Kindred Healthcare, Inc. (KND)

KND 
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Kindred Healthcare (KND)

Q3 2013 Earnings Call

November 06, 2013 10:00 am ET

Executives

Charles Edward Jones - Chairman and Principal

Paul J. Diaz - Chief Executive Officer, Director and Member of Strategic Development Committee

Benjamin A. Breier - President and Chief Operating Officer

Richard A. Lechleiter - Chief Financial Officer and Executive Vice President

Analysts

Joshua R. Raskin - Barclays Capital, Research Division

Jack Meehan - Barclays Capital, Research Division

Albert J. Rice - UBS Investment Bank, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Joanna Gajuk - BofA Merrill Lynch, Research Division

Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to this Kindred Healthcare Third Quarter 2013 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Eddie Jones with Corporate Communications. Please go ahead, sir.

Charles Edward Jones

Good morning. Welcome to the Kindred Healthcare Third Quarter Conference Call. This is Eddie Jones from Corporate Communications.

Before the company's presentation, I would like to read a cautionary statement. This conference call includes forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involves a number of risks and uncertainties. Such forward-looking statements are based upon management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the company and its management are unable to predict or control, that may cause the company's actual results and performance to differ materially from any future results or performance expressed or implied by such forward-looking statements.

The company cautions participants that any forward-looking information is not a guarantee of future performance, and that actual results could differ materially from those contained in the forward-looking information. The company refers you to its reports filed with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K, the company's other reports filed periodically with the SEC and its press release regarding the third quarter operating results for a discussion of these forward-looking statements and other factors that could affect these forward-looking statements.

Many of these factors are beyond the control of the company and its management. The company cautions investors that any forward-looking statements made by the company are not guarantees of future performance. The information being provided today is as of this date only, and the company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

Certain references to operating income or EBITDAR, as well as other non-GAAP disclosures have been reconciled to the company's consolidated operating results, and are available on the company's website, www.kindredhealthcare.com. You can also access the related presentation materials that will be discussed during the call today through the company's website.

It is now my pleasure to introduce the participants in today's call: Paul Diaz, Chief Executive Officer; Rich Lechleiter, Executive Vice President and Chief Financial Officer; and Ben Breier, President and Chief Operating Officer. Mr. Diaz will begin the call.

Paul J. Diaz

Thank you, Eddie, and good morning, everyone. As many of you are aware, in 2011, we set forth a strategic plan to aggressively reposition Kindred Healthcare, in the context of healthcare reform, the growing demand for integrated post-acute care at a local level, our Integrated Care Markets, and the clear preference by consumers and payers for more patient-centered, home-based care models. Our strategic assessment also embraced the value proposition that comes from intensive rehabilitation services and interdisciplinary care management to improve patient care transitions and quality and lower cost by reducing inpatient stays and unnecessary rehospitalizations.

From an internal perspective, we also saw the decade-long earnings leakage that came from a very cumbersome lease-intensive capital structure, in a difficult reimbursement and operating environment for traditional custodial skilled nursing care and made a difficult decision to substantially exit that model of skilled nursing care. Today, we are pleased to report on the progress we have made on our strategic plan and make the case for you of a path to significantly greater value creation for our patients, teammates and shareholders, as we enter the growth phase of our strategic plan and look to 2014 and beyond.

As you saw from our third quarter earnings release, we've been extremely busy accelerating our strategic plan to reposition Kindred around its core integrated care market strategy, and I am pleased to tell you this morning that we are well on our way to success on a number of fronts. In particular, during the first phase of our repositioning plan, we have now essentially exited or disposed of 136 nonstrategic, and in some cases unprofitable facilities, generally outside of our Integrated Care Markets. During this period, we also managed to increase our 2013 free cash flow guidance to $120 million from $90 million, and we also announced our estimated 2014 earnings and free cash flow guidance, including a full year of cash dividends at $110 million.

Clearly, we are well-positioned to execute on the second phase of the repositioning plan, the growth phase. While the redeployment of capital will take time, as well as rightsizing our overhead, we are already seeing success on this on a number of fronts with this week's announcement of the senior care -- Senior Home Care acquisition that will expand our Care Management and Home Health business in the important states of Florida and Louisiana, and the acquisition of 9 previously leased nursing centers, that will further improve our overall capital structure.

While Ben will discuss with you some of the operating challenges and opportunities we have from the third quarter going into the fourth quarter, I am confident that we are paving the way towards a more market-focused and profitable Nursing Center business, as well as our new Care Management division that will help position our entire enterprise for future growth. As you can see from the earnings release, we have reflected our disposition activities as discontinued operations and have restated all of our historical financial results for our continuing business. While our reposition activities have been initially dilutive, we have provided ourselves with a clear path to higher levels of earnings in the future and a higher growth rate.

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