KENNETT SQUARE, PA — Genesis Healthcare, Inc. (NYSE: GEN), one of the largest post-acute care providers in the United States, announced operating results for the first quarter ended March 31, 2020 and provided an update regarding the impact of the 2019 novel coronavirus (COVID-19) pandemic on its business.
“As a nation, we are facing the most significant pandemic of modern times, and nowhere has this challenge been more readily apparent than in skilled nursing facilities,” stated George V. Hager, Jr., Chief Executive Officer of Genesis. “Our focus has been concentrated on protecting the health and safety of the patients and residents in our care as well as the staff who care for them. We are doing everything that is medically known to contain the entry and spread of this deadly and highly contagious virus in our centers, which disproportionately affects seniors with multiple health conditions. In most cases, we have gone beyond public health guidelines, instituting even more stringent infection precautions than previously recommended and have suggested protocols that were later adopted by public health officials.”
“Our thoughts and prayers go out to those impacted by COVID-19,” Hager further commented. “We are incredibly blessed to have such a dedicated and heroic workforce, so many of whom selflessly are putting themselves at risk as we battle this virus, which is often hidden as asymptomatic carriers unwittingly spread it. We are in frequent – often daily – communication with families and other responsible parties, and are grateful for their engagement in hearing our updates and expressing their needs. Finally, we support the now-intensifying focus by government officials at the Federal, state, county and local levels on collaborating to protect our seniors in skilled nursing and assisted living facilities and appreciate the swift and significant financial support provided to our industry by the President and his Administration. To date, Genesis has received approximately $180 million in federal grants under the CARES Act in addition to other federally sponsored sources of near term capital critical to our fight against the pandemic. We will continue to work closely with industry advocates, elected officials and the President’s Administration to thoughtfully articulate the resource needs of our industry as we fight this deadly virus together.”
First Quarter 2020 Results
- US GAAP revenue in the first quarter of 2020 was $1.09 billion compared to $1.16 billion in the first quarter of 2019;
- US GAAP net income (loss) attributable to Genesis Healthcare, Inc. in the first quarter of 2020 was $33.5 million compared to $(15.3) million in the first quarter of 2019;
- Adjusted EBITDA in the first quarter of 2020 was $42.9 million compared to $54.4 million in the first quarter of 2019; and
- Adjusted EBITDAR in the first quarter of 2020 was $140.9 million.
Despite the challenges of preparation and response to this unprecedented pandemic, Genesis reported a solid first quarter of 2020, including same-store occupancy growth of 30 basis points as compared to the first quarter last year, marking the sixth consecutive quarter of same-store occupancy growth.
The COVID-19 pandemic began to cause a decrease in Genesis patient admissions in late February 2020 and an increase in operating expenses in early March 2020. These combined impacts on first quarter 2020 earnings were a loss of approximately $8 million, after giving effect to $6 million of COVID-19 related Medicaid reimbursement relief provided by several states. Excluding the estimated net impact of COVID-19, same-store net revenue and same-store Adjusted EBITDAR in the first quarter of 2020 grew 5.0% and 3.2%, respectively, as compared to the first quarter of 2019. See Reasons for Non-GAAP Financial Disclosure and the accompanying reconciliations to GAAP to non-GAAP measures included later in this release.
COVID-19 UPDATE AND OUTLOOK
The Company’s primary focus, as the effects of COVID-19 began to impact the United States, was the health and safety of its patients, residents, employees and their respective families. The Company implemented various measures to provide the safest possible environment within its sites of service during this pandemic and will continue to do so.
In March 2020, in an effort to prevent the introduction of COVID-19 into its facilities, and to help control further exposure to infections within communities, Genesis implemented policies restricting visitors at all of its facilities except for essential healthcare personnel and certain end-of-life situations. The Company also implemented policies for screening employees and anyone permitted to enter the building, and implemented in-room only dining, activities programming and therapy. Upon confirmation of a positive COVID-19 exposure at a facility, the Company followed government guidance to minimize further exposure, including personal protection protocols, restricting new admissions, and isolating patients. Notwithstanding these restrictions and Genesis’ other response efforts, the virus has had, and likely will continue to have, introduction to, and transmission within, certain facilities due to the easily transmissible nature of COVID-19. The Company’s first report of a positive case of COVID-19 in one of its facilities occurred on March 16, 2020. Since that time 187 of its 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 84% of patient and resident positive COVID-19 cases have occurred in its facilities located in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. Genesis facilities in these five states represent 43% of its total operating beds.
Starting in late February 2020, the Company’s occupancy began to decrease following efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of COVID-19 cases in their communities. Occupancy was further decreased by implementation of self-imposed admission bans in those Genesis facilities having exposure to positive cases of COVID-19 among patients, residents and employees. These self-imposed restrictions on admissions were instituted to limit risks of potential spread of the virus by individuals that either tested positive for COVID-19, exhibited symptoms of COVID-19 but had not yet been tested positive due to a severe shortage of testing materials, or were asymptomatic of COVID-19 but potentially positive and contagious.
The Company estimates that net revenues for the first quarter of 2020 were not materially impacted by COVID-19 because revenue lost from a decline in occupancy was offset by changes in payor mix and approximately $6 million of COVID-19 related Medicaid reimbursement relief provided by several states in which the Company operates.
The decline in occupancy continued through late May 2020, resulting in skilled nursing facility operating occupancy decreasing from 88.2% for the three months ended March 31, 2020 to 81.9% for the month ended April 30, 2020. Operating occupancy for the month ended May 31, 2020 is projected to be approximately 76%. The impact of COVID-19 on net revenue for the remainder of 2020 will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the scope and severity of COVID-19 and the actions taken by public and private entities in response to the pandemic.
Beginning in early March 2020, the Company began to incur increases in costs as a result of the pandemic, with more dramatic increases occurring at facilities with positive COVID-19 cases among patients, residents, and/or employees. During the first quarter of 2020, the Company incurred approximately $7 million of incremental operating expense to prepare for and respond to the pandemic. Increases in cost primarily stemmed from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, medical equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs and the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients.
Such costs have escalated following March 31, 2020, and the Company also expects such costs to include increased workers compensation expense, health plan expense and consulting costs. The Company estimates that its operating expenses for the month ended April 30, 2020 grew approximately $21 million due to the COVID-19 pandemic. The Company is not reasonably able to predict the total amount of costs it will incur related to the pandemic and to what extent such costs will be borne by or offset by actions taken by public and private entities in response to the pandemic.
Reimbursement Relief and Liquidity.
The Company has taken, and will continue to take, actions to enhance and preserve liquidity in response to the pandemic. Since March 31, 2020, historical sources of liquidity have been supplemented by grants and advanced Medicare payments under programs expanded or created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, in April 2020, the Company applied for and received $158 million of advanced Medicare payments and in April and May 2020 received approximately $180 million of relief grants. In addition, the Company has elected to implement the CARES Act payroll tax deferral program, which is expected to preserve on an interest free basis approximately $90 million of cash representing the employer portion of payroll taxes estimated to be incurred between March 27, 2020 and December 31, 2020. The advance Medicare payments, which are also interest free, will be repaid between August 2020 and November 2020, while one-half of the payroll tax deferral amount will become due on each of December 31, 2021 and December 31, 2022. In addition to relief funding under the CARES Act, funding has been committed by a number of states in which the Company operates, currently estimated at $27 million.
The Company continues to seek opportunities to enhance and preserve liquidity, including through reducing expenses, continuing to evaluate its capital structure and seeking further government-sponsored financial relief related to the pandemic. The Company cannot provide assurance that such efforts will be successful or adequate to offset the lost revenue and escalating operating expenses as a result of the pandemic.
Genesis continues to exit challenged facilities and certain low density markets in order to focus on investment and growth in core markets. During the first quarter of 2020, Genesis divested, exited or closed the operations of 24 facilities.
As previously announced, in February 2020, the Company entered into a series of agreements with New Generation Health, LLC (NewGen), a healthcare consulting firm led by experienced professionals specializing in the operation of skilled nursing facilities in the western portion of the United States. Pursuant to these agreements, effective February 1, 2020, Genesis sold the real estate and operations of six skilled nursing facilities and transferred the leasehold rights to 13 skilled nursing, behavioral health and assisted living facilities, for a total of $79 million. These 19 facilities are located in the states of California, Washington and Nevada. Genesis retained a 50% interest in the facilities and no longer consolidates the financial statements of the divested facilities.
The 24 divested facilities this quarter generated approximate annual net revenue of $234 million, Adjusted EBITDA of $19 million and a pre-tax net loss of $4 million. These transactions resulted in the reduction of approximately $10 million of annual cash lease payments and the repayment of over $112 million of indebtedness.
The Company exited operations of an additional 15 facilities thus far during the second quarter of 2020. In total, these 15 facilities generated approximate annual net revenue of $172 million, Adjusted EBITDA of $6 million and a pre-tax net loss of $2 million. These transactions resulted in the reduction of approximately $12 million of annual cash lease payments and the repayment of approximately $27 million of indebtedness.
Thanks for visiting! MyChesCo brings reliable information and resources to Chester County, Pennsylvania. Please consider supporting us in our efforts. Your generous donation will help us continue this work and keep it free of charge. Show your support today by clicking here and becoming a patron.