GEN - Earnings call transcript Q1 2019 | Genesis Healthcare, Inc.

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Operator

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 Administrative Services (sic) [Genesis Healthcare, Inc.] First Quarter 2019 Earnings 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. you. Thank Instructions] [Operator like President the of now Lori over Mayer, Vice Investor to would conference turn to I Relations. Ma'am, please go ahead.

Lori Mayer

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

housekeeping I begin, quickly like matters. would few we Before review to a

review are we based could beliefs encouraged and to other forward-looking not statements should today to on management’s statements factors any current and our materially and reliance made First, undue uncertainties or cause place forward-looking subject forward-looking assumptions could or on impact about our circumstances for to implied from results today’s the discussion securities revise a new arise changing publicly complete changes any Genesis differ result expectations, statements filings call. as and that are or federal actual of and future to statements reason. not on are information, risks environment operate. as a any undertake that affiliates by from Listeners do events, business our or law, Except for SEC results. our update those in which These more that expressed required its Healthcare

a own entity. that employees well subsidiary Healthcare not its us, separate various and to or In we, any addition, management, or has activities, consolidated are References of operating the meant any assets. has our direct the mention and to as of verbiage use same assets, operation and by the are operated and the operations independent we assets that by the revenue is operating operated employees, -- is that today terms Genesis imply that as its company similar

of presentation references include financial to and measures. earnings useful value but today non-GAAP not for filings our should with are and adjusted benchmarking and to investors disclosures of analyzing EBITDA, the be which financial provides financial of performance of EBITDA, upon and financial financial GAAP refer turn company's Our are these the in the such CEO release. non-GAAP Hager, in non-GAAP call in measures. useful results, our public And reconciliations business, Healthcare. measures over reasons non-GAAP I'll to measures information and believe today's earnings exclusion Genesis adjusted to because relied Please measures our non-GAAP contained to the the financial GAAP for the release its our that, EBITDAR, discussion trending, regarding We at information George

George Hager

Thank positive and during and would thank other activity turn call you, results I updates. performance our more over the brief to Lori. first on to the comments morning few operating today. for a transactional joining DiVittorio, make Financial regarding for and like Officer, details you our Genesis’ I Chief successful our quarter. Good us then Tom will

trends of to key drive respect have favorable seen the with performance the the back that of timeframe. business; improving indicators of able pleased with portfolio quarter the execution our we growth successful to were Beginning of recent build strategy. our another trends, operating First, momentum, we XXXX-XXXX half XXXX, many our trends I on that strong not favorable reported in since earnings am and we optimization

the and therapy this management portfolio management, in of we our staff, career very our past, environment, of to XX% these performance divisions strong highlight EBITDAR ancillary same-store also positive growth optimistic quarter occupancy EBITDAR divisions very first consecutive the the in forward. prior I'd XXXX the about would successful the of year X.X% divisions like growth quarter. third have continued second rehab growth showed same-store EBITDAR results trends, in Our same-store I $XX.X $XX.X divisions Combined, consecutive highlighted GRS Even I businesses, showing reimbursement more for quarter from our strong move our improvement division growth going activities. not continued very portfolio activities results quarter division the staffing two quarter. our of am a versus completed our quarter. cost improving in impact these these versus and like and year to prior reflect in quarter. on ancillary staffing optimization though and census produced XXXX. and thus million far These the effective million stable for very to

portfolio focused our over you quality improving the on keenly years. the we As two have last of know, been

markets We relationships to and -- to have or have effectively market meaningful density local retention the paid care not relations compete. payer exiting particular where do we acute

owned aggregate, facilities These facilities. quarter sheet. of XX California underperforming $XX balance we divestiture the this reflect to activities on generated with And quarter, or quarter expect closed in balance three our further additional facilities months. to exit Also exited $XX further to delever our to In operations the these facilities divested of we deliver divested, revenue California. leased the net annual and subsequent of approximate selling facilities located sale the two five million. During end, in million. owned close by have non-core Genesis markets the to annual XX this of continued we sheet coming revenue efforts end, net Subsequent

a Beyond that to real are the a first estate from back historically interest these XX into years. real of obtained into escalators this option partnership transaction rent is year-one the of the to we million. partnership key the free to leased partnership has The also entered our five XX% facilities $X.X couple transactions the fixed-price transaction. highlight from no increase In real estate state XXXX, want accretive transaction, ownership were new entered flow estate. estate this real with to This the takeaways a purchase of buy lease prioritizing WELLTOWER. over first also Through cash to we though, a and I we in able divestitures quarter acquire ownership. we by

secured value. provides a option purchase that upside the to opportunity fixed participate we any price in us the real accretion in Second, estate

a the creative real-estate the this and burden stage $X real original in to are acquisition our execute exercise fixed to the reduced us seven estate months for XX in the of will future the year partnerships XX% in most appreciation allow facility after greater minimize quarters. at upon with the transaction Transactions, only We that participate right million a to importantly, set lease exercise we assets charges option year-eight decrease will the or which escalator’s, looking capital XX%. to and of have by associated that cost to example overall option, future. coming ownership great cost. And transaction these premium the of the This is

census As I strong and I trends I – do expect continued the reimbursement expect XXXX, to for the positive to performance our ancillary continue remainder of divisions.

will We PDPM. for continue system our reimbursement our new preparation

patients optimistic expect leverage, we execute for be concentrations will and our reduce strategic of providers. will both and be and ownership. to to PDPM plan state reduce increase continue our to cost our market positive capital, that continue We And transactions that strengthen our

CNAs Tom our to therapists As the Officer. leadership always, I turn With another want DiVittorio, I'd across quarter. on to over the country like team and to thousands of call Chief that, outstanding our thank Financial nurses

Tom DiVittorio

such by January million declines $XX $X point These $X.X million million from in million billion or implying low-margin net and acquisitions $X.XX impact growth XXXX. of this or net lease from rehab comments declined million focus EBITDAR acquisitions segment topline. impact million year. of the XX effective revenue $X.X million revenue the operating everyone. decline million attributed same-store accounting divestitures therapy lower morning for of our of results offset XQ this that adjusted $XXX.X is us divestitures of revenue second in of and the inpatient Today, or declined attributed quarter Starting XXXX our will Of the services Xst of were cancellation or touch segments approximately consecutive trends XX.X% the and adjusted of on standards decreased X.X%. $XXX were Adjusted growth. I with my I'll the Revenue XQ following XXXX. principally to Good this is of $XXX.X same-store XXXX George. of of $XX.X EBITDAR services about growth $XXX new in contracts. revenue of from basis Thanks. on million in to EBITDAR XQ in XQ is X.X%

of grew of from EBITDAR exceeded total less This lease XX.X% This XXXX. XQ XQ compares payments million. expanded to or [Indiscernible]. $XX.X and XX.X%. and adjusted $X.X Adjusted equaled As the quarter third respect George growth. earnings margin, same-store consecutive margin EBITDAR XQ successful improved adjusted the divestiture in mentioned, cost leaner EBITDA margins labor in million efficiency structure, this in XX.X% XXXX XXXX adjusted to cash EBITDAR X.X% to XXXX With measure is our and strategy XQ

non-overtime The reimbursement XX nursing On XXXX. for This the agency X.X% all-in-in-nursing hours wage our worked wage hours Including cost, growth XQ XQ grew and staff employee over in XX% by recorded inflation the function in nursing see about our our is X%. pressure. other represents This of wage inflation all nursing the specific decline in point force of labor function wage of in-nursing-wage is hour XQ wage XQ XXXX a basis XXXX quarter. of approximated XXXX. our topic inflation workforce. last versus Wage greatest rate grew overtime our worked to where versus per rate inflation X.X% we half over inflation today

due basis are consecutive Operating to inflation. have of having divesting trend weighted in the mix quarter. XQ reimbursement advantage than another XXX point quarter. occupancy XXXX wage occupancy prior XX.X% skills census about about Genesis rate complexion discharged in or to remainder that lower-skilled length basis approximately the to occupancy. growth and growth and mix, average XX two decline of XXXX We mix growth of reimbursement from point By wage points XXX basis prayers in admissions. Genesis from XXX Medicare in inflation, is basis long-term for outpaced points and we who we aggregate, below represents improving the XX the skilled days home our occupancy patients With change go-forward from properties rate increased X.X% increase consecutive our Medicare positive same occupancy wage care XXXX of points patient in XQ in of average over where points the rate of level with was growth with underperforming Of prior remains So The basis a respect the patient received comparison, basis remainder skilled as the stay the due quarters year to estimate in XX XQ year inflation XX% fifth been systematically Genesis average levels quarter. decline this flat represents and was period the higher same-store for X.X%. of

the stay, flattening length the to portfolio has show operation Genesis by growth, now occupancy XQ trends, over fundamental of of results. reimbursement balance of Our remain level second thus summarize optimistic we reported highest this assets operating and growth has believe XXXX inflation. quarter six solid our beyond. operating of and of is today months the reported growth a XXXX patient efficiency sustained better drivers occupancy XXXX. XXXX. the approximates remain improving trend volumes our the occupancy that will We produce very consistent quarter occupancy will second same-store and that through We XX.X% encouraged in of strength continue rate To since of year-over-year labor continued cautiously and far wage of under

rules. million long-term in we number little million. resulting of the shareholders a XXXX, to instead GAAP-basis $XXX Topic a periods commonly historical our the material lease-related million for financial XXXX, asset Effective information recognized elected accounting touch new Before the prior new want in long-term the just a financials. a had liabilities equity new impact to for The we XXX. on to January Accounting the quarter line our questions, lease adoption X, retroactively Topic was We January bit in as new I increase with lease $XXX was $XXX of shareholders XXXX of effect Standards prospectively rules referred financial adopted about GAAP on applying and the the an not adjusted initially XXX first adopt equity statements. to therefore X, as to to rules resulted adjustment decrease the net to of increase cumulative a open categories, open

expense lease net quarter increase offsetting a decrease statement, first in served the and economic no decrease XXX in its on million to $XX GAAP-basis and million view the our lenders covenants depreciation resulting XXX focuses of rents. company income million an solely of $XX increase Topic of XXXX of pretax $XX and by landlords performance million. approximately expense Adoption On Topic or impact to had interest the on of which adoption of which the of financial manner with $XX a in expense Genesis income in cash-basis

basis our the paid during reference, please presentation. treatment we reconciliation accounting of for Tom period your For amount continue that questions. or provide to cash non-GAAP actual reporting rents of the open line tables regardless the the With

Operator

first Vanacore Chad Our question Instructions] from comes [Operator the Stifel. of from line

Your open. line is

Chad Vanacore

morning and Thanks good all.

So Tom can you you was to occupancy sequentially. that give George substantially, point and What pretty -- the that can drivers up there lift?

Tom DiVittorio

stabilized. finally I Chad Yes had on the of up. seeing equilibrium. I a think tick Genesis has lot debts importance I over has short I of reached say I overall would a demographically-driven the hoped come that this focused occupancy. what point think clearly population think out would several foremost, on of of seen think growing and industry stay seen years. length what see we've anything we're We've is is And last stay we more than The we service. else. first the and And the of We've little

So significant ill-oriented a let's we to patient a capacity lot still obviously available of gain the with dementia, amount of care -- to relates clinical like capacity that in continue a focus as say, chronically more occupancy see industry. long-term

the that period bed enough long the Genesis that of it from been that incremental performance short-stay of this operate industry You've find positive ourselves we to XX% on enjoy around of be call strong opportunity patient has long-term range. low time. capacity whether the margin this know for a many open There's a impact in that or and in XX%, well filling a as still company. sustained care used a the as on And XXs lot here as the to the to

So things. those it's a combination of all

inflection are our we We forward. and we to strong we're itself census; gaining point our have today. you stay confidence move truly see census census that And have that seen as looking through meet grow

Chad Vanacore

increase rate. about All the right. rate some Medicare rate could just Then expected XXXX you increases in around you then percent? share in thinking And upcoming? Any still one-ish Medicare highlights maybe it's average

George Hager

north had Well, got our looks rates will Mexico Chad CMS provider we're this we've Medicaid about it's for X%. go-forward tax that we actually. And states quarter of of being very year-over-year couple quarter a require are than a good more optimistic program approval. always like where X% us important actually states it of New And like assured implemented,

ultimately get We couple seeing July some going But as flat. CMS quarters effective I expect to be about X% of X% X on more the rates well retroactive. may look think be year, will some this got ahead. it in we through but that take or of a other for We're -- to be it states of you Medicaid north that thinking direction looking that are should overall, or and

Tom DiVittorio

of this facility years. states is for industry. budgets couple a improving I economy, more improving you're awareness I like funding of seeing industry. pressure you towards capitals try closures for underfunding and And as Chad the increased say and, believe significant move see state is an have of tremendous to increasing there obviously, in that last effective chronic Medicare -- we with rate increase then we've this in states responsible pressure to seen state XX/X, the increased like capitals gotten which also increase state And many that Massachusetts, higher in the a X.X% Medicare would

Chad Vanacore

optimism George services. the Then ancillary right. All expressed you on

looking should What's where there And was site Just down do looking up. be you from see though the trend was what revenue strength? that rehab I'm at we even per efficiency at?

George Hager

smaller think change the of PDPM about think all, a out to the incentive first been we've rehab, think we for a when incrementally market, and as be as individual in-sourced. we the outsource may provide motivation in PDPM I than Chad we operator need Yeah, more focus is

house. we've providers burden So in therapy that pressure no therapy of seen; management taking department to the one, and of services

a be positive that feel the PDPM industry. we So will for

can't a profitable to think both the the to us. really more you can additive PDPM, contracts And And subtraction opportunities, to down services that and top provider therapy number we in in therapy of at work exited provide than work have we cost we were be and business outcome lastly impacting the and without way as direct line much described for. done is costs it skilled look really it, with fundamentals and at about not outcome by that allows our under contracts as the provider effective ways that. with a and we We Tom think really contracts for nursing have of patient intentionally -- opportunities basis aligning look the also collaboratively more we

been have both on $XXX performance which divisions, our of the in of topline improving and focused is itself. intensely operating business division north of We million staffing

somewhat therapy we its contract larger the to performance And with division I strong largest scale history in of GRS advantage have believe is we and contractor a than but Our of opportunities have, the a well-known high -- secret we next have the the level think provider focus density operating compliance. take tremendous the on country, of competitor. we significantly

Chad Vanacore

All right.

more Medicare stand gains me. anything programs potential far else? value-based upcoming Any where from Shared we Savings one Just as as or payment for

Tom DiVittorio

asked not will did there. what did program address encouraged affect we say MSSP are question. Chad extremely We I a because the seeing the not happy that I'm quarter. are you by we But

which annual Just Shared gain. memory only your your of is reconciliation Program a Medicare settlement Medicare refresh The an reset our or on gains. of everyone's Savings was Shared bundled payment to unlike retroactive Program Savings

the for we're XXXX. on actually will So, results quarter that first and the recognize any gain Based seeing, we expect see XXXX share we we gain gain fully any share not not for recognized share. have overseeing of

June it that be If the rates will event the target as recurring the ACO both timeframe. of reconciliation well than July be our that us which in continue are a somewhere we gain. recognize as is CMS be the We the in our the a in hopeful month managed are gain And costs -- they it refresh I received that results our as been said, be which per quarter. forecast should to we if recognize that for second have -- We Also will viewed quarter, positive. track we an we that higher in do set per will ACO. not, member third the our is by $XXX under of almost track in memory covered -- spend. had ACO on And sponsored we share million everyone's a capitating we people's gain only lived X,XXX about only-post-acute Medicare are nation. In

you're So, quarter, no expect the first positive or unique XXXX. second once in again, seeing but quarter impact for either in of quarter us, asset the fully impacts third

Chad Vanacore

right. for update. All the Thanks

Operator

Our the Rice A.J. of Credit Suisse. comes next from question from line

line Your is open.

A.J. Rice

interesting one. that favorability out. there REIT Thanks. that George REIT like standpoint what seems see sounds in your that the the like of something Is and on did of that do movement the Hi little What operator worth you a to Is everybody. with made about bit you're is an -- world available a is from going the positive to that more of you that transaction operator calling partners you? toward describing? a the move is there

George Hager

Hey, A. J.

have its some the the Walter same lend others of exposure nursing, I skilled some first I lease larger gone level in reduces has at direction. expressing REITs, think think to to

that reduce similar positive of I Some that their exposure those with ultimately resulted of set and skilled nursing. XXXX in difficulty in industry. were medical because itself to financial to of I a interest coverage landlords fixed created coverage think think some medium-sized a also downward And fixed-charge expressed good our is structures have is and business is originally in cutbacks trending lower escalators in in and with the XXXX the at and solid smaller

problems think So the but or more, five date years I back …

A.J. Rice

Right.

George Hager

estate … traditional of to the other restructuring level fact those so that owners some relationship. there these real of appreciated REITs be and need have

an thing. isn't interest sell there So which a is to good

few. important. will transaction transactions to our facilitates very willingness a what it replicate bed because challenges industry, to addition execute to think sell that be announced our to in to strong, an New what effectively core of you of on these paid things. we Maryland, own REITs in the this think Pennsylvania, The really glad us -- despite more our example I especially financial values ability being is core three that some Jersey, West transaction It real we Virginia, for focused is and state continue per the allows that of I'm estate many and a facilitates are I states, to very, Delaware, the name

continued to be values bed solid. per So

to ultimately the do in Second, we is finance of as the as through the cost exercise or at XX cost long-term option other our for at provide we estate and that's a centers heart $X low our real buyers underlying when purchase that cost-effective in way the much million fixed an or inherent types finance in financing partnership that why a transaction financing will participant programs reduced financing similar when care ability cost non-recourse a the fixed that low-cost program of we owner option with see more exercise, -- you XX%. the just transaction and by annual purchase to

lastly, we ability value. I our execute interests financing, these market where as we transactions. also obtained very low-cost several very said had bed high -- it's ownership, to financing the of because And flipped XX% facilitates that commanded So assets leased owned the long-term the per of several

ability this transaction own generate internally to of and of equity off strong also per many what sheet values an in core a is bed on markets. offers our represents our underlying So balance

A.J. Rice

all, to about rates, like be on the I vacancy rates must I those comment whatever. of great. including -- just you wages? assistance ask. assume rates nurses you Tom, other But I are I at are gears, wonder, they metrics what the the had look switching labor how bucket we sometimes, Any so them are in? well, comments appreciate you That's and about aides And is and saying forth. wage want first Okay. know turnover trending trending? what

Tom DiVittorio

sure. Yes,

the of So J. in the assistance include bucket the.. the do certified in in we nursing nursing A.

A.J. Rice

Wage?

Tom DiVittorio

we some, I'll historically of provided. statistics within …inflation fact Certainly, than -- seeing labor this say that that the force, our more CNA. particular I in seeing population pressure most And leadership are so far like of facility goes, key seen as at in we things recent retention actually as very turnover positions our some we years. good level. abnormal the in And statistics are

So just yet which to bit give of of by quarter going our I'm between you director, perspective looking about rates little the if buildings have key is XXXX there executive improved X%. in haven't a for retention performance but of our nurse at we XXXX, your continued and first the leadership drive ultimately center that center to executive level your director

which we've retention range, in market. this is exceptional XX% So levels in fairly got the

A.J. Rice

And any talked point million, update? midyear have I I target update program. sort get some on by my $XX Sure. that stand? any there before guys about cost-saving to is to last know one where you you of, Is then the think was

Tom DiVittorio

that are A.J. are say I -- sort would of… we there Yes, we We now.

A.J. Rice

Okay.

Tom DiVittorio

match just now business. lot and that is we've really simply fact another you may $X.X $XX.X but that its as mark, a provide structure therapy you year that down more think out about little period. think million to about number operating time this $X A down underlying put to $XX complement. last it through rate structure a or divested there of this run bit that of year smaller relative this the rightsizing of actually that you billion our of over we rightsizing overhead think it, footprint the About it when rate million top-line to million. the for this just be you overhead about $XX.X color is business. of was that million so About business, broken …hit of that the the the business cut also million little the When since run scaling $X.X bit

You've a of come skill seen therapy down. come result of mix utilization down as

there. your if obviously caseload gyms size you’ve So down complement therapy staffing size of and mix skill got your comes the right

the for clear fair $XX.X say fully be really So and answer just what to realized part amount of most just what's of overhead your top of to first was we is question, would management business a cost. it I But that a I all core million adjustments. rest line on happening relative those to the operating would call traditional the

A.J. Rice

thanks Great a lot. Okay.

Operator

to [Operator I questions are time. remarks. to would presenters for back the like no our Instructions] closing There further conference any turn this at

George Hager

joining for us everyone this morning. you Thank

we've in our I our you've of opportunities of and As a our think, nursing sheet really a heard, ancillary lot internally as improving operating both model optimism core and the we assets our with value lot balance see assets, assets. a voices, of generate out business off generate stabilizing to skilled center and

Thank are for today. joining us obviously questions Lori myself, And again. and thank So day. Tom for the and throughout you available

Operator

now Thank concludes disconnect. Have today's This you may conference call. you for participation. your a great and day

Genesis Healthcare (GENN) 10 May 192019 Q1 Earnings call transcript