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Genesis Healthcare, Inc. (GEN)

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Genesis HealthCare Incorporated (GEN)

Q4 2015 Earnings Conference Call

February 23, 2016 08:30 AM ET

Executives

Lori Mayer - VP, IR

George Hager - CEO

Tom DiVittorio - SVP and CFO

Analysts

Frank Morgan - RBC Capital Markets

Joanna Gajuk - Bank of America/Merrill Lynch

Chris Rigg - Susquehanna International Group

Jacob Johnson - Stephens

Chad Vanacore - Stifel Nicolaus

Presentation

Operator

Good morning. My name is Darla and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the call over to Lori Mayer, Vice President of Investor Relations. Please go ahead.

Lori Mayer

Good morning and thank you for joining us today. We filed our earnings press release yesterday evening. This announcement is available in the Investor Relations section of our Web site at www.genesishcc.com. A replay of this call will also be available on our Web site for one year.

Before we begin, I would like to quickly review a few housekeeping matters. First, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements, and are encouraged to review our SEC filings for more a complete discussions of factors that could impact our results.

Except as required by Federal Securities law, Genesis HealthCare and its affiliates do not undertake to publicly update or revise any forward-looking statements or changes that arise as a result from new information, future events, change in circumstances or for any other reason. In addition, any operation we mention today is operated by a separate independent operating subsidiary, that has its own management, employees and assets, references to the consolidated company and its assets and activities, as well as the use of the terms, we, us, our, and similar verbiage are not meant to imply that Genesis HealthCare has direct operating assets, employees or revenue or that any of the various operations are operated by the same entity.

Furthermore, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon at the exclusion of GAAP report. GAAP to non-GAAP reconciliations are available in today's press release.

To facilitate comparisons before and after the February 2015 combination with Skilled Healthcare, we have also provided certain non-GAAP financial information on a basis assuming the combination of Skilled Healthcare and Genesis HealthCare occurred at the beginning of each reporting period. This data is labeled Pro-Forma. Also, when we reference earnings per share, we are always referring to diluted earnings per share.

And with that, I will turn the call over to George Hager, CEO of Genesis HealthCare.

George Hager

Thank you, Lori. Good morning and thank you for joining us to discuss our results for the fourth quarter and full fiscal year of 2015 which were in line with preannouncement we made on January 25th. We reported fourth quarter 2015 adjusted EBITDAR of 161 million and adjusted EBITDA of 39.6 million, yielding year-over-year EBITDAR growth of just under 5% and EBITDA growth of over 14%, very strong growth despite increases in both bad debt and self insurance reserves recorded in the fourth quarter of 2015. For the full year 2015 adjusted EBITDAR of 733.2 million and adjusted EBITDA of 249.7 million, produced EBITDAR growth of nearly 6% and EBITDA growth of nearly 12%, in fact adjusted EBITDA growth exceeded 10% in each of the four quarters reported in 2015.

Genesis’ fixed charge coverage ratio which prior to the skilled transaction was 1.2 times in 2014 grew to 1.31 times in 2015 and we expect fixed charge coverage to grow to 1.35 times at the midpoint of our 2016 guidance. This level of performance would not be possible absent the dedication, care and compassion of our employees. From the frontline caregivers, to our corporate and regional employees, all of who make a significant difference in the lives of the more than 50,000 customers we serve each day. This level of performance would not also be possible if it not for our multifaceted strategy to drive growth and profitability in a changing business climate, a climate producing near-term pressure on organic growth in census and skilled mix.

Genesis is currently in a transformation phase as we position our operating model to thrive in a world that will increasingly reward value-based providers, future where innovative providers having the best outcomes produced at the lowest cost will gain disproportionate market share of higher margin post-acute patients. Our focus on reducing avoidable hospital readmissions, managing down length of stay and voluntarily participating in value-based programs, do in fact challenge our near-term top-line, but they are absolutely vital to our long-term success.

We welcome a fee-for-value healthcare delivery and payment system. It is good for patients. It is good for the physical health of our nation and it will reward Genesis for the decades of investment made in our clinical, operating and information systems platform. And it will allow us to increasingly capitalize on our strong relationships with hospital and managed care partners. The very things that differentiate us from the competition in the markets we serve.

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