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Genesis Healthcare, Inc. (GEN)

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Genesis Healthcare Inc. (GEN)

Q4 2016 Earnings Conference Call

February 23, 2017 08:30 AM ET

Executives

Lori Mayer - VP, IR

George Hager - CEO

Tom DiVittorio - CFO

Analysts

Joanna Gajuk - Banks of America

AJ Rice - UBS

Dana Hambly - Stephens

Chad Vanacore - Stifel

Joanna Gajuk - Bank of America

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Genesis HealthCare Fourth Quarter and Fiscal Year End 2016 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. It is now my pleasure to turn the conference 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 afternoon. This announcement is available in the Investor Relations section of our website at www.genesishcc.com. Replay of this call will also be available on our website for one year.

Before we begin, I would like it 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 complete discussion of factors that could impact our results. Except as required by federal securities bond Genesis HealthCare and its affiliates do not undertake to publicly update or revise any forward-looking statements are changes that arise as a result from new information, future events, changing 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 term 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.

Our discussion today and the information in our earnings release and in our public filings include references to EBITDAR, adjusted EBITDAR, EBITDA, adjusted EBITDA which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business, but such non-GAAP financial measures should not be relied upon at the exclusion of GAAP financial measures. Please refer to the Company's reasons for non-GAAP financial disclosures and its GAAP to non-GAAP reconciliations contained in today's earnings release. 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 this morning. I'd like to focus today's call on a brief discussion of our fourth quarter results followed by a review of our accomplishments in 2016. Our long-term strategic plan and our value-based initiatives. Then I will turn the call over to Tom DiVittorio, Genesis' Chief Financial Officer. First, we obviously had a disappointing fourth quarter, which reflected continued census pressure and seasonally impacted operating cost. Tom will provide more details shortly, but this pressure forced us to react aggressively. We have implemented immediate cost reduction initiatives that will reduce operating costs by $50 million annually. These initiatives which are substantially completed at this time included reduction incorporate and regional support staff and reductions in other discretionary spending. It should also be noted that a portion of our near-term earnings pressure is self-inflicted, as we continue to position the company for long-term success in a value-based environment.

With that said Genesis had a very active year both operationally and transactionally. In 2016, we continued the execution of our long-term strategic plan which strengthened our foundation to deliver long-term and sustainable growth. Specifically, we first divested of non-core facilities and ancillary businesses in order to focus more acutely on our core markets and core ancillary lines of business.

Second, we significantly restructured, most of our major credit agreements, resulting in extended maturities, improved covenants, lower cost of capital and reduced burden from leased escalators resulting in cumulative rent savings of $440 million. And finally, we invested in managed care and value-based programming. Our value-based initiatives, which include 32 facilities in the bundled payments for care improvement Model 3 program and over 200 facilities in our post-acute accountable care organization to the Medicare Shared Savings program delivered improved patient outcomes and lower health care costs.

We continue to position the company for long-term value creation by developing our industry lead value-based programs that include one vitality to you in-home rehabilitation and Genesis care transition. Both of these programs provide us with greater connectivity to patients in the home and allow us to reduce unnecessary re-hospitalizations post-discharge from our centers. Genesis physician services and a Genesis HealthCare ACO, which allowed Genesis to participate in cost-effective care management of the long-term care dual eligible population in our centers. PowerBack Rehabilitation, our enhanced short-stay product and fourth, long-term care specializations including dementia and Alzheimer's, dialysis, ventilator, wound and palliative care.

Success in a value-based system is dependent upon a provider's ability to deliver high quality specialized clinical care and achieve consistently improved outcome for its patients in a cost effective manner. Our unique capabilities and programs position Genesis to more broadly and successfully participate in our evolving value-based health care system.

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