consider certain material costs necessary to operate its business. These costs include Genesis’ lease expense (only in the case of EBITDAR, Adjusted EBITDAR and Pro Forma Adjusted EBITDAR), the cost to service its debt, the depreciation and amortization associated with its long-lived assets, losses (gains) on extinguishment of debt, transaction costs, long-lived asset impairment charges, federal and state income tax expenses, the operating results of its discontinued businesses and the income or loss attributed to non-controlling interests. Because the Non-GAAP Financial Measures do not consider these important elements of Genesis’ cost structure, a user of Genesis’ financial information who relies on the Non-GAAP Financial Measures as the only measures of Genesis’ performance could draw an incomplete or misleading conclusion regarding Genesis’ financial performance. Consequently, a user of Genesis’ financial information should consider net income (loss) as an important measure of its financial performance because it provides the most complete measure of Genesis’ performance.

Other companies may define the Non-GAAP Financial Measures differently and, as a result, Genesis’ non-GAAP measures may not be directly comparable to those of other companies. The Non-GAAP Financial Measures do not represent net income (loss), as defined by GAAP. The Non-GAAP Financial Measures should be considered in addition to, not a substitute for, or superior to, GAAP financial measures.

This information and the information contained in the press release shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report on Form 8-K is not incorporated by reference into any filings of the Company made under the Securities Act of 1933, as amended, whether made before or after the date of this Current Report on Form 8-K, regardless of any general incorporation language in the filing, unless specifically stated so therein.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

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 hereunto duly authorized.

EXHIBIT INDEX

Exhibit 99.1

FOR IMMEDIATE RELEASE 

Genesis HealthCare Contact:

Investor Relations

610-925-2000

GENESIS HEALTHCARE

REPORTS FIRST QUARTER 2016 RESULTS

KENNETT SQUARE, PA – (May 9, 2016) – Genesis HealthCare (Genesis, or the Company) (NYSE: GEN), one of the largest post-acute care providers in the United States, today announced operating results for the first quarter ended March 31, 2016. 

Summary

(Unless otherwise noted, all comparisons are made to the first quarter of 2015 presented on a pro forma basis as if the Skilled Healthcare Combination occurred on January 1, 2015)

“Our 2015 initiatives to complete growth oriented transactions like the Revera acquisition, deliver on synergies from the Skilled Healthcare combination, expand our rehabilitation therapy business and execute cost reduction initiatives all served partially to offset persistent and greater than anticipated headwinds impacting our and the industry’s overall occupancy and skilled patient mix,” said George V. Hager, Jr., Chief Executive Officer of Genesis.   

“As we confront this challenging environment in the evolving world of pay-for-value, we expect continued year-over-year pressure and reduction in skilled patient admissions and length of stay for the balance of 2016.  In response, we are intensifying efforts to mitigate the impact of expected weaker demand in order to navigate these near-term changes in the business,” noted Hager.

“Genesis is currently in a transformative phase as we position our operating model to thrive in a world that will increasingly reward value-based providers. It is a future where innovative providers having the best outcomes at the lowest cost will gain a disproportionate market share of post-acute patients.  Genesis is participating in multiple value-based initiatives, including our ACO’s inclusion in the Medicare Shared Savings Program, which allows us to gain share in a meaningful way. Our focus on reducing avoidable hospital readmissions, managing down lengths of stay and voluntarily participating in value-based programs are vital to long-term success.  However, our success with these initiatives creates near-term pressure on skilled census. Despite this pressure, we are confident and optimistic about the long-term opportunities for Genesis to capitalize on our unique clinical capabilities, the strength of our acute care and

managed care relationships, and our market density.  We expect these differentiators will position Genesis to capture a disproportionate share of patients coming from acute care providers and payors as they increasingly focus on outcomes and cost,” concluded Hager.

Progress on Value-Based Initiatives

Genesis is actively participating in pay-for-value programs and developing innovative models of care.  These initiatives expand our expertise, allow us to realize the economic benefits of our success, drive closer collaboration with referring hospitals and payors, and create a more data- and outcomes-driven organization.  Genesis is setting itself apart from its competitors by strategically participating in the following value-based initiatives:

Medicare Shared Savings Program (MSSP)

Effective January 1, 2016,  Genesis HealthCare ACO was approved by the Centers for Medicare and Medicaid Services (CMS) as one of 100 new MSSP Accountable Care Organizations (ACO) designed to improve the care patients receive at lower costs.  Genesis Physician Services (GPS) is the participating entity in this ACO which affords Genesis a unique opportunity to participate in this upside-only program with CMS.  GPS providers make nearly half a million visits annually to both short- and long-stay patients, helping them to improve overall healthcare quality and to reduce unnecessary hospital readmissions.   Preliminary data shows that the Company is managing approximately 15,000 Medicare fee for service beneficiaries with annualized Medicare spend of more than $800 million. While these numbers are subject to modification and will not be reconciled by CMS until mid-2017, Genesis has received sufficient benchmark data to measure and monitor performance in this program beginning in the third quarter of this year. The gain share track requires the Company to save at least 3% of the total Medicare spend under management in order to share in up to 50 percent of the savings with CMS.  If that savings hurdle is achieved, Genesis may begin to share based on the first dollar of savings.

Bundled Payments for Care Improvement (BPCI)
Genesis has received two quarterly reconciliations since its last earnings announcement.  The first represented reconciliations for the second quarter of 2015 and the results for three centers were not significant.  The second reconciliation represented 13 facilities from the third quarter of 2015 and netted a positive $0.5 million.  Genesis expects to receive the reconciliation from the fourth quarter of 2015 in July 2016 and believes it will continue to see positive trends.

Vitality to You

Genesis continues to make progress with its new Vitality to You service offering that extends Genesis Rehabilitation’s therapy services into the community.  Vitality to You is a unique capability attractive to our hospital partners and payors in our collective efforts to improve outcomes and reduce the overall cost of an episode by offering alternative settings for care. Vitality to You saw revenue expand 13.7% over the first quarter 2016 as compared with the fourth quarter of 2015.

First Quarter 2016 Results

1 - To facilitate comparisons, pro forma results for the three months ended March 31, 2015 were prepared on a basis assuming the combination of Skilled Healthcare and Genesis HealthCare (the Skilled Healthcare Combination) occurred at the beginning of the respective period presented rather than as of February 1, 2015, which is the actual date of the Skilled Healthcare Combination.  See reconciliation of pro forma results to GAAP results in the tables in this release. 

Assuming Genesis and Skilled Healthcare were fully combined in all periods presented, adjusted revenue of $1,461.7 million in the first quarter of 2016 would have increased $59.2 million or 4.2% over the prior year quarter. As reported, GAAP basis revenue of $1,472.2 million in the first quarter of 2016 increased $129.2 million or 9.6% over the prior year quarter, principally due to the Skilled Healthcare Combination effective February 1, 2015.

Assuming Genesis and Skilled Healthcare were combined in all periods presented, adjusted EBITDAR of $178.4 million in the first quarter of 2016 would have decreased $7.0 million, or 3.8%, over the prior year quarter. GAAP basis loss from continuing operations of $71.0 million in the first quarter of 2016 decreased $47.4 million from the prior year quarter, principally due to incurrence of Skilled Healthcare transaction costs in the prior year quarter.

The following factors had a primary impact on the results for the first quarter of 2016 over the prior year quarter:

The following factors negatively impact “same-store” inpatient occupancy mix by 170 basis points and skilled patient days mix by 170 basis points in the first quarter of 2016 as compared to the same period in the prior year:

Business Development, Acquisitions and Divestitures

On January 1, 2016, Genesis sold 18 assisted living facilities in Kansas for $67 million and used the sale proceeds to repay $54.2 million of real estate bridge loan debt. The 18 facilities had 807 beds and aggregate revenue and EBITDA of approximately $23.0 million and $7.3 million, respectively, in 2015.

On April 1, 2016, Genesis HealthCare expanded into the Pittsburgh market with the purchase of a 194-bed skilled nursing and rehabilitation facility for $12.9 million. This owned facility was financed with $9.9 million of bridge mortgage financing with plans to submit for HUD guaranteed mortgage financing in 2016. This facility generated revenue of approximately $18.2 million in 2015 under prior management.

In April 2016, Genesis signed lease and joint venture agreements (25% ownership in the real estate) to construct two 120-bed PowerBack Rehabilitation facilities in Pennsylvania - one in Exton, PA and one in Allentown PA.  Genesis will contribute approximately $1.4 million to finance the joint ventures.  The projects are expected to break ground in the fall of 2016. 

Financing Activities

The Company is progressing on its near-term capital strengthening priorities to refinance its real estate bridge loans with lower cost HUD guaranteed mortgages or other permanent financing and to reduce the Company’s overall indebtedness through a combination of non-strategic asset sale proceeds and free cash flow.

During the first quarter of 2016, Genesis closed 10 HUD guaranteed mortgages totaling $67.9 million and closed an additional three HUD guaranteed mortgages totaling $9.2 million subsequent to March 31, 2016.  Since the Skilled Healthcare Combination, the Company has repaid or refinanced $131.3 million of the real estate bridge loans with $362.8 million remaining outstanding. Genesis expects to continue to seek opportunities to refinance the real estate bridge loans with lower cost HUD guaranteed mortgages or other permanent financing between now and the end of 2016.

In March 2016, Genesis closed on the sale/lease back of a corporate office building, generating $9.4 million of proceeds, which were used to pay down its revolving credit facility debt.

Effective May 1, 2016, Genesis completed the sale of its hospice and home health operations.  The operations were sold to Compassus, a nationwide network of community-based hospice and palliative care programs, for $84 million – consisting of cash consideration of $72 million and a $12 million short-term note. In 2015, Genesis’ hospice businesses had revenue and EBITDA of approximately $47.0 million and $7.0 million, respectively, and the home health business had revenue and EBITDA of approximately $23.0 million and $2.0 million, respectively.  Genesis used the cash proceeds to repay partially its term loan facility maturing in December of 2017.  

Genesis is actively engaged in discussions with new credit parties as the Company expects to refinance the remainder of its term loan maturing in December of 2017.  The Company expects to use a combination of non-strategic asset sale proceeds, available borrowings under its revolving credit facility and an expected newly issued term loan currently being marketed.

“We continue to make excellent progress on our HUD refinancing and deleveraging through non-strategic asset sale initiatives,” notes Genesis Chief Financial Officer, Tom DiVittorio. “We expect these initiatives will reduce our leverage and interest costs, extend maturities and provide an ongoing source of free cash flow growth.”

2016 Guidance

Based on current skilled patient mix trends and expectations, Genesis is revising its full year 2016 guidance as follows:

Recurring free cash flow is projected to be approximately $52.0 million.  Projected recurring free cash flow is derived from the mid-point of the Company’s adjusted EBITDA guidance of $223.0 million adjusted by projected cash interest of $81.0 million, recurring capital expenditures of $85.0 million and cash taxes of approximately $5.0 million.  Cash taxes are estimated based on the revised earnings outlook and the utilization of available tax credits and other deductions.

The 2016 guidance assumes 156.1 million diluted weighted average common shares outstanding and common stock equivalents on a fully-exchanged basis.  The 2016 guidance is prepared on the same basis as the Company’s non-GAAP financial information and therefore assumes the conversion of leases to cash basis leases and excludes the income or loss of newly acquired or constructed businesses with start-up losses or newly divested businesses.   It also excludes transaction related costs, severance and restructuring costs, regulatory defense and related costs, non-cash stock based compensation expense, other non-recurring costs, Skilled Healthcare and other loss contingency expense, loss on early extinguishment of debt, other (income) loss and non-cash impairment charges.

These expectations are forward looking statements and Genesis assumes no obligation to update these statements.  Results may be materially different and are affected by the risk factors identified in this release and in Genesis’s annual and quarterly filings with the U.S. Securities and Exchange Commission. See “Forward-Looking Statements” below.

Conference Call

Genesis HealthCare will hold a conference call at 8:30 a.m. Eastern Time on Tuesday, May 10, 2016 to discuss financial results for the first quarter of 2016.  Investors can access the conference call by calling (855) 849-2198 or live via a listen-only webcast through the Genesis web site at http://www.genesishcc.com/investor-relations/, where a replay of the call will also be posted for one year. 

Bank of America Merrill Lynch 2016 Health Care Conference

Genesis also announced today that George V. Hager, Jr., Chief Executive Officer, and Tom DiVittorio, Chief Financial Officer, are scheduled to present at the Bank of America Merrill Lynch 2016 Health Care Conference on May 12, 2016 at 8:00 a.m. Pacific Time at the Encore at Wynn in Las Vegas, Nevada.  A live webcast and replay will be available on the Company’s website at www.genesishcc.com/investor-relations.

About Genesis HealthCare

Genesis HealthCare (NYSE: GEN) is a holding company with subsidiaries that, on a combined basis, comprise one of the nation's largest post-acute care providers with more than 500 skilled nursing centers and assisted/senior living communities in 34 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to more than 1,700 healthcare providers in 45 states, the District of Columbia and China.  References made in this release to “Genesis,” “the Company,” “we,” “us” and “our” refer to Genesis HealthCare and each of its wholly-owned companies. Visit our website at www.genesishcc.com.

Forward-Looking Statements

This release includes “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue, “plans,” or “prospect,” or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about Genesis’ expectations and beliefs regarding its future financial performance, anticipated cost management, anticipated acquisitions, anticipated divestitures, anticipated business development, anticipated refinancing opportunities and other financing activities, and anticipated synergies. These forward-looking statements are based on current expectations and projections about future events, including the assumptions stated in this release, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of Genesis may differ materially from that expressed or implied by such forward-looking statements.

These risks and uncertainties include, but are not limited to, the following:

The Company’s Annual Report on Form 10-K for the year ended December 31, 2015, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the U.S. Securities and Exchange Commission, including the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 when it is filed, discuss the foregoing risks as well as other important risks and uncertainties of which investors should be aware. Any forward-looking statements contained herein are made only as of the date of this release. Genesis disclaims any obligation to update its forward-looking statements or any of the information contained in this release. Investors are cautioned not to place undue reliance on these forward-looking statements.

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GENESIS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

GENESIS HEALTHCARE, INC.

SELECTED BALANCE SHEET DATA

(UNAUDITED)

(IN THOUSANDS)

GENESIS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

(1) - Net cash provided by operating activities in the three months ended March 31, 2016 and March 31, 2015 includes  approximately $2 million and $30 million, respectively,  of cash payments for transaction-related costs.

GENESIS HEALTHCARE, INC.

RECONCILIATION OF NET (LOSS) INCOME TO EBITDA, EBITDAR, ADJUSTED EBITDA AND ADJUSTED EBITDAR

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

See (a), (b), (c), (d) and (e) footnote references contained herein.

GENESIS HEALTHCARE, INC.

RECONCILIATION OF NET (LOSS) INCOME TO EBITDA, EBITDAR, ADJUSTED EBITDA AND ADJUSTED EBITDAR

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

See (a), (b), (c), (d) and (e) footnote references contained herein.