Genesis Healthcare, Inc. (GEN)

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Genesis Healthcare, Inc. (GEN)

Q2 2018 Earnings Conference Call

August 8, 2018, 08:30 AM ET


Lori Mayer - VP, IR

George Hager - CEO

Tom DiVittorio - CFO


Joanna Gajuk - Bank of America Merrill Lynch

Frank Morgan - RBC Capital Markets

Chad Vanacore - Stifel

Dana Hambly - Stephens





Good morning. My name is Tom and I will be your conference operator today. At this time, I would like to welcome everyone to the Genesis Healthcare Second Quarter 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].

I would like to turn the call over now to Ms. Lori Mayer. Ma’am, you may begin your conference.

Lori Mayer

Good morning and thank you for joining us today. We issued our earnings press release last evening. This announcement is available on the Investor Relations section of our website at genesishcc.com. A replay of this call will also be available on our website 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 a more complete discussion 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, changing circumstances or for any other reason.

In addition, any operation we mentioned 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.

Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR, EBITDA, adjusted EBITDA, which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provide 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'll turn the call over to George Hager, CEO of Genesis Healthcare.

George Hager

Thank you, Lori. Good morning and thank you for joining us.

Today, I'm going to focus my comments on four topics: our results for the quarter, our near-term strategic objectives, the reimbursement and regulatory landscape, and our CMS Five-Star results. I will then turn the call over to Tom DiVittorio our CFO, to provide more color around our business trends.

Starting with the results for the quarter. After a solid first quarter, I am pleased to announce a very strong second quarter. As adjusted EBITDAR, less cash lease payments. A critically important measure that, we and all of our stakeholders track exceeded Wall Street consensus estimates by nearly $14 million or 32%.

Most important however, that our earnings on this basis also grew over the prior year quarter by $6.2 million or 12.4%. I cannot over emphasize, how significant these results are. As we have not seen absolute organic year-over-year growth in this measure, since the fourth quarter of 2015. While challenges do remain, the trends are clearly improving.

The year-over-year census decline is narrowing, the summer months are actually showing some stability and what is typically a seasonally soft period. And we are seeing improvement in the reimbursement rate environment. Effective October 1, 2018, CMS increased Medicare rates by 2.4%. One of the highest rate [technical difficulty] and we are also seeing improvement in Medicaid rates, which grew 2.7% this quarter.

While nursing rate inflation is still exceeding overall reimbursement rate growth. We have done a phenomenal job managing our costs and overhead support structure. More than offsetting any margin compression caused by nursing wage inflation.

Beyond our inpatient business, our rehabilitation services segment also performed exceptionally well this quarter, producing year-over-year EBITDA growth of $4 million or 18%. We made a number of significant changes in this business, since the start of the year. All designed to improve operating efficiency. I am very pleased with the results of our rehab segment [technical difficulty] and expect continued improvement during the second half of 2018 into 2019.

Moving on to our near term strategic objectives. Over the past two years, we have been focused on improving the overall financial health of our company. Over that time, we have completed a major financial restructuring, which has improved our liquidity, reduced our leverage and decreased our overall cost of capital. Also over that two year period, we have sold or divested 80 non-strategic or underperforming facilities, including 19 in the first half of 2018, strengthening the overall quality of our portfolio with those transaction.

Read the rest of this transcript on seekingalpha.com