UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SeptemberJune 30, 2019.2020.
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission file number: 001-33459
Genesis Healthcare, Inc.
(Exact name of registrant as specified in its charter)
| ||
Delaware | | 20-3934755 |
(State or other jurisdiction of | | (IRS Employer |
| | |
101 East State Street | | |
Kennett Square, Pennsylvania | | 19348 |
(Address of principal executive offices) | | (Zip Code) |
(610) (610) 444-6350
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | ||
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A common stock, $0.001 par value per share | GEN | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |||
Large accelerated filer ☐ | Accelerated Filer ☒ | Emerging growth company ☐ | |
| | | |
Non-accelerated filer ☐ | Smaller reporting company ☒ | ||
| | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on NovemberAugust 7, 2019,2020, was:
Class A common stock, $0.001 par value – 107,734,326110,584,200 shares
Class B common stock, $0.001 par value – 744,396 shares
Class C common stock, $0.001 par value – 56,326,68055,409,742 shares
Genesis Healthcare, Inc.
Form 10-Q
Index
| |
| Page | |
| | |||
| | | | |
| 3 | |||
| | | | |
| Consolidated Balance Sheets — | | 3 | |
| | 4 | ||
| | 5 | ||
| | 6 | ||
| Consolidated Statements of Cash Flows — | | 8 | |
| | 9 | ||
| | | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 44 | ||
| | | | |
| 73 | |||
| | | | |
| 73 | |||
| | | | |
| | |||
| | | | |
| 74 | |||
| | | | |
| 74 | |||
| | | | |
| 75 | |||
| | | | |
| 75 | |||
| | | | |
| 75 | |||
| | | | |
| 75 | |||
| | | | |
| 76 | |||
| | | | |
| 77 | |||
| | | | |
| |
PART I — FINANCIAL INFORMATION
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
| | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| ||
Assets: | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 251,651 | | $ | 12,097 | |
Restricted cash and equivalents | | | 62,664 | | | 63,101 | |
Restricted investments in marketable securities | | | 39,682 | | | 31,855 | |
Accounts receivable | |
| 459,354 | | | 567,636 | |
Prepaid expenses | |
| 69,617 | | | 108,908 | |
Other current assets | |
| 41,723 | | | 44,079 | |
Assets held for sale | |
| — | | | 1,171 | |
Total current assets | |
| 924,691 | |
| 828,847 | |
Property and equipment, net of accumulated depreciation of $430,333 and $431,361 at June 30, 2020 and December 31, 2019, respectively | |
| 831,333 | | | 962,105 | |
Finance lease right-of-use assets, net of accumulated amortization of $20,652 and $23,401 at June 30, 2020 and December 31, 2019, respectively | | | 32,956 | | | 37,097 | |
Operating lease right-of-use assets | | | 2,134,233 | | | 2,399,505 | |
Restricted cash and equivalents | | | 51,061 | | | 50,608 | |
Restricted investments in marketable securities | |
| 92,335 | | | 105,087 | |
Other long-term assets | | | 108,563 | | | 85,725 | |
Deferred income taxes | |
| 4,702 | | | 3,772 | |
Identifiable intangible assets, net of accumulated amortization of $78,864 and $76,243 at June 30, 2020 and December 31, 2019, respectively | |
| 84,826 | | | 87,446 | |
Goodwill | |
| 85,642 | | | 85,642 | |
Assets held for sale | | | 15,992 | | | 16,306 | |
Total assets | | $ | 4,366,334 | | $ | 4,662,140 | |
Liabilities and Stockholders' Deficit: | | | | | | | |
Current liabilities: | | | | | | | |
Current portion of long-term debt | | $ | 19,116 | | $ | 162,426 | |
Current portion of finance lease obligations | | | 2,947 | | | 2,839 | |
Current portion of operating lease obligations | | | 135,853 | | | 140,887 | |
Accounts payable | | | 210,870 | | | 238,384 | |
Accrued expenses | | | 364,973 | | | 226,092 | |
Accrued compensation | |
| 147,281 | | | 153,698 | |
Self-insurance reserves | | | 149,793 | | | 146,476 | |
Current portion of liabilities held for sale | | | 394 | | | 368 | |
Total current liabilities | |
| 1,031,227 | |
| 1,071,170 | |
Long-term debt | | | 1,359,710 | | | 1,450,994 | |
Finance lease obligations | | | 36,268 | | | 39,335 | |
Operating lease obligations | | | 2,476,384 | | | 2,681,403 | |
Deferred income taxes | |
| 4,815 | | | 5,245 | |
Self-insurance reserves | | | 404,863 | | | 406,864 | |
Liabilities held for sale | | | 24,043 | | | 19,789 | |
Other long-term liabilities | |
| 99,305 | | | 69,905 | |
Commitments and contingencies | | | | | | | |
Stockholders’ deficit: | | | | | | | |
Class A common stock, (par $0.001, 1,000,000,000 shares authorized, issued and outstanding - 110,584,200 and 107,888,854 at June 30, 2020 and December 31, 2019, respectively) | |
| 111 | | | 108 | |
Class B common stock, (par $0.001, 20,000,000 shares authorized, issued and outstanding - 744,396 and 744,396 at June 30, 2020 and December 31, 2019, respectively) | |
| 1 | | | 1 | |
Class C common stock, (par $0.001, 150,000,000 shares authorized, issued and outstanding - 55,409,742 and 56,172,193 at June 30, 2020 and December 31, 2019, respectively) | | | 55 | | | 56 | |
Additional paid-in-capital | |
| 242,108 | | | 248,594 | |
Accumulated deficit | |
| (998,793) | | | (1,010,296) | |
Accumulated other comprehensive income | |
| 1,591 | | | 602 | |
Total stockholders’ deficit before noncontrolling interests | |
| (754,927) | |
| (760,935) | |
Noncontrolling interests | | | (315,354) | | | (321,630) | |
Total stockholders' deficit | | | (1,070,281) | | | (1,082,565) | |
Total liabilities and stockholders’ deficit | | $ | 4,366,334 | | $ | 4,662,140 | |
See accompanying notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
| September 30, 2019 |
| December 31, 2018 |
| ||
Assets: |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 34,837 |
| $ | 20,865 |
|
Restricted cash and equivalents |
|
| 42,807 |
|
| 73,762 |
|
Restricted investments in marketable securities |
|
| 35,950 |
|
| 35,631 |
|
Accounts receivable |
|
| 545,259 |
|
| 622,717 |
|
Prepaid expenses |
|
| 81,661 |
|
| 82,747 |
|
Other current assets |
|
| 39,014 |
|
| 36,528 |
|
Assets held for sale |
|
| 4,740 |
|
| 3,375 |
|
Total current assets |
|
| 784,268 |
|
| 875,625 |
|
Property and equipment, net of accumulated depreciation of $417,437 and $976,802 at September 30, 2019 and December 31, 2018, respectively |
|
| 957,218 |
|
| 2,887,554 |
|
Finance lease right-of-use assets, net of accumulated amortization of $22,420 at September 30, 2019 |
|
| 37,685 |
|
| — |
|
Operating lease right-of-use assets |
|
| 2,416,914 |
|
| — |
|
Restricted cash and equivalents |
|
| 50,425 |
|
| 47,649 |
|
Restricted investments in marketable securities |
|
| 93,044 |
|
| 100,522 |
|
Other long-term assets |
|
| 120,738 |
|
| 125,595 |
|
Deferred income taxes |
|
| 5,617 |
|
| 5,867 |
|
Identifiable intangible assets, net of accumulated amortization of $73,610 and $99,160 at September 30, 2019 and December 31, 2018, respectively |
|
| 90,079 |
|
| 119,082 |
|
Goodwill |
|
| 85,642 |
|
| 85,642 |
|
Assets held for sale |
|
| 32,517 |
|
| 16,087 |
|
Total assets |
| $ | 4,674,147 |
| $ | 4,263,623 |
|
Liabilities and Stockholders' Deficit: |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Current installments of long-term debt |
| $ | 121,745 |
| $ | 122,531 |
|
Current installments of finance lease obligations |
|
| 2,738 |
|
| 2,171 |
|
Current installments of operating lease obligations |
|
| 137,574 |
|
| — |
|
Current installments of financing obligations |
|
| — |
|
| 2,001 |
|
Accounts payable |
|
| 254,443 |
|
| 234,786 |
|
Accrued expenses |
|
| 219,120 |
|
| 227,813 |
|
Accrued compensation |
|
| 153,488 |
|
| 172,726 |
|
Self-insurance reserves |
|
| 137,111 |
|
| 149,545 |
|
Current portion of liabilities held for sale |
|
| 1,020 |
|
| 639 |
|
Total current liabilities |
|
| 1,027,239 |
|
| 912,212 |
|
Long-term debt |
|
| 1,420,952 |
|
| 1,082,933 |
|
Finance lease obligations |
|
| 39,676 |
|
| 967,942 |
|
Operating lease obligations |
|
| 2,697,496 |
|
| — |
|
Financing obligations |
|
| — |
|
| 2,732,939 |
|
Deferred income taxes |
|
| 5,499 |
|
| 6,281 |
|
Self-insurance reserves |
|
| 427,069 |
|
| 453,993 |
|
Liabilities held for sale |
|
| 45,314 |
|
| 25,942 |
|
Other long-term liabilities |
|
| 76,125 |
|
| 126,247 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
Class A common stock, (par $0.001, 1,000,000,000 shares authorized, issued and outstanding - 107,534,292 and 101,235,935 at September 30, 2019 and December 31, 2018, respectively) |
|
| 108 |
|
| 101 |
|
Class B common stock, (par $0.001, 20,000,000 shares authorized, issued and outstanding - 744,396 and 744,396 at September 30, 2019 and December 31, 2018, respectively) |
|
| 1 |
|
| 1 |
|
Class C common stock, (par $0.001, 150,000,000 shares authorized, issued and outstanding - 56,526,680 and 59,700,801 at September 30, 2019 and December 31, 2018, respectively) |
|
| 56 |
|
| 60 |
|
Additional paid-in-capital |
|
| 249,063 |
|
| 270,408 |
|
Accumulated deficit |
|
| (998,900) |
|
| (1,609,828) |
|
Accumulated other comprehensive income (loss) |
|
| 610 |
|
| (262) |
|
Total stockholders’ deficit before noncontrolling interests |
|
| (749,062) |
|
| (1,339,520) |
|
Noncontrolling interests |
|
| (316,161) |
|
| (705,346) |
|
Total stockholders' deficit |
|
| (1,065,223) |
|
| (2,044,866) |
|
Total liabilities and stockholders’ deficit |
| $ | 4,674,147 |
| $ | 4,263,623 |
|
3
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net revenues | | $ | 956,259 | | $ | 1,145,052 | | $ | 2,048,509 | | $ | 2,306,692 |
Salaries, wages and benefits | |
| 616,944 | |
| 626,159 | | | 1,197,477 | |
| 1,268,569 |
Other operating expenses | |
| 317,274 | |
| 332,528 | | | 657,755 | |
| 675,066 |
General and administrative costs | | | 39,769 | | | 35,562 | | | 79,386 | | | 71,094 |
Lease expense | |
| 96,395 | |
| 94,586 | | | 194,415 | |
| 188,647 |
Depreciation and amortization expense | |
| 33,816 | |
| 28,268 | |
| 59,804 | |
| 66,463 |
Interest expense | |
| 31,907 | |
| 52,975 | |
| 68,147 | |
| 104,491 |
Loss (gain) on early extinguishment of debt | |
| 1,421 | |
| (24) | |
| 5,460 | |
| (24) |
Investment income | |
| (961) | |
| (2,143) | |
| (2,117) | |
| (4,007) |
Other income | |
| (44,100) | |
| (23,413) | |
| (128,932) | |
| (40,330) |
Transaction costs | |
| 5,543 | |
| 8,823 | |
| 11,134 | |
| 10,084 |
Long-lived asset impairments | | | 77,100 | | | 900 | | | 86,800 | | | 900 |
Federal stimulus - COVID-19 other income | | | (185,500) | | | — | | | (185,500) | | | — |
Equity in net income of unconsolidated affiliates | |
| (3,576) | |
| (24) | |
| (3,449) | |
| (85) |
(Loss) income before income tax benefit | |
| (29,773) | |
| (9,145) | |
| 8,129 | |
| (34,176) |
Income tax benefit | |
| (457) | |
| (162) | |
| (1,236) | |
| (111) |
Net (loss) income | |
| (29,316) | |
| (8,983) | |
| 9,365 | |
| (34,065) |
Less net loss attributable to noncontrolling interests | |
| 7,311 | |
| 4,164 | |
| 2,138 | |
| 13,983 |
Net (loss) income attributable to Genesis Healthcare, Inc. | | $ | (22,005) | | $ | (4,819) | | $ | 11,503 | | $ | (20,082) |
(Loss) earnings per common share: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
Weighted-average shares outstanding for basic net (loss) income per share | |
| 111,232 | |
| 106,846 | |
| 110,477 | |
| 105,289 |
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc. | | $ | (0.20) | | $ | (0.05) | | $ | 0.10 | | $ | (0.19) |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Weighted-average shares outstanding for diluted net (loss) income per share | |
| 111,232 | |
| 106,846 | |
| 166,866 | |
| 105,289 |
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc. | | $ | (0.20) | | $ | (0.05) | | $ | 0.07 | | $ | (0.19) |
See accompanying notes to unaudited consolidated financial statements.
34
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net (loss) income | | $ | (29,316) | | $ | (8,983) | | $ | 9,365 | | $ | (34,065) |
Net unrealized gain on marketable securities, net of tax | | | 502 | |
| 622 | |
| 1,480 | |
| 1,118 |
Comprehensive (loss) income | |
| (28,814) | |
| (8,361) | |
| 10,845 | |
| (32,947) |
Less: comprehensive loss attributable to noncontrolling interests | | | 7,157 | | | 3,948 | |
| 1,647 | |
| 13,668 |
Comprehensive (loss) income attributable to Genesis Healthcare, Inc. | | $ | (21,657) | | $ | (4,413) | | $ | 12,492 | | $ | (19,279) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net revenues |
| $ | 1,123,705 |
| $ | 1,217,271 |
| $ | 3,430,397 |
| $ | 3,790,703 |
Salaries, wages and benefits |
|
| 620,493 |
|
| 680,604 |
|
| 1,889,062 |
|
| 2,122,128 |
Other operating expenses |
|
| 339,441 |
|
| 371,064 |
|
| 1,014,507 |
|
| 1,125,779 |
General and administrative costs |
|
| 35,930 |
|
| 35,482 |
|
| 107,024 |
|
| 114,404 |
Lease expense |
|
| 100,018 |
|
| 32,366 |
|
| 288,665 |
|
| 97,548 |
Depreciation and amortization expense |
|
| 34,932 |
|
| 53,038 |
|
| 101,395 |
|
| 168,036 |
Interest expense |
|
| 37,099 |
|
| 115,695 |
|
| 141,590 |
|
| 348,687 |
Loss on early extinguishment of debt |
|
| 2,460 |
|
| — |
|
| 2,436 |
|
| 9,785 |
Investment income |
|
| (2,071) |
|
| (2,178) |
|
| (6,078) |
|
| (4,856) |
Other income |
|
| (131,811) |
|
| (20,207) |
|
| (172,141) |
|
| (42,360) |
Transaction costs |
|
| 12,941 |
|
| 11,361 |
|
| 23,025 |
|
| 26,567 |
Long-lived asset impairments |
|
| 16,037 |
|
| 32,390 |
|
| 16,937 |
|
| 88,008 |
Goodwill and identifiable intangible asset impairments |
|
| — |
|
| 929 |
|
| — |
|
| 2,061 |
Equity in net (income) loss of unconsolidated affiliates |
|
| (93) |
|
| (152) |
|
| (178) |
|
| 106 |
Income (loss) before income tax benefit |
|
| 58,329 |
|
| (93,121) |
|
| 24,153 |
|
| (265,190) |
Income tax benefit |
|
| (569) |
|
| (1,220) |
|
| (680) |
|
| (1,759) |
Net income (loss) |
|
| 58,898 |
|
| (91,901) |
|
| 24,833 |
|
| (263,431) |
Less net (income) loss attributable to noncontrolling interests |
|
| (12,801) |
|
| 33,773 |
|
| 1,182 |
|
| 97,153 |
Net income (loss) attributable to Genesis Healthcare, Inc. |
| $ | 46,097 |
| $ | (58,128) |
| $ | 26,015 |
| $ | (166,278) |
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic net income (loss) per share |
|
| 109,123 |
|
| 102,489 |
|
| 106,581 |
|
| 100,461 |
Basic net income (loss) per common share attributable to Genesis Healthcare, Inc. |
| $ | 0.42 |
| $ | (0.57) |
| $ | 0.24 |
| $ | (1.66) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for diluted net income (loss) per share |
|
| 166,002 |
|
| 102,489 |
|
| 164,583 |
|
| 100,461 |
Diluted net income (loss) per common share attributable to Genesis Healthcare, Inc. |
| $ | 0.40 |
| $ | (0.57) |
| $ | 0.21 |
| $ | (1.66) |
See accompanying notes to unaudited consolidated financial statements.
45
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)STOCKHOLDERS’ DEFICIT
(IN THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| | |
| | | | | | | | | | | | | | | | | | | | | | | other | | | | | | | | Total | ||
| | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional | | Accumulated | | comprehensive | | Stockholders' | | Noncontrolling | | stockholders' | |||||||||||||||
|
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | paid-in capital | | deficit | | income | | deficit | | interests | | deficit | |||||||||
Balance at December 31, 2019 |
| 107,889 | | $ | 108 |
| 744 | | $ | 1 |
| 56,172 | | $ | 56 | | $ | 248,594 | | $ | (1,010,296) | | $ | 602 | | $ | (760,935) | | $ | (321,630) | | $ | (1,082,565) |
Net income |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| 33,508 | |
| — | | | 33,508 | | | 5,173 | | | 38,681 |
Net unrealized gain on marketable securities, net of tax |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| 641 | | | 641 | | | 337 | | | 978 |
Share based compensation |
| — | | | — | | — | | | — | | — | | | — | | | 1,894 | |
| — | |
| — | | | 1,894 | | | — | |
| 1,894 |
Issuance of common stock | | 5 | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| — | | | — | | | — | | | — |
Conversion of common stock among classes |
| 270 | | | — | | — | | | — | | (270) | | | — | | | (2,612) | |
| — | |
| — | | | (2,612) | | | 2,612 | |
| — |
Distributions to noncontrolling interests |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| — | | | — | | | (1,123) | |
| (1,123) |
Balance at March 31, 2020 |
| 108,164 | | $ | 108 |
| 744 | | $ | 1 |
| 55,902 | | $ | 56 | | $ | 247,876 | | $ | (976,788) | | $ | 1,243 | | $ | (727,504) | | $ | (314,631) | | $ | (1,042,135) |
Net loss |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| (22,005) | |
| — | | | (22,005) | | | (7,311) | | | (29,316) |
Net unrealized gain on marketable securities, net of tax |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| 348 | | | 348 | | | 154 | | | 502 |
Share based compensation |
| — | | | — | | — | | | — | | — | | | — | | | 1,831 | |
| — | |
| — | | | 1,831 | | | — | |
| 1,831 |
Issuance of common stock | | 1,928 | | | 2 | | — | | | — | | — | | | — | | | (2) | |
| — | |
| — | | | — | | | — | | | — |
Conversion of common stock among classes | | 492 | | | 1 | | — | | | — | | (492) | | | (1) | | | (7,597) | |
| — | |
| — | | | (7,597) | | | 7,597 | | | — |
Distributions to noncontrolling interests |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| — | | | — | | | (1,163) | |
| (1,163) |
Balance at June 30, 2020 |
| 110,584 | | $ | 111 |
| 744 | | $ | 1 |
| 55,410 | | $ | 55 | | $ | 242,108 | | $ | (998,793) | | $ | 1,591 | | $ | (754,927) | | $ | (315,354) | | $ | (1,070,281) |
See accompanying notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net income (loss) |
| $ | 58,898 |
| $ | (91,901) |
| $ | 24,833 |
| $ | (263,431) |
Net unrealized gain (loss) on marketable securities, net of tax |
|
| 98 |
|
| (468) |
|
| 1,216 |
|
| (529) |
Comprehensive income (loss) |
|
| 58,996 |
|
| (92,369) |
|
| 26,049 |
|
| (263,960) |
Less: comprehensive (income) loss attributable to noncontrolling interests |
|
| (12,830) |
|
| 33,945 |
|
| 838 |
|
| 97,479 |
Comprehensive income (loss) attributable to Genesis Healthcare, Inc. |
| $ | 46,166 |
| $ | (58,424) |
| $ | 26,887 |
| $ | (166,481) |
6
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(IN THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | other | | | | | | | | Total |
| ||
| | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional | | Accumulated | | comprehensive | | Stockholders' | | Noncontrolling | | stockholders' |
| |||||||||||||||
|
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | paid-in capital | | deficit | | (loss) income | | deficit | | interests | | deficit |
| |||||||||
Balance at December 31, 2018 |
| 101,236 | | $ | 101 |
| 744 | | $ | 1 |
| 59,701 | | $ | 60 | | $ | 270,408 | | $ | (1,609,828) | | $ | (262) | | $ | (1,339,520) | | $ | (705,346) | | $ | (2,044,866) | |
Net loss |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| (15,263) | |
| — | | | (15,263) | | | (9,819) | | | (25,082) | |
Net unrealized gain on marketable securities, net of tax |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| 397 | | | 397 | | | 99 | | | 496 | |
Share based compensation |
| — | | | — | | — | | | — | | — | | | — | | | 2,087 | |
| — | |
| — | | | 2,087 | | | — | |
| 2,087 | |
Issuance of common stock | | 100 | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| — | | | — | | | — | | | — | |
Conversion of common stock among classes | | 3,081 | | | 3 | | — | | | — | | (3,081) | | | (3) | | | (18,175) | |
| — | |
| — | | | (18,175) | | | 18,175 | | | — | |
Distributions to noncontrolling interests |
| — | | | — | | — | | | — | | — | | | — | | | 64 | |
| — | |
| — | | | 64 | | | (1,202) | |
| (1,138) | |
Contributions from noncontrolling interests | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 18,500 | | | 18,500 | |
Cumulative effect of accounting change |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| 584,913 | |
| — | | | 584,913 | | | 340,129 | |
| 925,042 | |
Balance at March 31, 2019 |
| 104,417 | | $ | 104 |
| 744 | | $ | 1 |
| 56,620 | | $ | 57 | | $ | 254,384 | | $ | (1,040,178) | | $ | 135 | | $ | (785,497) | | $ | (339,464) | | $ | (1,124,961) | |
Net loss |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| (4,819) | |
| — | | | (4,819) | | | (4,164) | | | (8,983) | |
Net unrealized gain on marketable securities, net of tax |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| 406 | | | 406 | | | 216 | | | 622 | |
Share based compensation |
| — | | | — | | — | | | — | | — | | | — | | | 1,748 | |
| — | |
| — | | | 1,748 | | | — | |
| 1,748 | |
Issuance of common stock | | 2,996 | | | 3 | | — | | | — | | — | | | — | | | (3) | |
| — | |
| — | | | — | | | — | | | — | |
Conversion of common stock among classes | | — | | | — | | — | | | — | | — | | | — | | | (7,842) | |
| — | |
| — | | | (7,842) | | | 7,842 | | | — | |
Distributions to noncontrolling interests |
| — | | | — | | — | | | — | | — | | | — | | | — | |
| — | |
| — | | | — | | | (1,405) | |
| (1,405) | |
Balance at June 30, 2019 |
| 107,413 | | $ | 107 |
| 744 | | $ | 1 |
| 56,620 | | $ | 57 | | $ | 248,287 | | $ | (1,044,997) | | $ | 541 | | $ | (796,004) | | $ | (336,975) | | $ | (1,132,979) | |
See accompanying notes to unaudited consolidated financial statements.
57
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITCASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| other |
|
|
|
|
|
|
| Total | ||
|
| Class A Common Stock |
| Class B Common Stock |
| Class C Common Stock |
| Additional |
| Accumulated |
| comprehensive |
| Stockholders' |
| Noncontrolling |
| stockholders' | |||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| (loss) income |
| deficit |
| interests |
| deficit | |||||||||
Balance at December 31, 2018 |
| 101,236 |
| $ | 101 |
| 744 |
| $ | 1 |
| 59,701 |
| $ | 60 |
| $ | 270,408 |
| $ | (1,609,828) |
| $ | (262) |
| $ | (1,339,520) |
| $ | (705,346) |
| $ | (2,044,866) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (15,263) |
|
| — |
|
| (15,263) |
|
| (9,819) |
|
| (25,082) |
Net unrealized gain on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 397 |
|
| 397 |
|
| 99 |
|
| 496 |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,087 |
|
| — |
|
| — |
|
| 2,087 |
|
| — |
|
| 2,087 |
Issuance of common stock |
| 100 |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of common stock among classes |
| 3,081 |
|
| 3 |
| — |
|
| — |
| (3,081) |
|
| (3) |
|
| (18,175) |
|
| — |
|
| — |
|
| (18,175) |
|
| 18,175 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 64 |
|
| — |
|
| — |
|
| 64 |
|
| (1,202) |
|
| (1,138) |
Contributions from noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,500 |
|
| 18,500 |
Cumulative effect of accounting change |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 584,913 |
|
| — |
|
| 584,913 |
|
| 340,129 |
|
| 925,042 |
Balance at March 31, 2019 |
| 104,417 |
| $ | 104 |
| 744 |
| $ | 1 |
| 56,620 |
| $ | 57 |
| $ | 254,384 |
| $ | (1,040,178) |
| $ | 135 |
| $ | (785,497) |
| $ | (339,464) |
| $ | (1,124,961) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (4,819) |
|
| — |
|
| (4,819) |
|
| (4,164) |
|
| (8,983) |
Net unrealized gain on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 406 |
|
| 406 |
|
| 216 |
|
| 622 |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 1,748 |
|
| — |
|
| — |
|
| 1,748 |
|
| — |
|
| 1,748 |
Issuance of common stock |
| 2,996 |
|
| 3 |
| — |
|
| — |
| — |
|
| — |
|
| (3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of common stock among classes |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (7,842) |
|
| — |
|
| — |
|
| (7,842) |
|
| 7,842 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,405) |
|
| (1,405) |
Balance at June 30, 2019 |
| 107,413 |
| $ | 107 |
| 744 |
| $ | 1 |
| 56,620 |
| $ | 57 |
| $ | 248,287 |
| $ | (1,044,997) |
| $ | 541 |
| $ | (796,004) |
| $ | (336,975) |
| $ | (1,132,979) |
Net income |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 46,097 |
|
| — |
|
| 46,097 |
|
| 12,801 |
|
| 58,898 |
Net unrealized gain on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 69 |
|
| 69 |
|
| 29 |
|
| 98 |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 1,878 |
|
| — |
|
| — |
|
| 1,878 |
|
| — |
|
| 1,878 |
Issuance of common stock |
| 28 |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of common stock among classes |
| 93 |
|
| 1 |
| — |
|
| — |
| (93) |
|
| (1) |
|
| (1,081) |
|
| — |
|
| — |
|
| (1,081) |
|
| 1,081 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (21) |
|
| — |
|
| — |
|
| (21) |
|
| (1,628) |
|
| (1,649) |
Contributions from noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,531 |
|
| 8,531 |
Balance at September 30, 2019 |
| 107,534 |
| $ | 108 |
| 744 |
| $ | 1 |
| 56,527 |
| $ | 56 |
| $ | 249,063 |
| $ | (998,900) |
| $ | 610 |
| $ | (749,062) |
| $ | (316,161) |
| $ | (1,065,223) |
See accompanying notes to unaudited consolidated financial statements.
| | | | | | |
| | Six months ended June 30, | ||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities | | | | | | |
Net income (loss) | | $ | 9,365 | | $ | (34,065) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
Non-cash interest and leasing arrangements, net | |
| 11,924 | |
| 13,818 |
Other non-cash gain, net | |
| (128,932) | |
| (40,330) |
Share based compensation | | | 3,725 | | | 3,835 |
Depreciation and amortization expense | |
| 59,804 | |
| 66,463 |
Reduction in the carrying amount of operating lease right-of-use assets | | | 63,067 | | | 59,529 |
Provision (recovery) for losses on accounts receivable | |
| 40 | |
| (746) |
Equity in net income of unconsolidated affiliates | |
| (3,449) | |
| (85) |
Benefit for deferred taxes | |
| (1,753) | |
| (1,114) |
Loss on early extinguishment of debt | | | 1,682 | | | (630) |
Long-lived asset impairments | | | 86,800 | | | 900 |
Changes in assets and liabilities: | | | | | | |
Accounts receivable | |
| 105,971 | |
| 61,415 |
Accounts payable and other accrued expenses and other | |
| 31,651 | |
| (50,864) |
Medicare advance payments | | | 156,823 | | | — |
Operating lease obligations | |
| (56,121) | |
| (42,045) |
Net cash provided by operating activities | |
| 340,597 | |
| 36,081 |
Cash flows from investing activities: | | | | | | |
Capital expenditures | |
| (32,096) | |
| (36,550) |
Purchases of marketable securities | |
| (36,187) | |
| (27,269) |
Proceeds on maturity or sale of marketable securities | | | 42,985 | |
| 20,517 |
Purchases of assets | | | (9,846) | |
| (252,475) |
Sales of assets | |
| 207,845 | |
| 134,373 |
Investments in joint venture | | | (16,886) | | | — |
Loan provided to joint venture | |
| (9,000) | |
| — |
Other, net | |
| (213) | |
| (804) |
Net cash provided by (used in) investing activities | |
| 146,602 | |
| (162,208) |
Cash flows from financing activities: | | | | | | |
Borrowings under revolving credit facilities | |
| 2,484,841 | |
| 2,372,000 |
Repayments under revolving credit facilities | |
| (2,620,802) | |
| (2,382,934) |
Proceeds from issuance of long-term debt | |
| 34,032 | |
| 170,565 |
Repayment of long-term debt | |
| (141,492) | |
| (89,966) |
Repayment of finance lease obligations | | | (1,442) | | | (1,271) |
Debt issuance costs | |
| (479) | |
| (3,708) |
Contributions from noncontrolling interests | |
| — | |
| 18,500 |
Distributions to noncontrolling interests and stockholders | |
| (2,287) | |
| (2,544) |
Net cash (used in) provided by financing activities | |
| (247,629) | |
| 80,642 |
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents | |
| 239,570 | |
| (45,485) |
Cash, cash equivalents and restricted cash and equivalents: | | | | | | |
Beginning of period | |
| 125,806 | |
| 142,276 |
End of period | | $ | 365,376 | | $ | 96,791 |
Supplemental cash flow information: | | | | | | |
Interest paid | | $ | 54,715 | | $ | 91,543 |
Net taxes paid | | | 1,896 | | | 1,610 |
Federal stimulus - COVID-19 other income | | | 185,500 | | | — |
Non-cash investing and financing activities: | | | | | | |
Finance lease obligations, net write-down due to lease activity | | $ | (1,517) | | $ | (131,842) |
Assets subject to finance lease obligations, net write-down due to lease activity | |
| (463) | |
| (530,025) |
Operating lease obligations, net (write-down) gross-up due to lease activity | | | (153,933) | | | 2,402,991 |
Assets subject to operating leases, net write-down (gross-up) due to lease activity | |
| 124,582 | |
| (2,259,781) |
Financing obligations, net write-down due to lease activity | | | — | | | (2,734,940) |
Assets subject to financing obligations, net write-down due to lease activity | |
| — | |
| 1,718,507 |
6
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(IN THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| other |
|
|
|
|
|
|
| Total | ||
|
| Class A Common Stock |
| Class B Common Stock |
| Class C Common Stock |
| Additional |
| Accumulated |
| comprehensive |
| Stockholders' |
| Noncontrolling |
| stockholders' | |||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| (loss) income |
| deficit |
| interests |
| deficit | |||||||||
Balance at December 31, 2017 |
| 97,101 |
| $ | 97 |
| 744 |
| $ | 1 |
| 61,561 |
| $ | 61 |
| $ | 290,573 |
| $ | (1,374,597) |
| $ | (362) |
| $ | (1,084,227) |
| $ | (595,905) |
| $ | (1,680,132) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (68,538) |
|
| — |
|
| (68,538) |
|
| (40,135) |
|
| (108,673) |
Net unrealized loss on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (214) |
|
| (214) |
|
| (124) |
|
| (338) |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,427 |
|
| — |
|
| — |
|
| 2,427 |
|
| — |
|
| 2,427 |
Issuance of common stock |
| 40 |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of common stock among classes |
| 830 |
|
| 1 |
| — |
|
| — |
| (830) |
|
| (1) |
|
| (8,635) |
|
| — |
|
| — |
|
| (8,635) |
|
| 8,635 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (14) |
|
| (14) |
Balance at March 31, 2018 |
| 97,971 |
| $ | 98 |
| 744 |
| $ | 1 |
| 60,731 |
| $ | 60 |
| $ | 284,365 |
| $ | (1,443,135) |
| $ | (576) |
| $ | (1,159,187) |
| $ | (627,543) |
| $ | (1,786,730) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (39,612) |
|
| — |
|
| (39,612) |
|
| (23,245) |
|
| (62,857) |
Net unrealized gain (loss) on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 307 |
|
| 307 |
|
| (30) |
|
| 277 |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,130 |
|
| — |
|
| — |
|
| 2,130 |
|
| — |
|
| 2,130 |
Issuance of common stock |
| 2,008 |
|
| 2 |
| — |
|
| — |
| — |
|
| — |
|
| (2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of common stock among classes |
| 1,030 |
|
| 1 |
| — |
|
| — |
| (1,030) |
|
| (1) |
|
| (20,283) |
|
| — |
|
| — |
|
| (20,283) |
|
| 20,283 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (566) |
|
| (566) |
Balance at June 30, 2018 |
| 101,009 |
| $ | 101 |
| 744 |
| $ | 1 |
| 59,701 |
| $ | 59 |
| $ | 266,210 |
| $ | (1,482,747) |
| $ | (269) |
| $ | (1,216,645) |
| $ | (631,101) |
| $ | (1,847,746) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (58,128) |
|
| — |
|
| (58,128) |
|
| (33,773) |
|
| (91,901) |
Net unrealized loss on marketable securities, net of tax |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (296) |
|
| (296) |
|
| (172) |
|
| (468) |
Share based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,175 |
|
| — |
|
| — |
|
| 2,175 |
|
| — |
|
| 2,175 |
Issuance of common stock |
| 117 |
|
| — |
| — |
|
| — |
| — |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
Conversion of common stock among classes |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (482) |
|
| — |
|
| — |
|
| (482) |
|
| 482 |
|
| — |
Distributions to noncontrolling interests |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (21) |
|
| — |
|
| — |
|
| (21) |
|
| (771) |
|
| (792) |
Balance at September 30, 2018 |
| 101,126 |
| $ | 101 |
| 744 |
| $ | 1 |
| 59,701 |
| $ | 60 |
| $ | 267,882 |
| $ | (1,540,875) |
| $ | (565) |
| $ | (1,273,396) |
| $ | (665,335) |
| $ | (1,938,731) |
See accompanying notes to unaudited consolidated financial statements.
78
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
| Nine months ended September 30, | ||||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities |
|
|
|
|
|
|
Net income (loss) |
| $ | 24,833 |
| $ | (263,431) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
Non-cash interest and leasing arrangements, net |
|
| 21,194 |
|
| 55,128 |
Other non-cash gain, net |
|
| (172,141) |
|
| (42,360) |
Share based compensation |
|
| 5,713 |
|
| 6,732 |
Depreciation and amortization expense |
|
| 101,395 |
|
| 168,036 |
Operating lease right-of-use asset amortization |
|
| 86,250 |
|
| — |
Provision for losses on accounts receivable |
|
| (1,005) |
|
| 6,179 |
Equity in net (income) loss of unconsolidated affiliates |
|
| (178) |
|
| 106 |
Benefit for deferred taxes |
|
| (1,774) |
|
| (2,305) |
Long-lived asset impairments |
|
| 16,937 |
|
| 88,008 |
Goodwill and identifiable intangible asset impairments |
|
| — |
|
| 2,061 |
(Gain) loss on early extinguishment of debt |
|
| (263) |
|
| 9,300 |
Changes in assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
| 64,614 |
|
| 48,667 |
Accounts payable and other accrued expenses and other |
|
| (63,186) |
|
| (62,055) |
Operating lease obligations |
|
| (66,631) |
|
| — |
Net cash provided by operating activities |
|
| 15,758 |
|
| 14,066 |
Cash flows from investing activities: |
|
|
|
|
|
|
Capital expenditures |
|
| (47,046) |
|
| (41,321) |
Purchases of marketable securities |
|
| (47,896) |
|
| (63,534) |
Proceeds on maturity or sale of marketable securities |
|
| 56,725 |
|
| 50,913 |
Purchases of assets |
|
| (591,660) |
|
| — |
Sales of assets |
|
| 237,632 |
|
| — |
Restricted deposits |
|
| (1,224) |
|
| (873) |
Other, net |
|
| 435 |
|
| (62) |
Net cash used in investing activities |
|
| (393,034) |
|
| (54,877) |
Cash flows from financing activities: |
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
| 3,522,000 |
|
| 2,987,000 |
Repayments under revolving credit facilities |
|
| (3,518,465) |
|
| (2,959,875) |
Proceeds from issuance of long-term debt |
|
| 480,906 |
|
| 563,747 |
Repayment of long-term debt |
|
| (133,913) |
|
| (462,063) |
Repayment of finance lease obligations |
|
| (1,973) |
|
| — |
Debt issuance costs |
|
| (8,325) |
|
| (16,678) |
Debt settlement costs |
|
| — |
|
| (485) |
Contributions from noncontrolling interests |
|
| 27,031 |
|
| — |
Distributions to noncontrolling interests and stockholders |
|
| (4,192) |
|
| (1,373) |
Net cash provided by financing activities |
|
| 363,069 |
|
| 110,273 |
Net (decrease) increase in cash, cash equivalents and restricted cash and equivalents |
|
| (14,207) |
|
| 69,462 |
Cash, cash equivalents and restricted cash and equivalents: |
|
|
|
|
|
|
Beginning of period |
|
| 142,276 |
|
| 58,638 |
End of period |
| $ | 128,069 |
| $ | 128,100 |
Supplemental cash flow information: |
|
|
|
|
|
|
Interest paid |
| $ | 118,757 |
| $ | 292,545 |
Net taxes paid |
|
| 2,672 |
|
| 3,019 |
Non-cash investing and financing activities: |
|
|
|
|
|
|
Finance lease obligations, net write-down due to lease activity |
| $ | (930,582) |
| $ | (83,390) |
Assets subject to finance lease obligations, net (gross-up) write-down due to lease activity |
|
| (1,131,352) |
|
| 64,456 |
Operating lease obligations, net gross-up due to lease activity |
|
| 2,901,799 |
|
| — |
Assets subject to operating leases, net (gross-up) due to lease activity |
|
| (2,514,414) |
|
| — |
Financing obligations, net write-down due to lease activity |
|
| (2,734,940) |
|
| (177,001) |
Assets subject to financing obligations, net write-down due to lease activity |
|
| 1,718,507 |
|
| 128,256 |
See accompanying notes to unaudited consolidated financial statements.
8
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) | General Information |
Description of Business
Genesis Healthcare, Inc. is a healthcare services holding company that, through its subsidiaries (collectively, the Company or Genesis), owns and operates skilled nursing facilities, assisted/senior living facilities and a rehabilitation therapy business. The Company has an administrative services company that provides a full complement of administrative and consultative services that allows its affiliated operators and third-party operators with whom the Company contracts to better focus on delivery of healthcare services. At SeptemberJune 30, 2019,2020, the Company providesprovided inpatient services through 384361 skilled nursing, assisted/senior living and behavioral health centers located in 2625 states. Revenues of the Company’s owned, leased and otherwise consolidated inpatient businesses constitute approximately 86%87% of its revenues.
The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. The Company has expanded its delivery model for providing rehabilitation services to community-based and at-home settings, as well as internationally in China. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 11%10% of the Company’s revenues.
The Company provides an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of the Company’s revenues.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.
The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The Company presents noncontrolling interests within the stockholders’ deficit section of its consolidated balance sheets. The Company presents the amount of net (loss) income (loss) attributable to Genesis Healthcare, Inc. and net (loss) income (loss) attributable to noncontrolling interests in its consolidated statements of operations.
The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of any variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of control and economics that considers which entitywhether the Company has the power to direct the activities that "mostmost significantly impact"impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to the VIE. In the first quarter of 2019, the Company entered into a partnership that acquired the real property of 15 skilled nursing facilities that are leased to the Company. The partnership qualifies as a consolidated VIE. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Next Partnership.” In the third quarter of 2019, the Company entered into a partnership that acquired the real property of 18 skilled nursing facilities that are leased to the Company. The partnership qualifies as a consolidated VIE. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Vantage Point Partnership.”
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the disclosures normally required by U.S. GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 20182019 filed with the U.S. Securities and Exchange Commission (the SEC)(SEC) on Form 10-K on March 18, 2019.16, 2020.
Going Concern Considerations
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.
9
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Certain prior year disclosure amountsThe United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and the Company’s businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of the Company’s facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have been reclassifiedexperienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to conform to current period presentation.have a material and adverse effect on the Company’s operations and supply chains, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures.
Financial Condition and Liquidity Considerations
The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilitiesperformed an assessment to determine whether there are conditions or events, considered in the normal course of business.
In evaluating the Company’saggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management consideredassesses the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions andor events that could raise substantial doubt about the Company’sentity’s ability to continue as a going concern.
In completing its going concern for 12 months followingassessment, the date the Company’s financial statements were issued (November 8, 2019). ManagementCompany considered the recentuncertainties around the impact of COVID-19 on its future results of operations as well as the Company’sits current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before November 8, 2020. Based upon such considerations, management determinedwithin 12 months following the date its financial statements were issued. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that there are no known or knowablethe Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions or events that raiseraises substantial doubt about the Company’s ability to continue as a going concern for 12 monthsthe twelve-month period following the date of issuance of thesethe financial statements (November 8, 2019). are issued.
The Company’s results of operations continueIn response to be negatively impacted by the persistent pressure of healthcare reforms enacted in recent years. This challenging operating environment has been most acute in the Company’s inpatient segment, but also has had a detrimental effect on the Company’s rehabilitation therapy segment and its customers. In recent years,COVID-19, the Company has implemented a number of cost mitigation strategiestaken the following measures to offset the negative financial implications of this challenging operating environment. improve its liquidity position:
● | The Company applied for and received government-sponsored financial relief related to the pandemic; |
● | The Company is utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022; |
● | While it vigorously advocates, for itself and the skilled nursing industry, regarding the need for additional government sponsored funding, the Company continues to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19; |
● | The Company continues to implement measures to adapt successfully its operational model to function for the long-term in a COVID-19 environment; and |
● | The Company has pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity. |
The Company expects to continue to pursue cost mitigationThese measures and other strategies in 2019 in responseplans and initiatives of the Company are designed to provide it with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond the Company’s control or may not be available on terms acceptable to the operating environmentCompany, or at all. Accordingly, management determined it could not be certain that the plans and liquidity requirements. Duringinitiatives would be effectively implemented within one year after the nine months ended September 30, 2019,date the financial statements are issued. Further, even if the Company amended, receives additional funding support from government sources and/or obtained waivers relatedis able to the financial covenants ofexecute successfully all of its material debtplans and lease agreementsinitiatives, given the current
10
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to accountfund operations for these ongoing changes in its capital structure and business conditions. Althoughthe twelve-month period following the date the financial statements are issued, which could force the Company isto seek reorganization under the U.S. Bankruptcy Code.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and projects to bethe satisfaction of liabilities in compliance with allthe normal course of its material debt and lease covenants through November 8, 2020,business for the ongoing uncertainty relatedtwelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the impactrecoverability and classification of healthcare reform initiativesassets and their carrying amounts, or the amount and classification of liabilities that may have an adverse impact on the Company’s ability to remain in compliance with the covenants. Shouldresult should the Company failbe unable to comply with its debt and lease covenants atcontinue as a future measurement date it could, absent necessary and timely waivers and/or amendments, be in default under certain of its existing debt and lease agreements. To the extent any cross-default provisions apply, the default could have a more significant impact on the Company’s financial position.going concern.
Recently Adopted Accounting Pronouncements
In February 2016,August 2018, the Financial Accounting Standards Board (FASB) established(the FASB) issued Accounting Standards Codification (ASC) Topic 842, Leases (Topic 842), by issuing Accounting StandardsStandard Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The Company adopted the new standard on January 1, 2019. The Company elected the option to apply the transition requirements in Topic 842 at the effective date of January 1, 2019 with the effects of initially applying Topic 842 recognized as a cumulative-effect adjustment to accumulated deficit in the period of adoption. Consequently, financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permit it to not reassess its prior conclusions about lease identification, lease classification and initial
10
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company.
The adoption of the new standard had a material effect on the Company’s financial statements. The most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; (2) the derecognition of existing assets and liabilities for sale-leaseback transactions (including those arising from build-to-suit lease arrangements for which construction is complete and the Company is leasing the constructed asset) that historically did not qualify for sale accounting; and (3) providing significant new disclosures about its leasing activities.
Upon adoption, the Company:
|
|
|
|
The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company does not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. See Note 8 – “Leases.”
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act (Tax Reform Act) on items within accumulated other comprehensive income (loss) to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." Amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is not affected by this update. The Company adopted the new standard on January 1, 2019. The adoption of ASU 2018-02 did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which simplifies the fair value measurement disclosure requirements. The Company adopted the new standard is effective for fiscal years beginning after December 15, 2019, with earlyon January 1, 2020. The adoption permitted. The Company is currently evaluatingof ASU 2018-13 did not have a material impact on the effect that the standard will have on itsCompany’s consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022, for smaller
11
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which serves to remove or amend certain requirements associated with the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements and related disclosures.
(2)Certain Significant Risks and Uncertainties
COVID-19
The COVID-19 pandemic has materially and adversely affected, and will continue to materially and adversely affect, the Company’s patients, staff and operations, which in turn has materially and adversely affected its revenues and expenses. The Company began to experience the negative impact of the COVID-19 pandemic beginning in late February 2020. For a more detailed discussion of the impact of COVID-19 on the Company’s operations, net revenues, operating expenses and liquidity, see Note 3 – “Significant Transactions and Events – COVID-19.”
11
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue Sources
The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third-party payors and long-term care facilities that utilize its rehabilitation therapy and other services. The Company’s inpatient services segment derives approximately 78%82% of its revenue from Medicare and various state Medicaid programs. The following table depicts the Company’s inpatient services segment revenue by source for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| Three months ended June 30, | | Six months ended June 30, | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||||||||
Medicare |
| 19 | % |
| 21 | % |
| 20 | % |
| 22 | % | | 20 | % | | 20 | % | | 21 | % | | 20 | % |
Medicaid |
| 59 | % |
| 58 | % |
| 58 | % |
| 57 | % | | 62 | % | | 58 | % | | 60 | % | | 58 | % |
Insurance |
| 12 | % |
| 12 | % |
| 12 | % |
| 12 | % | | 9 | % | | 12 | % | | 10 | % | | 12 | % |
Private |
| 8 | % |
| 8 | % |
| 8 | % |
| 8 | % | | 7 | % | | 8 | % | | 7 | % | | 7 | % |
Other |
| 2 | % |
| 1 | % |
| 2 | % |
| 1 | % | | 2 | % | | 2 | % | | 2 | % | | 3 | % |
Total |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The sources and amounts of the Company’s revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of inpatient facilities, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including services provided by the Company’s rehabilitation therapy services business, varies based upon the type of payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Company’s profitability.
It is not possibledifficult to quantify fully the effect of legislative changes, public and private subsidy and grant programs related to COVID-19, the interpretation or administration of such legislation or other governmental initiatives on the Company’s business and the business of the customers served by the Company’s rehabilitation therapy business. The potential impact of reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, is uncertain at this time. Also, initiatives among managed care payors, conveners and referring acute care hospital systems to reduce lengths of stay and avoidable hospital admissions and to divert referrals to home health or other community-based care settings could have an adverse impact on the Company’s business. Accordingly, there can be no assurance that the impact of any future healthcare legislation, regulation or actions by participants in the health care continuum will not adversely affect the Company’s business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels similar to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company’s financial condition and results of operations are and will continue to be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.
Laws and regulations governing the Medicare and Medicaid programs, and the Company’s businessbusinesses generally, are complex and are often subject to a number of ambiguities in their application and interpretation. The Company believes that it is in substantial compliance with all applicable laws and regulations. However, from time to time the Company and its affiliates are subject to pending or threatened lawsuits and investigations involving allegations of potential wrongdoing, some of which may be material or involve significant costs to resolve and/or defend, or may lead to other adverse effects on the Company and its affiliates including, but not limited to, fines, penalties and exclusion from participation in the Medicare and/or Medicaid programs.
Concentration of Credit Risk
The Company is exposed to the credit risk of its third-party customers, many of whom are in similar lines of business as the Company and are exposed to the same systemic industry risks of operations as the Company, resulting in a concentration of risk.
12
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
These include organizations that utilize the Company’s rehabilitation services, staffing services and physician service offerings, engaged in similar business activities or having economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in regulatory and systemic industry conditions.
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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Management assesses its exposure to loss on accounts at the customer level. The greatest concentration of risk exists in the Company’s rehabilitation therapy services business where it has over 160140 distinct customers, many being chain operators with more than one location. One customer, which isNaN of the Company’s customers, a related party, of the Company, comprises $32.5$31.0 million, or approximately 35%40%, of the gross outstanding contract receivables in the rehabilitation services business at SeptemberJune 30, 2019. 2020. See Note 11 – “Related Party Transactions.” One former customer comprises $8.0 million, approximately 9%, of the gross outstanding contract receivables in the rehabilitation services business at September 30, 2019. AnA future adverse event impacting the solvency of thesethis customer or other large customers, resulting in their insolvency or other economic distress, would have a material impact on the Company.
The Company’s business is subject to a number of other known and unknown risks and uncertainties, which are discussed in Part II. Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which was filed with the SEC on March 18, 2019,16, 2020, and in the Company’s Quarterly Reports on Form 10-Q, including the risk factors discussed herein in Part II. Item 1A.
Covenant Compliance
Should the Company fail to comply with its debt and lease covenants at a future measurement date, it could, absent necessary and timely waivers and/or amendments, be in default under certain of its existing debt and lease agreements. To the extent any cross-default provisions may apply, the default could have an even morea significant impact on the Company’s financial position.
Although the Company is in compliance, and projects to remain in compliance with the covenants required by its material debt and lease agreements at June 30, 2020, the ongoing uncertainty related to the impact of healthcare reform initiatives and the effect of the COVID-19 pandemic may have an adverse impact on the Company’s ability to remain in compliance with its financial covenants. Such uncertainty includes changes in reimbursement patterns, patient admission patterns, bundled payment arrangements, as well as potential changescovenants through August 10, 2021. Without giving effect to the Patient Protectionprospect of timely and Affordable Care Actadequate future governmental funding support and other mitigating plans, many of 2010, among others.which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.
The Company’s ability to maintain compliance with financial covenants required by its debt and lease agreements depends in part on management’s ability to increase revenues and control costs.costs and receive adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic as well as possible waivers, deferrals and/or adjustments of debt and lease terms. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt and lease covenant requirements.
There can be no assurance that the confluence of these and other factors will not impede the Company’s ability to meet covenants required by its debt and lease agreements in the future.
(3)Significant Transactions and Events
COVID-19
As discussed in Note 1 – “General Information – Going Concern Considerations,” the Company’s operations and supply chains have been materially and adversely affected by the COVID-19 pandemic, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures. Although the ultimate impact of the pandemic remains uncertain, the following disclosures serve to outline the estimated impact of COVID-19 on its business through June 30, 2020, including the impact of emergency legislation, temporary changes to regulations and reimbursements issued in response to COVID-19.
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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operations
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, 241 of the Company’s 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 77% of the patient and resident positive COVID-19 cases in its facilities have occurred in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. The Company’s facilities in these five states represent 45% of its total operating beds.
The Company’s occupancy decreased in the early months of the pandemic following the efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of an increasing number of COVID-19 cases in their communities. As the pandemic progressed, occupancy was further decreased by, among other things, implementation of self-imposed admission holds in 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.
Net Revenues
The Company’s net revenues for the three and six months ended June 30, 2020 were materially impacted by a significant decline in occupancy as a result of COVID-19. The Company’s skilled nursing facility operating occupancy decreased from 88.2% for the three months ended March 31, 2020 to 77.0% for the three months ended June 30, 2020. However, the revenue lost from the decline in occupancy was partially offset by incremental state sponsored funding programs, changes in payor mix, and the enactment of COVID-19 relief programs, as discussed below. See Regulatory andReimbursement Relief. After considering a commensurate reduction in operating expenses, the Company estimates lost revenue caused by COVID-19, decreased earnings by approximately $67.0 million and $74.0 million for the three and six months ended June 30, 2020, respectively.
Operating Expenses
The Company’s operating expenses for the three and six months ended June 30, 2020 were materially and adversely impacted due to 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 employees. During the three months and six months ended June 30, 2020, the Company estimates it incurred approximately $145.3 million and $152.5 million, respectively, of incremental operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from higher 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, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense.
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 incremental costs can be reduced or will be borne by or offset by actions taken by public and private entities in response to the pandemic.
14
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Liquidity
The Company has taken, and will continue to take, actions to enhance and to preserve its liquidity in response to the pandemic. During the three and six months ended June 30, 2020, the Company’s usual 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 $156.8 million of advanced Medicare payments and in April and May 2020 received $185.5 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 of $156.8 million, which are also interest free, are scheduled to be recouped 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 $55.5 million, since the outset of the pandemic.
The Company continues to seek opportunities to enhance and to preserve its 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, timely or adequate to offset the lost revenue and escalating operating expenses as a result of the pandemic. See Note 1 – “General Information – Going Concern Considerations.”
Regulatory and Reimbursement Relief
On March 18, 2020, the Families First Coronavirus Response Act was enacted, which provided a temporary 6.2% increase to each qualifying state’s Medicaid Federal Medical Assistance Percentage (FMAP) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter in which the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services (HHS), including any extensions or termination, which currently expires October 25, 2020. As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporarily increased FMAP is claimed. Further, a number of additional states in which the Company operates have implemented incremental FMAP related reimbursement provisions and other forms of support to assist providers. For the three and six months ended June 30, 2020, the Company recognized as net revenues in the consolidated statements of operations $40.2 million and $45.7 million, respectively, of additional FMAP reimbursement relief. The Company cannot predict the extent to which further FMAP funding programs will be implemented in the states in which it operates.
In further response to the pandemic, on March 27, 2020, the President signed into law the bipartisan CARES Act. The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Nursing facility operators participating in Medicare and Medicaid may be eligible to receive compensation for costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. The secretary of the HHS has broad authority and discretion to determine payment eligibility and the amount of such payments.
The Company was impacted by certain provisions of the CARES Act, as summarized below.
● | Temporary suspension of certain patient coverage criteria and documentation and care requirements. The CARES Act and a series of temporary waivers and guidance issued by the Centers for Medicare and Medicaid Services (CMS) suspend various Medicare patient coverage criteria as well as certain documentation and care requirements. These accommodations are intended to ensure patients have access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. The Company believes these regulatory actions could contribute to an increase in census volumes and skilled mix that may not otherwise have occurred, but cannot provide any assurance as to the impact on its businesses. |
15
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
● | Relief Funds. During April and May 2020, the Company received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through the Company’s Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. The Company’s relief funds payments are accounted for as government grants, which are recognized on a systematic and rational basis as other income once there is reasonable assurance that the applicable terms and conditions required to retain the funds will be met. The Company recognizes grants once both of the following conditions are met: (1) it is able to comply with the relevant conditions of the grant and (2) the grant will be received. The terms and conditions note that the relief funds received can be used for health care related expenses or lost revenues that are attributable to COVID-19. For the three and six months ended June 30, 2020, the Company recognized the entire amount of relief grants received within the “Federal stimulus – COVID-19 other income” caption in the consolidated statements of operations. |
On June 9, 2020 as part of its ongoing efforts to provide financial relief to healthcare providers impacted by COVID-19, HHS announced the Phase 2 general distribution to Medicaid, Medicaid managed care, Children's Health Insurance Program (CHIP) and dental providers. HHS anticipates distributing approximately $15 billion to eligible providers that participate in state Medicaid and CHIP programs that did not receive a payment from the Provider Relief Fund General Allocation (Phase 1). Eligible applicants will receive 2% of Gross Revenues from Patient Care for calendar years 2017, 2018 or 2019 as selected by applicant. Applications have been submitted for 4 assisted living facilities which meet the eligibility criteria.
On July 22, 2020, President Trump announced that an additional $5 billion of the Provider Relief Program funds will be allocated to Medicare-certified long term care facilities and state veterans’ homes (nursing homes), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. On August 7, 2020, HHS provided additional details indicating the $5 billion distribution will provide approximately $2.5 billion in upfront funding to support increased testing, staffing and personal protective equipment needs. There will also be funding available to providers who establish COVID-19 isolation facilities. At this time, the Company has insufficient information to estimate the amount or timing of such distributions.
● | Medicare Accelerated and Advanced Payment Program. During the three months ended June 30, 2020, the Company applied for and received $156.8 million of advanced Medicare payments. The payments represent interest-free advances on future services to be provided to Medicare patients between August 2020 and November 2020. The advanced Medicare payments represent contract liabilities that are reported within accrued expenses in the consolidated balance sheet as of June 30, 2020. The $156.8 million in contract liabilities will be subsequently recouped over time as revenue is recognized for claims submitted for services provided to Medicare patients between August 2020 and November 2020. If there is a remaining balance owed after this period, the Company is required to repay the remaining advance. |
● | Payroll Tax Deferral. Under the CARES Act, the Company has elected to defer payment, on an interest free basis, of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. The Company has presented the balance of deferred payroll taxes, $35.7 million, within other long term liabilities in the consolidated balance sheet as of June 30, 2020. |
● | Temporary Suspension of Medicare Sequestration. The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee for service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements have incurred this mandatory reduction and it will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period of May 1, 2020 through December 31, 2020. During the three |
16
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and six months ended June 30, 2020, the suspension of sequestration resulted in net revenues of approximately $2.0 million. |
● | Employee Retention Tax Credit. The employer payroll tax credit provisions of the CARES Act grant eligible companies a credit against applicable payroll taxes for each calendar quarter in an amount equal to 50% of qualified wages with a maximum credit of $5,000 per employee. The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Qualified employees are those who are not providing services as a result of such orders of a government authority. The impact of the employee retention tax credit program was not material for the three and six months ended June 30, 2020. |
Strategic Partnerships
NextVantage Point Partnership
On January 31, 2019,10, 2020, Welltower, Inc. (Welltower) sold the real estate of 15 facilities1 skilled nursing facility located in Massachusetts to the Vantage Point Partnership. The sale represents the final component of a real estate partnership (Next Partnership), of whichtransaction that occurred on September 12, 2019, whereby the Company acquired a 46%an approximately 30% membership interest for $16.0 million. The remaining interest is held by Next Healthcare (Next), a related party. See Note 11 – “Related Party Transactions.” The Company will continue to operate these facilities pursuant to a new master lease with the Next Partnership. The term of the master lease is 15 years with two five-year renewal options available. The Company will pay annual rent of $19.5 million, with no rent escalators for the first five years and an escalator of 2% beginning in the sixth lease year and thereafter. The Company also obtained a fixed price purchase option to acquire
13
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
all ofpartnership, which acquired the real propertyestate of the facilities. The purchase option is exercisable between lease years five and seven, reducing in price each successive year down to a 10% premium over the original purchase price.
In accordance with U.S. GAAP, the Company has concluded the Next Partnership qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Next Partnership in the accompanying financial statements. The ROU assets and lease obligations related to the Next Partnership lease agreement have been fully eliminated in the Company’s consolidated financial statements. The Next Partnership acquired 22 skilled nursing18 facilities for a purchase price of $252.5 million but immediately sold seven of these facilities for $79.0 million. The initial consolidation of the remaining 15 facilities resulted in property and equipment of $173.5 million, non-recourse debt of $165.7 million, net of debt issuance costs, and non-controlling interest of $18.5 million. The Company has not finalized the analysis of the consideration and purchase price allocation and will continue to review this during the measurement period. The impact of consolidation on the accompanying consolidated statement of operations was not material for the nine months ended September 30, 2019 apartpreviously leased from non-recurring transaction costs of $5.3 million.
Vantage Point Partnership
On September 12, 2019, Welltower and Second Spring Healthcare Investments (Second Spring) sold. As a result of the real estate of four and 14 facilities, respectively, to a real estate partnership (Vantage Point Partnership), in whichJanuary 10, 2020 transaction, the Company invested $37.5 million, consisting ofwill receive an equity investment of $3.7 million, for an approximate 30% membership interest, and a formation loan of $33.7 million. The remaining membership interest is held by Vantage Point Capital, LLC (Vantage Point) for an investment of $85.3 million consisting of an equity investment of $8.5 million and a formation loan of $76.8 million. In conjunction with the facility sales, the Company received aggregate annual rent creditscredit of $30.3 million. The Company will continue to operate these facilities pursuant to$0.7 million from Welltower and recorded a new master lease with the Vantage Point Partnership. The termgain of $0.2 million as a result of the master lease is 15 years with two five-year renewal options available. The Company will pay annual rent of approximately $33.1 million, with no rent escalators for the first four years and an escalator of 2% beginning in the fifth lease year and thereafter. The Company also obtained a fixed price purchase option to acquire all of the real property of the facilities. The purchase option is exercisable during certain periods in fiscal years 2024 and 2025 for a 10% premium over the original purchase price. Further, Vantage Point holds a put option that would require the Company to acquire its membership interests in the Vantage Point Partnership. The put option becomes exercisable if the Company opts not to purchase the facilities or upon the occurrence of certain events of default.
In accordance with U.S. GAAP, the Company has concluded the Vantage Point Partnership qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Vantage Point Partnership in the accompanying financial statements. The ROU assets and lease obligations related to the Vantage Point Partnership lease agreement have been fully eliminated in the Company’s consolidated financial statements.termination. The Vantage Point Partnership acquired all 18this skilled nursing facilitiesfacility for a purchase price of $339.2$9.1 million. The initial consolidation of this additional skilled nursing facility primarily resulted in property and equipment of $339.2$9.1 million, non-recourse debt of $306.1$7.3 million netwith the balance of debt issuance costs, and non-controlling interest of $8.5 million.the purchase price settled primarily with proceeds held in escrow from the September 12, 2019 closing. The Company has not finalizedoperates all 19 facilities owned by the analysisVantage Point Partnership.
NewGen Partnership
On February 1, 2020, the Company transitioned operational responsibility for 19 facilities in the states of the considerationCalifornia, Washington and purchase price allocation and will continueNevada to review this during the measurement period. Other than transaction costs of $11.0 million, the impact of consolidation on the accompanying consolidated statement of operations was not material for the three months ended September 30, 2019.
During the third quarter of 2019, thea partnership with New Generation Health, LLC (the NewGen Partnership). The Company sold the real propertyestate and operations of seven6 skilled nursing facilities and one senior/transferred the operations to 13 skilled nursing, behavioral health and assisted living facility located in Georgia, New Jersey, Virginia,facilities for $78.7 million. Net transaction proceeds were used by the Company to repay indebtedness, including prepayment penalties, of $33.7 million, fund its initial 50% equity contribution and Marylandworking capital requirement of $14.9 million, and provide financing to affiliatesthe partnership of Vantage Point$9.0 million. The Company recorded a gain on sale of assets and transition of leased facilities of $58.8 million and loss on early extinguishment of debt of $1.0 million. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for an aggregate purchase price of $91.8 million, using the majorityday-to-day operations of the proceedsfacilities. The Company will continue to acquire itsprovide administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company does not hold a controlling financial interest in the Vantage PointNewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company’s investment in the NewGen Partnership, $20.5 million, is included within other long-term assets in the consolidated balance sheet as of June 30, 2020.
On May 15, 2020, the Company transitioned operational responsibility for 4 additional leased facilities in the state of California to the NewGen Partnership. The 4 facilities generated annual revenues of $55.0 million and repay indebtedness. The operationspre-tax loss of seven$0.5 million. Subsequent to May 15, 2020, the Company has applied the equity method of accounting for its 50% interest in these facilities were also divested. Threeoperations.
17
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Divestiture of Non-Strategic Facilities
On January 31, 2020, Omega Healthcare Investors, Inc. (Omega) sold the facilities were subject to real estate loans and two were subject to HUD insured loans. See Note 7 – “Property and Equipment” andNote 9 – “Long-Term Debt – Real Estate Loans” and “Long-Term Debt – HUD Insured Loans.” The Company also divested the operations of an additional leased1 skilled nursing facility located in Georgia, marking an exit fromMassachusetts. The Company leased the inpatient businessfacility under a master lease agreement but closed the facility on July 1, 2019. The sale resulted in this state. The divested facilities had aggregate annual revenuesa gain on the lease termination of $84.1$0.2 million and an annual pre-tax net incomerent credit of $2.6$0.4 million. The divestitures resulted in an aggregate gain of $58.2 million.
14
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
Divestiture of Non-Strategic Facilities
California Divestitures
During the second quarter of 2019,On February 1, 2020, the Company sold the real property and divested the operations of five2 owned skilled nursing facilities in CaliforniaNorth Carolina and 1 owned skilled nursing facility in Maryland for a sale price$61.8 million. Proceeds were used to retire $29.1 million of $56.5 million. Loan repaymentsU.S. Department of $41.8 million were paid on the facilities at closing. See Note 7 – “PropertyHousing and Equipment” and Note 9 – “Long-Term Debt – Real Estate Loans” and “Long-Term Debt – HUD Insured Loans.”Urban Development (HUD) financed debt. The Company incurred prepayment penalties and other closing costs of $2.4 million at settlement. Thethree facilities generated annual revenues of $53.0$38.7 million and pre-tax net income of $1.6$0.5 million. The divestituretransactions resulted in a gain on sale of $25.0 million. The Company also divested the operations of one behavioral health center located in California upon the lease’s expiration in the second quarter of 2019. The center generated annual revenues of $3.1$24.5 million and pre-tax net loss on early extinguishment of $0.3debt of $2.6 million. The divestiture resulted in a loss of $0.1 million.
During the third quarter of 2019,On February 26, 2020, the Company soldcompleted the real property and divested the operationssale of one additional1 owned HUD-insured skilled nursing facility and one assisted/senior living facility in California for $20.8 million. The facility had been classified as an aggregateasset held for sale priceas of $11.5 million. Loan repaymentsDecember 31, 2019. Proceeds were used to retire $20.5 million of $9.6 million were paid on the facilities at closing. See Note 7 – “Property and Equipment” and Note 9 – “Long-Term Debt – HUD Insured Loans.” financed debt. The facilitiesfacility generated annual revenues of $10.4$14.0 million and pre-tax net incomeloss of less than $0.1 million. See Note 14 – “Assets Held for Sale.” The divestituretransactions resulted in an aggregatea gain on sale of $1.0$3.0 million and loss on early extinguishment of debt of $0.4 million.
Other Divestitures
During the first quarter of 2019,On March 4, 2020, the Company divested the operations of nine1 leased assisted/senior living facility in Montana. The lease termination resulted in an annual rent credit of $0.7 million. The facility generated revenues of $2.5 million and pre-tax income of $0.1 million.
On April 1, 2020, the Company sold 2 owned skilled nursing facilities located in New Jersey and Ohio that1 owned skilled nursing facility in Maryland for $45.8 million. Proceeds were subjectused to the master lease with Welltower (the Welltower Master Lease).retire $15.2 million of HUD financed debt and $7.5 million of MidCap Real Estate Loans. The nine divested3 facilities had aggregate annual revenues of $90.2 million and annual pre-tax net loss of $6.0 million. The Company recognized a loss on exit reserves of $3.3 million. The Company also completed the closure of one facility located in Ohio. The facility generated annual revenues of $7.7$35.8 million and pre-tax net loss of $1.6 million.income was de minimis. The closuretransactions resulted in a gain on sale of $21.8 million and loss on early extinguishment of $0.2debt of $1.4 million.
DuringOn April 1, 2020, the second quarterCompany divested the operations and terminated the lease of 2019,2 skilled nursing facilties in Montana. The 2 facilities generated annual revenues of $18.8 million and pre-tax income of $0.4 million. The lease termination resulted in an annual rent credit of $1.1 million.
On April 20, 2020, the Company divested the operations of three leased skilled nursing facilities. Two of the facilities were located in Connecticut and subject to the Welltower Master Lease, while the third was located in Ohio. The facilities generated annual revenues of $24.7 million and pre-tax net loss of $2.9 million. The divestitures resulted in a loss of $1.1 million.
During the third quarter of 2019, the Company divested the operations of 11 leased4 skilled nursing facilities in Florida and completed the closure of a twelfth facility. Nine of the2 skilled nursing facilities were located in Ohio, marking an exit from the inpatient business in this state, while the remaining three were located in Massachusetts, Utah, and Idaho. Four of the facilitiesMaryland that were subject to a master lease with Omega Healthcare Investors, Inc. (Omega), threeSecond Spring. The 6 facilities generated annual revenues of which$62.0 million and pre-tax loss of $2.3 million. The lease termination resulted in a net annual rent credit of $8.5 million.
On June 1, 2020, the Company divested the operations of 4 leased skilled nursing facilities in Idaho that were removed from thesubject to a master lease resultingwith Omega. The four facilities generated annual revenues of $19.5 million and pre-tax income of $0.1 million. The lease termination resulted in an annual rent credit of $1.9 million, with the fourth, the closed facility, remaining subject to the lease. The twelve facilities generated annual revenues of $75.6 million and pre-tax loss of $4.6 million. The divestitures resulted in a loss of $1.9$1.4 million.
Acquisitions
On June 1, 2019, the Company acquired the operations of one skilled nursing facility in New Mexico. The new facility has 80 licensed beds and generates approximate annual net revenue of $3.4 million. The facility is leased from Omega and is classified as an operating lease. The facility’s 2019 pre-tax net income is anticipated to be de minimis.
Lease Transactions
Welltower
During the first quarter, the Company amended the Welltower Master Lease several times to reflect the lease termination of 24 facilities, including the 15 facilities sold and now leased from the Next Partnership. As a result of the lease termination on the 24 facilities, the Company received annual rent credits of approximately $23.4 million. A lease modification analysis was performed
15
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
and the remaining 49 facilities subject to the master lease were reclassified from finance leases to operating leases. Finance lease ROU assets and obligations of $61.5 million and $130.2 million, respectively, were written off. On a net basis, operating lease ROU assets and obligations of $159.8 million and $111.3 million, respectively, were written down, resulting in a gain of $20.3 million.
During the second quarter of 2019, the Company amended the Welltower Master Lease to reflect the lease termination of two facilities and received annual rent credits of $0.6 million. Operating lease ROU assets and lease obligations of $5.1 million and $5.6 million, respectively, were written off, resulting in a gain of $0.5 million.
During the third quarter of 2019, the Company amended the Welltower Master Lease to reflect the lease termination of four facilities and received annual rent credits of $1.9 million. Operating lease ROU assets and lease obligations of $102.0 million and $74.4 million, respectively, were written off, resulting in a gain of $27.6 million.
Omega
During the third quarter, the Company amended its master lease with Omega to reflect the lease termination of three facilities subject to the lease and received annual rent credits of $1.9 million. In conjunction with the lease termination, finance lease ROU assets and lease obligations of $10.1 million and $16.8 million, respectively, were written off. Additionally, for those facilities remaining under the master lease, the Company reassessed the likelihood of exercising its renewal options and concluded that it no longer met the reasonably certain threshold. Consequently, the remaining facilities subject to the master lease were reclassified from finance leases to operating leases and the corresponding ROU assets and liabilities were reduced by $164.6 million and $181.3 million, respectively. The lease termination and remeasurement resulted in an aggregate gain of $23.4 million.
Second Spring
During the third quarter, the Company amended its master lease with Second Spring to reflect the lease termination of 14 facilities subject to the lease and received annual rent credits of $28.4 million. In conjunction with the lease termination, finance lease ROU assets and lease obligations of $5.9 million and $8.8 million, respectively, were written off and operating lease ROU assets and lease obligations of $202.7 million and $205.4 million, respectively, were written off. Additionally, for those facilities remaining under the master lease, the Company reassessed the likelihood of exercising its renewal options and concluded that it no longer met the reasonably certain threshold. Consequently, the remaining facilities subject to the master lease were reclassified from finance leases to operating leases and the corresponding ROU assets and liabilities were increased by $54.4 million and $33.3 million, respectively. The lease termination and remeasurement resulted in an aggregate gain of $26.9 million.
Other
During the first quarter of 2019, the Company amended a master lease agreement for 19 skilled nursing facilities. The amendment extended the lease term by five years through October 31, 2026, removed the Company’s option to purchase certain facilities under the lease and adjusted certain financial covenants. The Company had previously determined that the renewal option period was not reasonably certain of exercise. Upon execution of the amendment, the operating lease ROU assets and obligations were remeasured, resulting in an increase of $77.2 million to both operating lease ROU assets and obligations.
During the third quarter of 2019, the Company amended a master lease agreement to reflect the lease termination of six facilities subject to the lease. In conjunction with the lease termination, operating lease ROU assets of $4.9 million were written off, resulting in a loss of $4.9 million.
Gains and losses associated with transactions such asand divestitures acquisitions and lease transactions, are included in other income inon the consolidated statements of operations. See Note 12 – “Other Income.”
16
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
(4) Net Revenues and Accounts Receivable
Revenue Streams
Inpatient Services
The Company generates revenues primarily by providing services to patients within its facilities. The Company uses interdisciplinary teams of experienced medical professionals to provide services prescribed by physicians. These teams include registered nurses, licensed practical nurses, certified nursing assistants and other professionals who provide individualized comprehensive nursing care. Many of the Company’s facilities are equipped to provide specialty care, such as on-site dialysis,
18
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ventilator care, cardiac and pulmonary management, as well as standard services, such as room and board, special nutritional programs, social services, recreational activities and related healthcare and other services. The Company assesses collectibility on all accounts prior to providing services.
Rehabilitation Therapy Services
The Company generates revenues by providing rehabilitation therapy services, including speech-language pathology, physical therapy, occupational therapy and respiratory therapy at its skilled nursing facilities and assisted/senior living facilities, as well as facilities of third-party skilled nursing operators and other outpatient settings. The majority of revenues generated by rehabilitation therapy services rendered are billed to contracted third party providers.
Other Services
The Company generates revenues by providing an array of other specialty medical services, including physician services, staffing services, and other healthcare related services.
Revenue RecognitionCOVID-19
The Company generates revenues, primarily by providing healthcare services to its customers. Revenues are recognized when control of the promised good or service is transferred to its customers, in an amount that reflects the consideration to which the Company expects to be entitled from patients, third-party payors (including government programs and insurers) and others, in exchange for those goods and services.
Performance obligations are determined based on the nature of the services provided. The majority of the Company’s healthcare services represent a bundle of services that are not capable of being distinct and as such, are treated as a single performance obligation satisfied over time as services are rendered. The Company also provides certain ancillary services which are not included in the bundle of services, and as such, are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered.
The Company determines the transaction price based on contractually agreed-upon amounts or rates, adjusted for estimates of variable consideration, such as implicit price concessions. The Company utilizes the expected value method to determine the amount of variable consideration that should be included to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. Variable consideration also exists in the form of settlements with Medicare and Medicaid as a result of retroactive adjustments due to audits and reviews. The Company applies constraint to the transaction price, such that net revenues are recorded only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in the future. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net revenues in the period such variances become known. Adjustments arising from a change in the transaction price were not significant for the three and ninesix months ended SeptemberJune 30, 20192020 were materially impacted by COVID-19. For discussion of the impact, see Note 3 – “Significant Transactions and 2018.Events – COVID-19.”
17
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
The Company has elected a practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component due to its expectation that the period between the time the service is provided and the time payment is received will be one year or less.
The Company recognizes revenue in the statements of operations and contract assets on the consolidated balance sheets only when services have been provided. Since the Company has performed its obligation under the contract, it has unconditional rights to the consideration recorded as contract assets and therefore classifies those billed and unbilled contract assets as accounts receivable.
Payments that the Company receives from customers in advance of providing services represent contract liabilities. Such payments primarily relate to private pay patients, which are billed monthly in advance. The Company had no material contract liabilities or activity as of and for the three and nine months ended September 30, 2019 and 2018.
Disaggregation of Revenues
The Company disaggregates revenue from contracts with customers by reportable operating segments and payor type. The Company notes that disaggregation of revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source. Payments are generally received within 30 to 60 days after billing. See Note 6 – “Segment Information.”
1819
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The composition of net revenues by payor type and operating segment for the three and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 arewas as follows (in thousands):
| | | | | | | | | | | | | |
| | Three months ended June 30, 2020 | | ||||||||||
| | | | | Rehabilitation | | | | | |
| ||
| | Inpatient | | Therapy | | Other | | | |
| |||
| | Services | | Services | | Services | | Total |
| ||||
Medicare | | $ | 166,482 | | $ | 19,502 | | $ | — | | $ | 185,984 | |
Medicaid | |
| 507,871 | |
| 453 | |
| — | |
| 508,324 | |
Insurance | | | 66,723 | |
| 4,822 | |
| — | |
| 71,545 | |
Private | | | 61,126 | (1) | | 37 | | | — | | | 61,163 | |
Third party providers | | | — | | | 66,558 | | | 25,536 | | | 92,094 | |
Other | | | 16,126 | (2) | | 5,152 | (2) | | 15,871 | (3) | | 37,149 | |
Total net revenues | | $ | 818,328 | | $ | 96,524 | | $ | 41,407 | | $ | 956,259 | |
| | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | ||||||||||
| | | | | Rehabilitation | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | |||
| | Services | | Services | | Services | | Total |
| ||||
Medicare | | $ | 201,007 | | $ | 22,992 | | $ | — | | $ | 223,999 | |
Medicaid | |
| 577,097 | |
| 573 | |
| — | |
| 577,670 | |
Insurance | | | 114,619 | |
| 5,916 | |
| — | |
| 120,535 | |
Private | | | 79,127 | (1) | | 92 | | | — | | | 79,219 | |
Third party providers | | | — | | | 88,108 | | | 20,486 | | | 108,594 | |
Other | | | 17,648 | (2) | | 3,254 | (2) | | 14,133 | (3) | | 35,035 | |
Total net revenues | | $ | 989,498 | | $ | 120,935 | | $ | 34,619 | | $ | 1,145,052 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2019 |
| ||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Total |
| ||||
Medicare |
| $ | 187,493 |
| $ | 22,643 |
| $ | — |
| $ | 210,136 |
|
Medicaid |
|
| 572,100 |
|
| 560 |
|
| — |
|
| 572,660 |
|
Insurance |
|
| 111,529 |
|
| 5,453 |
|
| — |
|
| 116,982 |
|
Private |
|
| 77,440 | (1) |
| 66 |
|
| — |
|
| 77,506 |
|
Third party providers |
|
| — |
|
| 85,051 |
|
| 17,285 |
|
| 102,336 |
|
Other |
|
| 17,449 | (2) |
| 2,527 | (2) |
| 24,109 | (3) |
| 44,085 |
|
Total net revenues |
| $ | 966,011 |
| $ | 116,300 |
| $ | 41,394 |
| $ | 1,123,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2018 |
| ||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Total |
| ||||
Medicare |
| $ | 216,382 |
| $ | 22,756 |
| $ | — |
| $ | 239,138 |
|
Medicaid |
|
| 613,539 |
|
| 545 |
|
| — |
|
| 614,084 |
|
Insurance |
|
| 125,060 |
|
| 5,412 |
|
| — |
|
| 130,472 |
|
Private |
|
| 85,148 | (1) |
| 139 |
|
| — |
|
| 85,287 |
|
Third party providers |
|
| — |
|
| 99,851 |
|
| 17,995 |
|
| 117,846 |
|
Other |
|
| 14,539 | (2) |
| 3,461 | (2) |
| 12,444 | (3) |
| 30,444 |
|
Total net revenues |
| $ | 1,054,668 |
| $ | 132,164 |
| $ | 30,439 |
| $ | 1,217,271 |
|
(1) | Includes Assisted/Senior living revenue of |
(2) | Primarily consists of revenue from Veteran Affairs and administration of third party facilities. |
(3) | Includes net revenues from all payors generated by the other services, excluding third party providers. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, 2019 |
| ||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Total |
| ||||
Medicare |
| $ | 596,468 |
| $ | 68,387 |
| $ | — |
| $ | 664,855 |
|
Medicaid |
|
| 1,730,147 |
|
| 1,688 |
|
| — |
|
| 1,731,835 |
|
Insurance |
|
| 351,228 |
|
| 16,603 |
|
| — |
|
| 367,831 |
|
Private |
|
| 233,499 | (1) |
| 270 |
|
| — |
|
| 233,769 |
|
Third party providers |
|
| — |
|
| 262,689 |
|
| 58,379 |
|
| 321,068 |
|
Other |
|
| 51,659 | (2) |
| 8,438 | (2) |
| 50,942 | (3) |
| 111,039 |
|
Total net revenues |
| $ | 2,963,001 |
| $ | 358,075 |
| $ | 109,321 |
| $ | 3,430,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, 2018 |
| ||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Total |
| ||||
Medicare |
| $ | 700,202 |
| $ | 68,861 |
| $ | — |
| $ | 769,063 |
|
Medicaid |
|
| 1,854,706 |
|
| 1,584 |
|
| — |
|
| 1,856,290 |
|
Insurance |
|
| 400,889 |
|
| 18,020 |
|
| — |
|
| 418,909 |
|
Private |
|
| 258,887 | (1) |
| 391 |
|
| — |
|
| 259,278 |
|
Third party providers |
|
| — |
|
| 319,015 |
|
| 63,500 |
|
| 382,515 |
|
Other |
|
| 50,924 | (2) |
| 13,911 | (2) |
| 39,813 | (3) |
| 104,648 |
|
Total net revenues |
| $ | 3,265,608 |
| $ | 421,782 |
| $ | 103,313 |
| $ | 3,790,703 |
|
20
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | |
| | Six months ended June 30, 2020 | | ||||||||||
| | | | | Rehabilitation | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | |||
| | Services | | Services | | Services | | Total |
| ||||
Medicare | | $ | 363,517 | | $ | 41,411 | | $ | — | | $ | 404,928 | |
Medicaid | |
| 1,058,861 | |
| 944 | |
| — | |
| 1,059,805 | |
Insurance | | | 178,995 | |
| 10,278 | |
| — | |
| 189,273 | |
Private | | | 136,194 | (1) | | 147 | | | — | | | 136,341 | |
Third party providers | | | — | | | 139,662 | | | 44,154 | | | 183,816 | |
Other | | | 33,711 | (2) | | 9,551 | (2) | | 31,084 | (3) | | 74,346 | |
Total net revenues | | $ | 1,771,278 | | $ | 201,993 | | $ | 75,238 | | $ | 2,048,509 | |
| | | | | | | | | | | | | |
| | Six months ended June 30, 2019 | | ||||||||||
| | | | | Rehabilitation | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | |||
| | Services | | Services | | Services | | Total | | ||||
Medicare | | $ | 408,975 | | $ | 45,744 | | $ | — | | $ | 454,719 | |
Medicaid | |
| 1,158,045 | |
| 1,128 | |
| — | |
| 1,159,173 | |
Insurance | | | 239,699 | |
| 11,150 | |
| — | |
| 250,849 | |
Private | | | 156,060 | (1) | | 204 | | | — | | | 156,264 | |
Third party providers | | | — | | | 177,637 | | | 41,094 | | | 218,731 | |
Other | | | 34,211 | (2) | | 5,912 | (2) | | 26,833 | (3) | | 66,956 | |
Total net revenues | | $ | 1,996,990 | | $ | 241,775 | | $ | 67,927 | | $ | 2,306,692 | |
(1) | Includes Assisted/Senior living revenue of |
(2) | Primarily consists of revenue from Veteran Affairs and administration of third party facilities. |
(3) | Includes net revenues from all payors generated by the other services, excluding third party providers. |
19
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
(5) Earnings (Loss)(Loss) Per Share
The Company has three3 classes of common stock. Classes A and B are identical in economic and voting interests. Class C has a 1:1 voting ratio with each of the other two2 classes, representing the voting interests of the noncontrolling interest of the legacy FC-GEN Operations Investment, LLC (FC-GEN) owners. Class C common stock is a participating security; however, it shares in a de minimis economic interest and is therefore excluded from the denominator of the basic earnings (loss) per share (EPS) calculation.
The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option. There were exchanges of 0.8 million FC-GEN units and Class C shares in the six months ended June 30, 2020 equating to 0.8 million Class A shares. There were exchanges of 3.1 million FC-GEN units and Class C shares in the six months ended June 30, 2019 equating to 3.1 million Class A shares.
Basic EPS was computed by dividing net (loss) income (loss) attributable to Genesis Healthcare, Inc. by the weighted-average number of outstanding common shares for the period. Diluted EPS is computed by dividing net (loss) income (loss)attributable to Genesis Healthcare, Inc. plus the effect of any assumed conversions of noncontrolling interests by the weighted-average number of outstanding common shares after giving effect to all potential dilutive common stock.
21
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A reconciliation of the numerator and denominator used in the calculation of basic net (loss) income (loss) per common share follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 58,898 |
| $ | (91,901) |
| $ | 24,833 |
| $ | (263,431) |
Less: Net (income) loss attributable to noncontrolling interests |
|
| (12,801) |
|
| 33,773 |
|
| 1,182 |
|
| 97,153 |
Net income (loss) attributable to Genesis Healthcare, Inc. |
| $ | 46,097 |
| $ | (58,128) |
| $ | 26,015 |
| $ | (166,278) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic net income (loss) per share |
|
| 109,123 |
|
| 102,489 |
|
| 106,581 |
|
| 100,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share attributable to Genesis Healthcare, Inc. |
| $ | 0.42 |
| $ | (0.57) |
| $ | 0.24 |
| $ | (1.66) |
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Numerator: | | | | | | | | | | | | |
Net (loss) income | | $ | (29,316) | | $ | (8,983) | | $ | 9,365 | | $ | (34,065) |
Less: Net loss attributable to noncontrolling interests | |
| 7,311 | |
| 4,164 | |
| 2,138 | |
| 13,983 |
Net (loss) income attributable to Genesis Healthcare, Inc. | | $ | (22,005) | | $ | (4,819) | | $ | 11,503 | | $ | (20,082) |
Denominator: | | | | | | | | | | | | |
Weighted-average shares outstanding for basic net income (loss) per share | |
| 111,232 | |
| 106,846 | |
| 110,477 | |
| 105,289 |
| | | | | | | | | | | | |
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc. | | $ | (0.20) | | $ | (0.05) | | $ | 0.10 | | $ | (0.19) |
A reconciliation of the numerator and denominator used in the calculation of diluted net (loss) income (loss) per common share follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three months ended June 30, | | Six months ended June 30, | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Net income (loss) |
| $ | 58,898 |
| $ | (91,901) |
| $ | 24,833 |
| $ | (263,431) | ||||||||||||
Less: Net (income) loss attributable to noncontrolling interests |
|
| (12,801) |
|
| 33,773 |
|
| 1,182 |
|
| 97,153 | ||||||||||||
Net income (loss) attributable to Genesis Healthcare, Inc. |
| $ | 46,097 |
| $ | (58,128) |
| $ | 26,015 |
| $ | (166,278) | ||||||||||||
Net (loss) income | | $ | (29,316) | | $ | (8,983) | | $ | 9,365 | | $ | (34,065) | ||||||||||||
Less: Net loss attributable to noncontrolling interests | |
| 7,311 | |
| 4,164 | |
| 2,138 | |
| 13,983 | ||||||||||||
Net (loss) income attributable to Genesis Healthcare, Inc. | | $ | (22,005) | | $ | (4,819) | | $ | 11,503 | | $ | (20,082) | ||||||||||||
Plus: Assumed conversion of noncontrolling interests |
|
| 20,179 |
|
| — |
|
| 8,060 |
|
| — | |
| — | |
| — | |
| (15) | |
| — |
Net income (loss) available to common stockholders after assumed conversions |
| $ | 66,276 |
| $ | (58,128) |
| $ | 34,075 |
| $ | (166,278) | ||||||||||||
Net (loss) income available to common stockholders after assumed conversions | | $ | (22,005) | | $ | (4,819) | | $ | 11,488 | | $ | (20,082) | ||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Weighted-average common shares outstanding |
|
| 109,123 |
|
| 102,489 |
|
| 106,581 |
|
| 100,461 | |
| 111,232 | |
| 106,846 | |
| 110,477 | |
| 105,289 |
Plus: Assumed conversion of noncontrolling interests |
|
| 56,605 |
|
| — |
|
| 57,313 |
|
| — | | | — | | | — | | | 55,811 | | | — |
Plus: Unvested restricted stock units and stock warrants |
|
| 274 |
|
| — |
|
| 689 |
|
| — | | | — | | | — | | | 578 | | | — |
Adjusted weighted-average common shares outstanding, diluted |
|
| 166,002 |
|
| 102,489 |
|
| 164,583 |
|
| 100,461 | | | 111,232 | | | 106,846 | | | 166,866 | | | 105,289 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Diluted net income (loss) per common share attributable to Genesis Healthcare, Inc. |
| $ | 0.40 |
| $ | (0.57) |
| $ | 0.21 |
| $ | (1.66) | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc. | | $ | (0.20) | | $ | (0.05) | | $ | 0.07 | | $ | (0.19) |
The computation of diluted net (loss) income (loss) per common share attributable to Genesis Healthcare, Inc. excludes the effects of anti-dilutive shares attributable to the assumed conversion of noncontrolling interests, unvested restricted stock units, under the 2015 Omnibus Equity Incentive Plan, and stock warrants, which were 60.656.0 million for the three months ended June 30, 2020 and 57.5 million and 61.558.4 million for the three and ninesix months ended September 30, 2018, respectively. As of SeptemberJune 30, 2019, thererespectively. There were 56.555.4 million and 56.6 million units attributable to the noncontrolling interests outstanding. outstanding as of June 30, 2020 and 2019, respectively.
Omnibus Equity Incentive Plans
During the second quarter of 2020, the Company’s shareholders approved the 2020 Omnibus Equity Incentive Plan (the 2020 Plan). As of the effective date of the 2020 Plan, 0 further grants may be made under the Genesis Healthcare, Inc. Amended and Restated 2015 Omnibus Equity Incentive Plan (the “Prior Plan”). Any shares that were available for issuance under the Prior Plan and that were not subject to outstanding awards under the Prior Plan became available for issuance (in addition to the newly authorized shares) under the 2020 Plan. Accordingly, upon stockholder approval of the 2020 Plan at the Annual Meeting of Stockholders on June 3, 2020, a total of 6,462,605 shares became available for delivery under the 2020 Plan, including (i) 3,500,000 newly authorized shares and (ii) 2,962,605 shares previously registered on Forms S-8 filed with the SEC that were available for issuance under the Prior Plan.
2022
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(6)Segment Information
The Company has three3 reportable operating segments: (i) inpatient services; (ii) rehabilitation therapy services; and (iii) other services. For additional information on these reportable segments, see Note 1 – “General Information – Description of Business.”
A summary of the Company’s segmented revenues follows (in thousands, except percentages):
|
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| Three months ended September 30, |
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| |||||||||||||||||||||||||
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| 2019 |
| 2018 |
| Increase / (Decrease) |
| |||||||||||||||||||||||||
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| Revenue |
| Revenue |
| Revenue |
| Revenue |
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| Dollars |
| Percentage |
| Dollars |
| Percentage |
| Dollars |
| Percentage |
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| | | | | | | | | | | | | | | | | ||||||||||||||||
| | Three months ended June 30, | | | | | | |||||||||||||||||||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||||||||||||||||||
|
| Revenue |
| Revenue |
| Revenue |
| Revenue | | | |
| | | ||||||||||||||||||
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||||||||||||||||||
Revenues: |
|
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| | | | | | | | | | | | | | | | |
Inpatient services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Skilled nursing facilities |
| $ | 941,722 |
| 83.8 | % | $ | 1,029,453 |
| 84.6 | % | $ | (87,731) |
| (8.5) | % | | $ | 796,961 |
| 83.4 | % | $ | 964,541 |
| 84.2 | % | $ | (167,580) | | (17.4) | % |
Assisted/Senior living facilities |
|
| 23,057 |
| 2.1 | % |
| 23,974 |
| 2.0 | % |
| (917) |
| (3.8) | % | |
| 20,041 |
| 2.1 | % |
| 23,702 |
| 2.1 | % |
| (3,661) | | (15.4) | % |
Administration of third party facilities |
|
| 1,980 |
| 0.2 | % |
| 2,025 |
| 0.2 | % |
| (45) |
| (2.2) | % | |
| 2,110 |
| 0.2 | % |
| 2,054 |
| 0.2 | % |
| 56 | | 2.7 | % |
Elimination of administrative services |
|
| (748) |
| (0.1) | % |
| (784) |
| (0.1) | % |
| 36 |
| (4.6) | % | |
| (784) |
| (0.1) | % |
| (799) |
| (0) | % |
| 15 | | 1.9 | % |
Inpatient services, net |
|
| 966,011 |
| 86.0 | % |
| 1,054,668 |
| 86.7 | % |
| (88,657) |
| (8.4) | % | |
| 818,328 |
| 85.6 | % |
| 989,498 |
| 86.4 | % |
| (171,170) |
| (17.3) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Rehabilitation therapy services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Total therapy services |
|
| 183,898 |
| 16.4 | % |
| 214,421 |
| 17.6 | % |
| (30,523) |
| (14.2) | % | |
| 153,625 |
| 16.1 | % |
| 192,906 |
| 16.8 | % |
| (39,281) | | (20.4) | % |
Elimination of intersegment rehabilitation therapy services |
|
| (67,598) |
| (6.0) | % |
| (82,257) |
| (6.8) | % |
| 14,659 |
| (17.8) | % | |
| (57,101) |
| (6.0) | % |
| (71,971) |
| (6.3) | % |
| 14,870 | | 20.7 | % |
Third party rehabilitation therapy services, net |
|
| 116,300 |
| 10.4 | % |
| 132,164 |
| 10.8 | % |
| (15,864) |
| (12.0) | % | |
| 96,524 |
| 10.1 | % |
| 120,935 |
| 10.5 | % |
| (24,411) |
| (20.2) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Other services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Total other services |
|
| 55,532 |
| 4.9 | % |
| 38,526 |
| 3.2 | % |
| 17,006 |
| 44.1 | % | |
| 70,959 |
| 7.4 | % |
| 45,489 |
| 4.0 | % |
| 25,470 | | 56.0 | % |
Elimination of intersegment other services |
|
| (14,138) |
| (1.3) | % |
| (8,087) |
| (0.7) | % |
| (6,051) |
| 74.8 | % | |
| (29,552) |
| (3.1) | % |
| (10,870) |
| (0.9) | % |
| (18,682) | | (171.9) | % |
Third party other services, net |
|
| 41,394 |
| 3.6 | % |
| 30,439 |
| 2.5 | % |
| 10,955 |
| 36.0 | % | |
| 41,407 |
| 4.3 | % |
| 34,619 |
| 3.1 | % |
| 6,788 |
| 19.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net revenues |
| $ | 1,123,705 |
| 100.0 | % | $ | 1,217,271 |
| 100.0 | % | $ | (93,566) |
| (7.7) | % | | $ | 956,259 |
| 100.0 | % | $ | 1,145,052 |
| 100.0 | % | $ | (188,793) | | (16.5) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, |
|
|
|
|
| |||||||||
|
| 2019 |
| 2018 |
| Increase / (Decrease) |
| |||||||||
|
| Revenue |
| Revenue |
| Revenue |
| Revenue |
|
|
|
|
|
| ||
|
| Dollars |
| Percentage |
| Dollars |
| Percentage |
| Dollars |
| Percentage |
| |||
Revenues: |
|
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|
|
|
|
|
|
|
|
|
|
Inpatient services: |
|
|
|
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|
|
|
|
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|
|
|
|
|
|
Skilled nursing facilities |
| $ | 2,888,659 |
| 84.1 | % | $ | 3,190,065 |
| 84.2 | % | $ | (301,406) |
| (9.4) | % |
Assisted/Senior living facilities |
|
| 70,408 |
| 2.1 | % |
| 71,220 |
| 1.9 | % |
| (812) |
| (1.1) | % |
Administration of third party facilities |
|
| 6,281 |
| 0.2 | % |
| 6,577 |
| 0.2 | % |
| (296) |
| (4.5) | % |
Elimination of administrative services |
|
| (2,347) |
| (0.1) | % |
| (2,254) |
| (0.1) | % |
| (93) |
| 4.1 | % |
Inpatient services, net |
|
| 2,963,001 |
| 86.3 | % |
| 3,265,608 |
| 86.2 | % |
| (302,607) |
| (9.3) | % |
|
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|
Rehabilitation therapy services: |
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
Total therapy services |
|
| 571,875 |
| 16.7 | % |
| 685,672 |
| 18.1 | % |
| (113,797) |
| (16.6) | % |
Elimination of intersegment rehabilitation therapy services |
|
| (213,800) |
| (6.2) | % |
| (263,890) |
| (7.0) | % |
| 50,090 |
| (19.0) | % |
Third party rehabilitation therapy services, net |
|
| 358,075 |
| 10.5 | % |
| 421,782 |
| 11.1 | % |
| (63,707) |
| (15.1) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other services |
|
| 143,139 |
| 4.2 | % |
| 124,300 |
| 3.3 | % |
| 18,839 |
| 15.2 | % |
Elimination of intersegment other services |
|
| (33,818) |
| (1.0) | % |
| (20,987) |
| (0.6) | % |
| (12,831) |
| 61.1 | % |
Third party other services, net |
|
| 109,321 |
| 3.2 | % |
| 103,313 |
| 2.7 | % |
| 6,008 |
| 5.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
| $ | 3,430,397 |
| 100.0 | % | $ | 3,790,703 |
| 100.0 | % | $ | (360,306) |
| (9.5) | % |
| | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | | | |||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||
|
| Revenue |
| Revenue |
| Revenue |
| Revenue | | | |
| | | ||
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||
Revenues: | | | | | | | | | | | | | | | | |
Inpatient services: | | | | | | | | | | | | | | | | |
Skilled nursing facilities | | $ | 1,726,834 |
| 84.5 | % | $ | 1,946,937 |
| 84.3 | % | $ | (220,103) | | (11.3) | % |
Assisted/Senior living facilities | |
| 41,863 |
| 2.0 | % |
| 47,351 |
| 2.1 | % |
| (5,488) | | (11.6) | % |
Administration of third party facilities | |
| 4,151 |
| 0.2 | % |
| 4,301 |
| 0.2 | % |
| (150) | | (3.5) | % |
Elimination of administrative services | |
| (1,570) |
| (0.1) | % |
| (1,599) |
| — | % |
| 29 | | 1.8 | % |
Inpatient services, net | |
| 1,771,278 |
| 86.6 | % |
| 1,996,990 |
| 86.6 | % |
| (225,712) |
| (11.3) | % |
| | | | | | | | | | | | | | | | |
Rehabilitation therapy services: | | | | | | | | | | | | | | | | |
Total therapy services | |
| 318,421 |
| 15.5 | % |
| 387,977 |
| 16.8 | % |
| (69,556) | | (17.9) | % |
Elimination of intersegment rehabilitation therapy services | |
| (116,428) |
| (5.7) | % |
| (146,202) |
| (6.3) | % |
| 29,774 | | 20.4 | % |
Third party rehabilitation therapy services, net | |
| 201,993 |
| 9.8 | % |
| 241,775 |
| 10.5 | % |
| (39,782) |
| (16.5) | % |
| | | | | | | | | | | | | | | | |
Other services: | | | | | | | | | | | | | | | | |
Total other services | |
| 125,782 |
| 6.1 | % |
| 87,607 |
| 3.8 | % |
| 38,175 | | 43.6 | % |
Elimination of intersegment other services | |
| (50,544) |
| (2.5) | % |
| (19,680) |
| (0.9) | % |
| (30,864) | | (156.8) | % |
Third party other services, net | |
| 75,238 |
| 3.6 | % |
| 67,927 |
| 2.9 | % |
| 7,311 |
| 10.8 | % |
| | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,048,509 |
| 100.0 | % | $ | 2,306,692 |
| 100.0 | % | $ | (258,183) | | (11.2) | % |
2123
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A summary of the Company’s unaudited condensed consolidated statement of operations follows (in thousands):
|
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| |||||||||||||||||||
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| ||||||||||||||||||||
|
| Three months ended September 30, 2019 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| | |
| | |
| |
| | |
| | |
| | |
| ||||||||||||||||||||
| | Three months ended June 30, 2020 | | |||||||||||||||||||||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | |
| |||||||||||||||||||||
| | Inpatient | | Therapy | | Other | | | | | | | | | |
| ||||||||||||||||||||||
| | Services | | Services | | Services | | Corporate | | Eliminations | | Consolidated |
| |||||||||||||||||||||||||
Net revenues |
| $ | 966,759 |
| $ | 183,898 |
| $ | 55,515 |
| $ | 17 |
| $ | (82,484) |
| $ | 1,123,705 |
| | $ | 819,112 | | $ | 153,625 | | $ | 67,857 | | $ | 3,102 | | $ | (87,437) | | $ | 956,259 | |
Salaries, wages and benefits |
|
| 437,508 |
|
| 152,793 |
|
| 30,192 |
|
| — |
|
| — |
|
| 620,493 |
| |
| 451,176 | |
| 121,984 | |
| 43,784 | |
| — | |
| — | |
| 616,944 | |
Other operating expenses |
|
| 394,115 |
|
| 11,779 |
|
| 16,421 |
|
| — |
|
| (82,874) |
|
| 339,441 |
| | | 374,583 | |
| 8,760 | |
| 21,493 | |
| — | |
| (87,562) | |
| 317,274 | |
General and administrative costs |
|
| — |
|
| — |
|
| — |
|
| 35,930 |
|
| — |
|
| 35,930 |
| | | — | | | — | | | — | | | 39,769 | | | — | | | 39,769 | |
Lease expense |
|
| 98,987 |
|
| 320 |
|
| 384 |
|
| 327 |
|
| — |
|
| 100,018 |
| | | 95,279 | |
| 313 | |
| 503 | |
| 300 | |
| — | |
| 96,395 | |
Depreciation and amortization expense |
|
| 29,263 |
|
| 2,934 |
|
| 176 |
|
| 2,559 |
|
| — |
|
| 34,932 |
| | | 29,544 | |
| 1,677 | |
| 208 | |
| 2,406 | |
| (19) | |
| 33,816 | |
Interest expense |
|
| 12,363 |
|
| 14 |
|
| 9 |
|
| 24,713 |
|
| — |
|
| 37,099 |
| | | 12,829 | |
| 13 | |
| 9 | |
| 20,236 | |
| (1,180) | |
| 31,907 | |
Loss on early extinguishment of debt |
|
| — |
|
| — |
|
| — |
|
| 2,460 |
|
| — |
|
| 2,460 |
| | | — | |
| — | |
| — | |
| 1,421 | |
| — | |
| 1,421 | |
Investment income |
|
| — |
|
| — |
|
| — |
|
| (2,071) |
|
| — |
|
| (2,071) |
| | | — | |
| — | |
| — | |
| (2,141) | |
| 1,180 | |
| (961) | |
Other income |
|
| (131,811) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (131,811) |
| | | (44,100) | |
| — | |
| — | |
| — | |
| — | |
| (44,100) | |
Transaction costs |
|
| — |
|
| — |
|
| — |
|
| 12,941 |
|
| — |
|
| 12,941 |
| | | — | |
| — | |
| — | |
| 5,543 | |
| — | |
| 5,543 | |
Long-lived asset impairments |
|
| 16,037 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 16,037 |
| | | 77,100 | | | — | | | — | | | — | | | — | | | 77,100 | |
Equity in net loss (income) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 2,932 |
|
| (3,025) |
|
| (93) |
| |||||||||||||||||||
Federal stimulus - COVID-19 other income | | | (177,975) | | | (5,148) | | | (2,377) | | | — | | | — | | | (185,500) | | |||||||||||||||||||
Equity in net (income) loss of unconsolidated affiliates | | | — | |
| — | |
| — | |
| (4,297) | |
| 721 | |
| (3,576) | | |||||||||||||||||||
Income (loss) before income tax benefit |
|
| 110,297 |
|
| 16,058 |
|
| 8,333 |
|
| (79,774) |
|
| 3,415 |
|
| 58,329 |
| | | 676 | |
| 26,026 | |
| 4,237 | |
| (60,135) | |
| (577) | |
| (29,773) | |
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| (569) |
|
| — |
|
| (569) |
| | | — | |
| — | |
| — | |
| (457) | |
| — | |
| (457) | |
Income (loss) from continuing operations |
| $ | 110,297 |
| $ | 16,058 |
| $ | 8,333 |
| $ | (79,205) |
| $ | 3,415 |
| $ | 58,898 |
| |||||||||||||||||||
Net income (loss) | | $ | 676 | | $ | 26,026 | | $ | 4,237 | | $ | (59,678) | | $ | (577) | | $ | (29,316) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2018 |
| ||||||||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
|
|
|
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues |
| $ | 1,055,452 |
| $ | 214,421 |
| $ | 38,463 |
| $ | 63 |
| $ | (91,128) |
| $ | 1,217,271 |
|
Salaries, wages and benefits |
|
| 480,345 |
|
| 175,098 |
|
| 25,161 |
|
| — |
|
| — |
|
| 680,604 |
|
Other operating expenses |
|
| 428,398 |
|
| 12,891 |
|
| 20,902 |
|
| — |
|
| (91,127) |
|
| 371,064 |
|
General and administrative costs |
|
| — |
|
| — |
|
| — |
|
| 35,482 |
|
| — |
|
| 35,482 |
|
Lease expense |
|
| 31,732 |
|
| — |
|
| 316 |
|
| 318 |
|
| — |
|
| 32,366 |
|
Depreciation and amortization expense |
|
| 46,472 |
|
| 3,147 |
|
| 172 |
|
| 3,247 |
|
| — |
|
| 53,038 |
|
Interest expense |
|
| 91,106 |
|
| 14 |
|
| 9 |
|
| 24,566 |
|
| — |
|
| 115,695 |
|
Investment income |
|
| — |
|
| — |
|
| — |
|
| (2,178) |
|
| — |
|
| (2,178) |
|
Other income |
|
| (20,207) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (20,207) |
|
Transaction costs |
|
| — |
|
| — |
|
| — |
|
| 11,361 |
|
| — |
|
| 11,361 |
|
Long-lived asset impairments |
|
| 32,390 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 32,390 |
|
Goodwill and identifiable intangible asset impairments |
|
| 929 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 929 |
|
Equity in net (income) loss of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| (523) |
|
| 371 |
|
| (152) |
|
(Loss) income before income tax benefit |
|
| (35,713) |
|
| 23,271 |
|
| (8,097) |
|
| (72,210) |
|
| (372) |
|
| (93,121) |
|
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| (1,220) |
|
| — |
|
| (1,220) |
|
(Loss) income from continuing operations |
| $ | (35,713) |
| $ | 23,271 |
| $ | (8,097) |
| $ | (70,990) |
| $ | (372) |
| $ | (91,901) |
|
| | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated | | ||||||
Net revenues | | $ | 990,297 | | $ | 192,906 | | $ | 45,325 | | $ | 164 | | $ | (83,640) | | $ | 1,145,052 | |
Salaries, wages and benefits | |
| 442,028 | |
| 154,855 | |
| 29,276 | |
| — | |
| — | |
| 626,159 | |
Other operating expenses | | | 389,637 | |
| 12,130 | |
| 14,402 | |
| — | |
| (83,641) | |
| 332,528 | |
General and administrative costs | | | — | |
| — | |
| — | |
| 35,562 | |
| — | | | 35,562 | |
Lease expense | | | 93,557 | |
| 335 | |
| 338 | |
| 356 | |
| — | |
| 94,586 | |
Depreciation and amortization expense | | | 22,328 | |
| 3,112 | |
| 174 | |
| 2,654 | |
| — | |
| 28,268 | |
Interest expense | | | 29,051 | |
| 13 | |
| 8 | |
| 23,903 | |
| — | |
| 52,975 | |
Gain on early extinguishment of debt | | | — | |
| — | |
| — | |
| (24) | |
| — | |
| (24) | |
Investment income | | | — | |
| — | |
| — | |
| (2,143) | |
| — | |
| (2,143) | |
Other (income) loss | | | (23,474) | |
| — | |
| 61 | |
| — | |
| — | |
| (23,413) | |
Transaction costs | | | — | |
| — | |
| — | |
| 8,823 | |
| — | |
| 8,823 | |
Long-lived asset impairments | | | 900 | | | — | | | — | | | — | | | — | | | 900 | |
Equity in net loss (income) of unconsolidated affiliates | | | — | |
| — | |
| — | |
| 1,910 | |
| (1,934) | |
| (24) | |
Income (loss) before income tax benefit | | | 36,270 | |
| 22,461 | |
| 1,066 | |
| (70,877) | |
| 1,935 | |
| (9,145) | |
Income tax benefit | | | — | |
| — | |
| — | |
| (162) | |
| — | |
| (162) | |
Net income (loss) | | $ | 36,270 | | $ | 22,461 | | $ | 1,066 | | $ | (70,715) | | $ | 1,935 | | $ | (8,983) | |
2224
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, 2019 |
| ||||||||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
|
|
|
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues |
| $ | 2,965,348 |
| $ | 571,875 |
| $ | 142,905 |
| $ | 234 |
| $ | (249,965) |
| $ | 3,430,397 |
|
Salaries, wages and benefits |
|
| 1,336,298 |
|
| 464,740 |
|
| 88,024 |
|
| — |
|
| — |
|
| 1,889,062 |
|
Other operating expenses |
|
| 1,185,684 |
|
| 34,866 |
|
| 44,312 |
|
| — |
|
| (250,355) |
|
| 1,014,507 |
|
General and administrative costs |
|
| — |
|
| — |
|
| — |
|
| 107,024 |
|
| — |
|
| 107,024 |
|
Lease expense |
|
| 285,510 |
|
| 985 |
|
| 1,064 |
|
| 1,106 |
|
| — |
|
| 288,665 |
|
Depreciation and amortization expense |
|
| 83,463 |
|
| 9,210 |
|
| 524 |
|
| 8,198 |
|
| — |
|
| 101,395 |
|
Interest expense |
|
| 68,454 |
|
| 41 |
|
| 26 |
|
| 73,069 |
|
| — |
|
| 141,590 |
|
Loss on early extinguishment of debt |
|
| — |
|
| — |
|
| — |
|
| 2,436 |
|
| — |
|
| 2,436 |
|
Investment income |
|
| — |
|
| — |
|
| — |
|
| (6,078) |
|
| — |
|
| (6,078) |
|
Other (income) loss |
|
| (172,126) |
|
| (76) |
|
| 61 |
|
| — |
|
| — |
|
| (172,141) |
|
Transaction costs |
|
| — |
|
| — |
|
| — |
|
| 23,025 |
|
| — |
|
| 23,025 |
|
Long-lived asset impairments |
|
| 16,937 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 16,937 |
|
Equity in net loss (income) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 4,318 |
|
| (4,496) |
|
| (178) |
|
Income (loss) before income tax benefit |
|
| 161,128 |
|
| 62,109 |
|
| 8,894 |
|
| (212,864) |
|
| 4,886 |
|
| 24,153 |
|
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| (680) |
|
| — |
|
| (680) |
|
Income (loss) from continuing operations |
| $ | 161,128 |
| $ | 62,109 |
| $ | 8,894 |
| $ | (212,184) |
| $ | 4,886 |
| $ | 24,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, 2018 |
| ||||||||||||||||
|
|
|
|
| Rehabilitation |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Inpatient |
| Therapy |
| Other |
|
|
|
|
|
|
|
|
|
| |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues |
| $ | 3,267,862 |
| $ | 685,672 |
| $ | 124,184 |
| $ | 116 |
| $ | (287,131) |
| $ | 3,790,703 |
|
Salaries, wages and benefits |
|
| 1,477,153 |
|
| 562,875 |
|
| 82,100 |
|
| — |
|
| — |
|
| 2,122,128 |
|
Other operating expenses |
|
| 1,323,423 |
|
| 41,707 |
|
| 47,780 |
|
| — |
|
| (287,131) |
|
| 1,125,779 |
|
General and administrative costs |
|
| — |
|
| — |
|
| — |
|
| 114,404 |
|
| — |
|
| 114,404 |
|
Lease expense |
|
| 95,660 |
|
| — |
|
| 959 |
|
| 929 |
|
| — |
|
| 97,548 |
|
Depreciation and amortization expense |
|
| 147,552 |
|
| 9,479 |
|
| 509 |
|
| 10,496 |
|
| — |
|
| 168,036 |
|
Interest expense |
|
| 277,753 |
|
| 41 |
|
| 27 |
|
| 70,866 |
|
| — |
|
| 348,687 |
|
Loss on early extinguishment of debt |
|
| — |
|
| — |
|
| — |
|
| 9,785 |
|
| — |
|
| 9,785 |
|
Investment income |
|
| — |
|
| — |
|
| — |
|
| (4,856) |
|
| — |
|
| (4,856) |
|
Other (income) loss |
|
| (42,438) |
|
| — |
|
| 78 |
|
| — |
|
| — |
|
| (42,360) |
|
Transaction costs |
|
| — |
|
| — |
|
| — |
|
| 26,567 |
|
| — |
|
| 26,567 |
|
Long-lived asset impairments |
|
| 88,008 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 88,008 |
|
Goodwill and identifiable intangible asset impairments |
|
| 2,061 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,061 |
|
Equity in net (income) loss of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| (1,029) |
|
| 1,135 |
|
| 106 |
|
(Loss) income before income tax benefit |
|
| (101,310) |
|
| 71,570 |
|
| (7,269) |
|
| (227,046) |
|
| (1,135) |
|
| (265,190) |
|
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| (1,759) |
|
| — |
|
| (1,759) |
|
(Loss) income from continuing operations |
| $ | (101,310) |
| $ | 71,570 |
| $ | (7,269) |
| $ | (225,287) |
| $ | (1,135) |
| $ | (263,431) |
|
| | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2020 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues | | $ | 1,772,848 | | $ | 318,421 | | $ | 121,896 | | $ | 3,886 | | $ | (168,542) | | $ | 2,048,509 | |
Salaries, wages and benefits | |
| 862,218 | |
| 256,553 | |
| 78,706 | |
| — | |
| — | |
| 1,197,477 | |
Other operating expenses | | | 770,109 | |
| 17,262 | |
| 39,176 | |
| — | |
| (168,792) | |
| 657,755 | |
General and administrative costs | | | — | | | — | | | — | | | 79,386 | | | — | | | 79,386 | |
Lease expense | | | 192,261 | |
| 625 | |
| 930 | |
| 599 | |
| — | |
| 194,415 | |
Depreciation and amortization expense | | | 51,178 | |
| 3,363 | |
| 406 | |
| 4,895 | |
| (38) | |
| 59,804 | |
Interest expense | | | 26,395 | |
| 27 | |
| 19 | |
| 44,066 | |
| (2,360) | |
| 68,147 | |
Loss on early extinguishment of debt | | | — | |
| — | |
| — | |
| 5,460 | |
| — | |
| 5,460 | |
Investment income | | | — | |
| — | |
| — | |
| (4,477) | |
| 2,360 | |
| (2,117) | |
Other (income) loss | | | (129,212) | |
| — | |
| 280 | |
| — | |
| — | |
| (128,932) | |
Transaction costs | | | — | |
| — | |
| — | |
| 11,134 | |
| — | |
| 11,134 | |
Long-lived asset impairments | | | 86,800 | | | — | | | — | | | — | | | — | | | 86,800 | |
Federal stimulus - COVID-19 other income | | | (177,975) | | | (5,148) | | | (2,377) | | | — | | | — | | | (185,500) | |
Equity in net (income) loss of unconsolidated affiliates | | | — | |
| — | |
| — | |
| (4,109) | |
| 660 | |
| (3,449) | |
Income (loss) before income tax benefit | | | 91,074 | |
| 45,739 | |
| 4,756 | |
| (133,068) | |
| (372) | |
| 8,129 | |
Income tax benefit | | | — | |
| — | |
| — | |
| (1,236) | |
| — | |
| (1,236) | |
Net income (loss) | | $ | 91,074 | | $ | 45,739 | | $ | 4,756 | | $ | (131,832) | | $ | (372) | | $ | 9,365 | |
| | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2019 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues | | $ | 1,998,589 | | $ | 387,977 | | $ | 87,390 | | $ | 217 | | $ | (167,481) | | $ | 2,306,692 | |
Salaries, wages and benefits | |
| 898,790 | |
| 311,947 | |
| 57,832 | |
| — | |
| — | |
| 1,268,569 | |
Other operating expenses | | | 791,569 | |
| 23,087 | |
| 27,891 | |
| — | |
| (167,481) | |
| 675,066 | |
General and administrative costs | | | — | | | — | | | — | | | 71,094 | | | — | | | 71,094 | |
Lease expense | | | 186,523 | |
| 665 | |
| 680 | |
| 779 | |
| — | |
| 188,647 | |
Depreciation and amortization expense | | | 54,200 | |
| 6,276 | |
| 348 | |
| 5,639 | |
| — | |
| 66,463 | |
Interest expense | | | 56,091 | |
| 27 | |
| 17 | |
| 48,356 | |
| — | |
| 104,491 | |
Gain on early extinguishment of debt | | | — | |
| — | |
| — | |
| (24) | |
| — | |
| (24) | |
Investment income | | | — | |
| — | |
| — | |
| (4,007) | |
| — | |
| (4,007) | |
Other (income) loss | | | (40,315) | |
| (76) | |
| 61 | |
| — | |
| — | |
| (40,330) | |
Transaction costs | | | — | |
| — | |
| — | |
| 10,084 | |
| — | |
| 10,084 | |
Long-lived asset impairments | | | 900 | | | — | | | — | | | — | | | — | | | 900 | |
Equity in net loss (income) of unconsolidated affiliates | | | — | |
| — | |
| — | |
| 1,386 | |
| (1,471) | |
| (85) | |
Income (loss) before income tax benefit | | | 50,831 | |
| 46,051 | |
| 561 | |
| (133,090) | |
| 1,471 | |
| (34,176) | |
Income tax benefit | | | — | |
| — | |
| — | |
| (111) | |
| — | |
| (111) | |
Net income (loss) | | $ | 50,831 | | $ | 46,051 | | $ | 561 | | $ | (132,979) | | $ | 1,471 | | $ | (34,065) | |
23
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
The following table presents the segment assets as of SeptemberJune 30, 20192020 compared to December 31, 20182019 (in thousands):
| | | | | | | |
|
| June 30, 2020 |
| December 31, 2019 |
| ||
Inpatient services | | $ | 3,723,085 | | $ | 4,221,579 | |
Rehabilitation therapy services | |
| 264,349 | |
| 281,978 | |
Other services | |
| 56,111 | |
| 49,877 | |
Corporate and eliminations | |
| 322,789 | |
| 108,706 | |
Total assets | | $ | 4,366,334 | | $ | 4,662,140 | |
|
|
|
|
|
|
|
|
|
| September 30, 2019 |
| December 31, 2018 |
| ||
Inpatient services |
| $ | 4,224,275 |
| $ | 3,735,778 |
|
Rehabilitation therapy services |
|
| 297,097 |
|
| 329,687 |
|
Other services |
|
| 47,798 |
|
| 36,240 |
|
Corporate and eliminations |
|
| 104,977 |
|
| 161,918 |
|
Total assets |
| $ | 4,674,147 |
| $ | 4,263,623 |
|
25
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents segment goodwill as of SeptemberJune 30, 20192020 compared to December 31, 20182019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Inpatient |
| Rehabilitation Therapy Services |
| Other Services |
| Consolidated | |||||||||||||
Balance at December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | ||||||||||||
|
| Rehabilitation Therapy Services |
| Other Services |
| Consolidated | |||||||||||||||
Balance at December 31, 2019 | | | | | | | | | | ||||||||||||
Goodwill |
|
| 351,470 |
|
| 73,814 |
|
| 11,828 |
|
| 437,112 | | $ | 73,814 | | $ | 11,828 | | $ | 85,642 |
Accumulated impairment losses |
|
| (351,470) |
|
| — |
|
| — |
|
| (351,470) | | | — | | | — | | | — |
|
| $ | — |
| $ | 73,814 |
| $ | 11,828 |
| $ | 85,642 | |||||||||
Balance at September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| | $ | 73,814 | | $ | 11,828 | | $ | 85,642 | ||||||||||||
Balance at June 30, 2020 | | | | | | | | | | ||||||||||||
Goodwill |
|
| 351,470 |
|
| 73,814 |
|
| 11,828 |
|
| 437,112 | | | 73,814 | | | 11,828 | | | 85,642 |
Accumulated impairment losses |
|
| (351,470) |
|
| — |
|
| — |
|
| (351,470) | | | — | | | — | | | — |
|
| $ | — |
| $ | 73,814 |
| $ | 11,828 |
| $ | 85,642 | |||||||||
| | $ | 73,814 | | $ | 11,828 | | $ | 85,642 |
(7)Property and Equipment
Property and equipment consisted of the following as of SeptemberJune 30, 20192020 and December 31, 20182019 (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| September 30, 2019 |
| December 31, 2018 |
| |||||||||
| | | | | | | | |||||||
|
| June 30, 2020 |
| December 31, 2019 |
| |||||||||
Land, buildings and improvements |
| $ | 990,977 |
| $ | 469,575 |
| | $ | 891,413 | | $ | 1,004,447 | |
Finance lease land, buildings and improvements |
|
| — |
|
| 693,546 |
| |||||||
Financing obligation land, buildings and improvements |
|
| — |
|
| 2,274,211 |
| |||||||
Equipment, furniture and fixtures |
|
| 380,907 |
|
| 417,684 |
| |
| 367,432 | |
| 386,248 | |
Construction in progress |
|
| 2,771 |
|
| 9,340 |
| |
| 2,821 | |
| 2,771 | |
Gross property and equipment |
|
| 1,374,655 |
|
| 3,864,356 |
| |
| 1,261,666 | |
| 1,393,466 | |
Less: accumulated depreciation |
|
| (417,437) |
|
| (976,802) |
| |
| (430,333) | |
| (431,361) | |
Net property and equipment |
| $ | 957,218 |
| $ | 2,887,554 |
| | $ | 831,333 | | $ | 962,105 | |
On January 1, 2019, the Company derecognized net financing obligation land and buildings of $1.7 billion and reclassified net finance lease land and buildings of $0.6 billion to finance lease ROU assets within the consolidated balance sheets due to the adoption of Topic 842. See Note 1 – “General Information - Recently Adopted Accounting Pronouncements” and Note 8 – “Leases.” Additionally, improvements of approximately $12.7 million and $73.6 million, which were historically associated with finance leases (referred to as “capital leases” prior to the adoption of Topic 842) and financing obligations, respectively, have been reclassified to “Land, buildings and improvements.”
During 2019, the Company classified eight facilities in California as assets held for sale. TheNet property and equipment of these facilities was primarily classified inincluded $537.0 million and $535.9 million at June 30, 2020 and December 31, 2019, respectively, associated with the “Land, buildings and improvements” line item. See Note 14 – “Assets Held for Sale.” Since this classification,Company's consolidated VIEs.
During the six months ended June 30, 2020, the Company haspurchased 1 skilled nursing facility and sold the real property of seven of these13 skilled nursing facilities resulting in a net reduction of property and equipment of $36.9 million. See Note 3 – “Significant Transactions and Events – Divestiture of Non-Strategic Facilities – California Divestitures.” At September 30, 2019,in net property and equipment of $16.3 million attributable to one California skilled nursing facility remains classified as held for sale.$88.5 million.
During the first quarter of 2019, the Company consolidated the financial statements of the Next Partnership. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Next Partnership.” The consolidation resulted in an increase to “Land, buildings and improvements” of $173.5 million.
24
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
During the third quarter of 2019, the Company sold the real property of eight facilities and consolidated the property and equipment of the Vantage Point Partnership, as described in Note 3 – “Significant Transactions and Events – Strategic Partnerships – Vantage Point Partnership.” The sales resulted in a net reduction of property and equipment of $29.4 million, while the consolidation resulted in an increase of $339.2 million, both of which were primarily classified in the “Land, buildings and improvements” line item.
During the three and ninesix months ended SeptemberJune 30, 2019,2020, the Company recorded long-lived asset impairment charges of $9.8 million and $10.7 million, respectively, on three skilled nursing facilities reducingto its property and equipment accordingly.of $7.1 million.
(8)Leases
(8)Leases
The Company leases the majority of the skilled nursing facilities and assisted/senior living facilities used in its operations, most of which are subject to triple-net leases, meaning that in addition to rent, the Company is responsible for paying property taxes, insurance, and maintenance and repair costs. As of SeptemberJune 30, 2019,2020, the Company leased approximately 78%72% of its centers; 44%38% were leased pursuant to master lease agreements with four4 landlords. The Company also leases certain office space, land, and equipment.
The Company’s real estate leases generally have initial lease terms of 10 to 15 years or more and typically include one or more options to renew, with renewal terms that generally extend the leaseterm for an additional five to ten years or more. Exercise of the renewal options is generally subject to the satisfaction of certain conditions which vary by contract and generally follow payment terms that are consistent with those in place during the initial term. The Company assesses renewal options using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, the majority of its leases’ terms do not include renewal periods for accounting purposes. For leases where the Company is reasonably certain to exercise its renewal option, the option periods are included within the lease term and, therefore, the measurement of the ROUright-of-use (ROU) asset and lease liability. The payment structure of the Company’s leases generally contain annual escalation clauses that are either fixed or variable in nature, some of which are dependent upon published indices. Leases with an initial term of 12 months or less are not recorded on the balance sheet; expense for these leases is recognized on a straight-line basis over the lease term as an other operating expense.
Certain leases include options forAs of June 30, 2020, the Company held fixed-price options to purchase 57 facilities, 23 of which are subject to third-party leases and 34 of which are included within the leased asset. For such leases, theCompany’s consolidated VIEs. The Company assesses the likelihood of exercising
26
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the purchase option using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, purchase options are generally accounted forassumed to be exercised when a compelling economic reason to exercise the option exists. Certain leases include options to terminate the lease, the terms and conditions of which vary by contract. Such options allow the contract parties to terminate their obligations under the lease contract, typically in return for an agreed financial consideration. The Company’s lease agreements do not contain any material residual value guarantees. The Company leases certain facilities from affiliates of related parties. See Note 11 – “Related Party Transactions.”
The Company makes certain assumptions in determining the discount rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate for collateralized borrowings, based on the information available at commencement date, in determining the present value of lease payments. In order to apply the incremental borrowing rate, a portfolio approach was utilized to group assets based on similar lease terms in a manner whereby the Company reasonably expects that the application does not differ materially from application to individual leases.
Subsequent to lease commencement date, the Company reassesses lease classification when there is a contract modification that is not accounted for as a separate contract, a change in lease term, or a change in the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. This reassessment is made using current facts, circumstances and conditions. As a result of a lease’s modification, the remaining consideration in the contract is reallocated to lease and non-lease components, as applicable, and the lease liability is remeasured using the applicable discount rate at the effective date of the modification. The remeasurement of the lease liability will result in adjustment to the corresponding ROU asset, unless the lease is fully or partially terminated, in which case, a gain or loss will be recognized.
25
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
Lease Transactions
During the ninethree and six months ended SeptemberJune 30, 2019,2020, the Company amended, extendedrecorded long-lived asset impairment charges to its lease ROU assets of $77.1 million and terminated numerous facilities subject to several material lease agreements resulting in ROU asset and liability adjustments. See Note 3 – “Significant Transactions and Events – Lease Transactions.”$79.7 million, respectively.
The maturity of total operating and finance lease obligations at SeptemberJune 30, 20192020 is as follows (in thousands):
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Year ending December 31, |
| Operating Leases |
| Finance Leases (1) |
| Operating Leases |
| Finance Leases (1) | ||||
2019 (excluding nine months ended September 30, 2019) |
| $ | 94,983 |
| $ | 1,888 | ||||||
2020 |
|
| 382,353 |
|
| 7,570 | ||||||
2020 (excluding the six months ended June 30, 2020) | | $ | 178,275 | | $ | 3,486 | ||||||
2021 |
|
| 385,990 |
|
| 7,379 | |
| 358,686 | |
| 6,797 |
2022 |
|
| 381,397 |
|
| 7,168 | |
| 361,289 | |
| 6,591 |
2023 |
|
| 380,751 |
|
| 6,927 | |
| 368,991 | |
| 6,373 |
2024 | |
| 375,874 | |
| 6,135 | ||||||
Thereafter |
|
| 3,411,293 |
|
| 42,564 | |
| 2,860,726 | |
| 34,854 |
Total lease payments |
|
| 5,036,767 |
|
| 73,496 | |
| 4,503,841 | |
| 64,236 |
Less interest |
|
| (2,201,697) |
|
| (31,082) | |
| (1,891,604) | |
| (25,021) |
Total lease obligations |
|
| 2,835,070 |
|
| 42,414 | |
| 2,612,237 | |
| 39,215 |
Less current portion |
|
| (137,574) |
|
| (2,738) | |
| (135,853) | |
| (2,947) |
Long-term lease obligations |
| $ | 2,697,496 |
| $ | 39,676 | | $ | 2,476,384 | | $ | 36,268 |
(1) | Finance lease payments include $37.2 million related to options to |
The Company’s future minimum commitments under finance leases (formerly capital leases), financing obligations, and operating leases as of December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year ending December 31, |
| Finance Leases |
| Financing Obligations |
| Operating Leases | |||
2019 |
| $ | 88,793 |
| $ | 237,335 |
| $ | 110,755 |
2020 |
|
| 89,397 |
|
| 242,052 |
|
| 109,391 |
2021 |
|
| 91,292 |
|
| 245,311 |
|
| 106,031 |
2022 |
|
| 93,281 |
|
| 242,214 |
|
| 84,003 |
2023 |
|
| 95,376 |
|
| 247,852 |
|
| 76,701 |
Thereafter |
|
| 3,325,042 |
|
| 6,661,624 |
|
| 373,753 |
Total future minimum lease payments |
|
| 3,783,181 |
|
| 7,876,388 |
| $ | 860,634 |
Less amount representing interest |
|
| (2,813,068) |
|
| (5,141,448) |
|
|
|
Total lease obligation |
|
| 970,113 |
|
| 2,734,940 |
|
|
|
Less current portion |
|
| (2,171) |
|
| (2,001) |
|
|
|
Long-term obligation |
| $ | 967,942 |
| $ | 2,732,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended | ||
Lease Cost | Classification |
| September 30, 2019 |
| September 30, 2019 | ||
Operating lease cost | Lease expense |
| $ | 100,018 |
| $ | 288,665 |
Finance lease cost: |
|
|
|
|
|
|
|
Amortization of finance lease right-of-use assets | Depreciation and amortization expense |
|
| 1,734 |
|
| 15,222 |
Interest on finance lease obligations | Interest expense |
|
| 4,299 |
|
| 48,931 |
Total finance lease expense |
|
|
| 6,033 |
|
| 64,153 |
Variable lease cost | Other operating expenses |
|
| 10,697 |
|
| 32,027 |
Short-term leases | Other operating expenses |
|
| 5,980 |
|
| 18,596 |
Total lease cost |
|
| $ | 122,728 |
| $ | 403,441 |
2627
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides lease costs and income by line item on the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | |
| |
| Three months ended June 30, |
| Six months ended June 30, | ||||||||
| Classification |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating lease cost | Lease expense | | $ | 96,395 | | $ | 94,586 | | $ | 194,415 | | $ | 188,647 |
Finance lease cost: | | |
| | |
| | |
| | |
| |
Amortization of finance lease ROU assets | Depreciation and amortization expense | |
| 966 | |
| 6,630 | |
| 1,982 | |
| 13,488 |
Interest on finance lease obligations | Interest expense | | | 1,149 | | | 21,840 | | | 2,368 | | | 44,632 |
Total finance lease expense | | | | 2,115 | | | 28,470 | | | 4,350 | | | 58,120 |
Variable lease cost | Other operating expenses | |
| 8,974 | |
| 10,559 | |
| 17,749 | |
| 21,330 |
Short-term leases | Other operating expenses | | | 4,291 | | | 6,439 | | | 9,674 | | | 12,615 |
Sublease income | Net revenues | | | (1,463) | | | - | | | (2,438) | | | - |
Total | | | $ | 110,312 | | $ | 140,054 | | $ | 223,750 | | $ | 280,712 |
The following table provides remaining lease term and discount rates by lease classification as of the three and nine months ended SeptemberJune 30, 2019:2020:
|
| ||
| |||
|
| ||
|
| ||
| |||
| |||
|
| | | | | | |
Lease Term and Discount Rate |
| June 30, 2020 | | December 31, 2019 | ||
Weighted-average remaining lease term (years) | | | | | | |
Operating leases | |
| 12.1 | |
| 12.6 |
Finance leases | |
| 9.9 | |
| 10.2 |
Weighted-average discount rate | | | | | | |
Operating leases | |
| 9.5% | |
| 9.6% |
Finance leases | |
| 10.6% | |
| 12.2% |
The following table includes supplemental lease information for the three and ninesix months ended SeptemberJune 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
| ||||||
|
| Three months ended |
| Nine months ended | ||||||||
| | | | | | | ||||||
| | Six months ended June 30, | ||||||||||
Other information |
| September 30, 2019 |
| September 30, 2019 |
| 2020 |
| 2019 | ||||
Cash paid for amounts included in the measurement of lease obligations |
|
|
|
|
|
| | | | | | |
Operating cash flows from operating leases |
| $ | 98,521 |
| $ | 270,449 | | $ | 184,467 | | $ | 171,928 |
Operating cash flows from finance leases |
|
| 4,835 |
|
| 45,286 | |
| 3,810 | |
| 40,451 |
Financing cash flows from finance leases |
|
| 702 |
|
| 1,973 | |
| 1,442 | |
| 1,271 |
Right-of-use assets obtained in exchange for new lease obligations |
|
|
|
|
|
| |
| | |
| |
Operating leases |
|
| 5,306 |
|
| 82,471 | |
| 5,942 | |
| 77,166 |
Finance leases |
|
| 688 |
|
| 688 | |
| 672 | |
| - |
Lease Covenants
CertainThe Company’s lease agreements generally contain a number of restrictive covenantscovenant requirements that, among other things, and subject to certain exceptions, impose operating and financial restrictions on the Company and its subsidiaries. These leases also require the Company to meet defined financial covenants, includingsuch as a minimum level of consolidated liquidity, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage. TheseCertain of the Company’s leases include cross-default provisions with each other and certain material debt instruments.
The Company has master lease agreements with Welltower, Sabra Health Care REIT, Inc., Omega and Second Spring (collectively, the Master Lease Agreements). The Master Lease Agreements each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and minimum liquidity. At SeptemberJune 30, 2019,2020, the Company iswas in compliance with the financial covenants contained in its leases containing cross-default provisions, with the Master Lease Agreements.
The Company has twoexception of 1 master lease agreements with Cindat Best Years Welltower JV LLC (CBYW)agreement involving 282 of its facilities. The Company did not meet certain financial covenants containedHowever, in one of the master lease agreements involving five of its facilities at September 30, 2019. On November 4, 2019,July 2020, the Company received a waiver for these covenant breaches through JanuaryOctober 1, 2021. At September 30, 2019, the Company is in compliance with the financial covenants contained in the other master lease agreement.
At SeptemberJune 30, 2019,2020, the Company did not meet certain financial covenants contained in three2 leases related to five4 of its facilities. The Company is and expects to continue to be, current in the timely payment of its obligations under such leases. These leases do not have cross defaultcross-default provisions, nor do they trigger cross defaultcross-default provisions in any of the Company’s other loan or lease agreements. The Company will continue to work with the related credit parties to amend such leases and the related financial covenants. The Company does not believe the breach of such financial covenants at SeptemberJune 30, 20192020 will have a material adverse impact on it.its financial position. The Company has been afforded certain cure rights to such defaults by posting collateral in the form of additional letters of credit or security deposit.
2728
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company’s ability to maintain compliance with its lease covenants depends in part on management’s ability to increase revenue, control costs and control costs.receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly lease covenant compliance requirements. Should the Company fail to comply with its lease covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing lease agreements. To the extent any cross-default provisions may apply, the default would have an even morea significant impact on the Company’s financial position.
(9)Long-Term Debt
Long-term debt at SeptemberJune 30, 20192020 and December 31, 20182019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| September 30, 2019 |
| December 31, 2018 |
| ||
Asset based lending facilities, net of debt issuance costs of $9,295 and $11,335 at September 30, 2019 and December 31, 2018, respectively |
| $ | 384,866 |
| $ | 419,289 |
|
Term loan agreements, net of debt issuance costs of $1,226 and $1,851 and debt premium balance of $5,473 and $8,446 at September 30, 2019 and December 31, 2018, respectively |
|
| 193,380 |
|
| 184,652 |
|
Real estate loans, net of debt issuance costs of $4,224 and $5,360 and debt premium balance of $21,744 and $28,992 at September 30, 2019 and December 31, 2018, respectively |
|
| 266,003 |
|
| 307,690 |
|
HUD insured loans, net of debt issuance costs of $2,936 and $5,247 and debt premium balance of $0 and $860 at September 30, 2019 and December 31, 2018, respectively |
|
| 117,699 |
|
| 181,762 |
|
Notes payable |
|
| 78,157 |
|
| 81,398 |
|
Mortgages and other secured debt (recourse) |
|
| 5,450 |
|
| 4,190 |
|
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $7,890 and $187 and debt premium balance of $1,447 and $1,520 at September 30, 2019 and December 31, 2018, respectively |
|
| 497,142 |
|
| 26,483 |
|
|
|
| 1,542,697 |
|
| 1,205,464 |
|
Less: Current installments of long-term debt |
|
| (121,745) |
|
| (122,531) |
|
Long-term debt |
| $ | 1,420,952 |
| $ | 1,082,933 |
|
| | | | | | | |
|
| |
| |
| ||
| | June 30, 2020 | | December 31, 2019 |
| ||
Asset based lending facilities, net of debt issuance costs of $7,255 and $8,615 at June 30, 2020 and December 31, 2019, respectively | | $ | 277,745 | | $ | 412,346 | |
Term loan agreements, net of debt issuance costs of $801 and $1,084 and debt premium balance of $3,501 and $4,816 at June 30, 2020 and December 31, 2019, respectively | |
| 203,630 | |
| 196,714 | |
Real estate loans, net of debt issuance costs of $3,089 and $3,846 and debt premium balance of $14,496 and $19,328 at June 30, 2020 and December 31, 2019, respectively | |
| 229,038 | |
| 265,700 | |
HUD insured loans, net of debt issuance costs of $1,138 and $2,909 at June 30, 2020 and December 31, 2019, respectively | |
| 44,670 | |
| 117,117 | |
Notes payable | | | 110,211 | | | 116,952 | |
Mortgages and other secured debt (recourse) | |
| 6,925 | |
| 6,369 | |
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $8,953 and $9,349 and debt premium balance of $1,372 and $1,422 at June 30, 2020 and December 31, 2019, respectively | |
| 506,607 | |
| 498,222 | |
| |
| 1,378,826 | |
| 1,613,420 | |
Less: Current portion of long-term debt | |
| (19,116) | |
| (162,426) | |
Long-term debt | | $ | 1,359,710 | | $ | 1,450,994 | |
Asset Based Lending Facilities
On March 6, 2018, theThe Company entered into a newmaintains an asset based lending facility, agreement with MidCap Funding IV Trust and MidCap Financial Trust (collectively, MidCap). The agreement initially provided for a $555.0 million asset based lending facilityas amended, that was originally comprised of (a) a $325.0$285.0 million first lien term loan facility, (b) a $200.0$240.0 million first lien revolving credit facility and (c) a $30.0 million delayed draw term loan facility (collectively, the ABL Credit Facilities) with affiliates of MidCap Financial Services, LLC (MidCap). The commitments under the delayed draw term loan facility were reduced to $25.0 million on June 30, 2020 and will be further reduced to $22.5 million on September 30, 2020, and $20.0 million in the yearon December 31, 2020.
On June 5, 2019,The Company originally entered into the ABL Credit Facilities were amended to simultaneously increase the aggregate revolving credit facility commitment by $40.0 million and partially prepay the first lien term loan facility by $40.0 million. The resulting commitment levels of the revolving credit facility and first lien term loan facility were $240.0 million and $285.0 million, respectively.
in March 2018. The ABL Credit Facilities have a five-year term set to mature onstated maturity of March 6, 2023. The ABL Credit Facilities2023 and include a springing maturity clause that would accelerate itsthe maturity date 90 days prior to the maturity of the Term Loan Agreements, Welltower Real Estate Loans or MidCap Real Estate Loans (each defined below), in the event those agreements are not extended or refinanced. In the event that the springing maturity clause is triggered, the maturity date of the ABL Credit Facilities would be accelerated to September 1, 2021. The revolving credit facility includes a swinging lockbox arrangement whereby the Company transfers all funds deposited within its designated lockboxes to MidCap on a daily basis and then draws from the revolving credit facility as needed. In accordance with U.S. GAAP, the Company has presented the entire revolving credit facility borrowings balance of $109.2 million in current installments of long-term debt at September 30, 2019. Despite this classification, the Company expects that it will have the ability to borrow and repay on the revolving credit facility through its maturity on March 6, 2023. Cash proceeds of $50.4$51.1 million received under the ABL Credit Facilities remain in a restricted account. This amount is pledged to cash collateralize letters of credit. The Company has classified this deposit and all cash account balances subject to deposit account control agreements that were sprung under the ABL Credit Facilities as restricted cash and equivalents onin the consolidated balance sheets at SeptemberJune 30, 20192020 and December 31, 2018.2019.
28
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
Borrowings under the term loan and revolving credit facility components of the ABL Credit Facilities bear interest at a 90-day LIBOR rate (subject to a floor of 0.5%) plus an applicable margin of 6%6%. Borrowings under the delayed draw component bear interest at a 90-day LIBOR rate (subject to a floor of 1%) plus an applicable margin of 11%. Borrowing levels under the term loan
29
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and revolving credit facility components of the ABL Credit Facilities are limited to a borrowing base that is computed based upon the level of eligible accounts receivable.
In addition to paying interest on the outstanding principal borrowed under the revolving credit facility, the Company is required to pay a commitment fee to the lenders for any unutilized commitments. The commitment fee rate equals 0.5% per annum on the revolving credit facility and 2% on the delayed draw term loan facility.
The term loan facility and revolving credit facility include a termination fee equal to 2% if the loans are prepaid within the first year, 1% if the loans are prepaid after year one and before year two, and 0.5% thereafter.1.5%. The term loan facility and revolving credit facility include an exit fee equal to $1.6 million and $1.0 million, respectively, due and payable on the earlier of the loansloan’s retirement or on the maturity date.
The ABL Credit Facilities contain representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default and security interests that are customarily required for similar financings. Financial covenants include a minimum consolidated fixed charge coverage ratio, a maximum leverage ratio and minimum liquidity.
Borrowings and interest rates under the ABL Credit Facilities were as follows at SeptemberJune 30, 20192020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
| Weighted |
| |||||||||||
|
|
|
|
|
|
|
|
| Average |
| ||||||||||
| | | | | | | | | | |||||||||||
|
| | |
| | |
| Weighted |
| |||||||||||
|
| | | |
| | |
| Average |
| ||||||||||
ABL Credit Facilities |
| Commitment |
| Borrowings |
| Interest |
| | Commitment | | Borrowings | | Interest |
| ||||||
Term loan facility |
| $ | 285,000 |
| $ | 285,000 |
| 8.09 | % | | $ | 285,000 | | $ | 285,000 | | 6.50 | % | ||
Revolving credit facility (Non-HUD) |
|
| 168,000 |
|
| 49,630 |
| 8.09 | % | | | 168,000 | | | — | | 6.50 | % | ||
Revolving credit facility (HUD) |
|
| 72,000 |
|
| 29,530 |
| 8.09 | % | | | 72,000 |
| | | — |
| 6.50 | % | |
Delayed draw term loan facility |
|
| 30,000 |
|
| 30,000 |
| 13.09 | % | | | 25,000 | | | — | | 12.00 | % | ||
|
| $ | 555,000 |
| $ | 394,160 |
| 8.47 | % | |||||||||||
| | $ | 550,000 |
| | $ | 285,000 |
| 6.50 | % |
As of SeptemberJune 30, 2019,2020, the Company had a total borrowing base capacity of $406.5$292.9 million with outstanding borrowings under the ABL Credit Facilities of $394.2$285.0 million, leaving the Company with approximately $12.3$7.9 million of available borrowing capacity under the ABL Credit Facilities.
Term Loan Agreements
The Company and certain of its affiliates, including FC-GEN (the Borrower) are party to a term loan agreement, as amended, (the Term Loan Agreement) with an affiliate of Welltower and an affiliate of Omega. The Term Loan Agreement originally provided for term loans (the Term Loans) in the aggregate principal amount of $120.0 million and later expanded to $160.0 million. The Term Loan Agreement was amendedmatures on May 9, 2019 to extend the maturity date from July 29, 2020 to November 30, 2021. The original Term Loan for $120.0 million bears interest at a rate equal to 14.0% per annum, with up to 9.0% per annum to be paid in kind. The additional Term Loan for $40.0 million bears interest at a rate equal to 10.0% per annum, with up to 5.0% per annum to be paid in kind. The additional Term Loan for $40.0 million bears interest at a rate equal to 14.0% per annum, with up to 9.0% per annum to be paid in kind. As of September 30, 2019, the Term Loans had an outstanding accreted principal balance of $194.6$200.9 million which includes a net debt premium balance of $5.5 million.and $193.0 million at June 30, 2020 and December 31, 2019, respectively.
The Term Loan Agreement is secured by a first priority lien on the equity interests of the subsidiaries of the Company and the Borrower as well as certain other assets of the Company, the Borrower and their subsidiaries, subject to certain exceptions. The Term Loan Agreement is also secured by a junior lien on the assets that secure the ABL Credit Facilities on a first priority basis.
Welltower and Omega, or their respective affiliates, are each currently landlords under certain master lease agreements to which the Company and/or its affiliates are tenants.
29
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
The Term Loan Agreement contains financial, affirmative and negative covenants, and events of default that are customary for debt securities of this type. Financial covenants include four maintenance covenants which require the Company to maintain a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio, and maximum capital expenditures. Thethe most restrictive financial covenantof which is the minimum interest coverage ratio which requires the Company to maintain a coverage ratio, as defined therein, of no less than 1.701.7 to 1.0 through December 31, 2020, and increasing to 1.801.8 to 1.0 thereafter.
30
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Real Estate Loans
On March 30, 2018, theMidCap Real Estate Loans
The Company originally entered into two2 real estate loans with MidCap (MidCap Real Estate Loans) with combined available proceeds of $75.0 million $73.0 million of which was drawn as of September 30, 2019.during March 2018. The MidCap Real Estate Loans are secured by 128 skilled nursing facilities and are subject to a five-year term maturingmature on March 30, 2023. The maturity2023, subject to acceleration of the MidCap Real Estate Loans will acceleratematurity date in the event the ABL Credit Facilities are repaid in full and terminated. The loans which were interest only in the first year, are subject to principal payments and bear an annual interest rate equal to 30-day LIBOR (subject to a floor of 1.5%) plus an applicable margin of 5.85%. Beginning April 1, 2019, mandatory principal payments commenced,5.85%, with the balance of the loans to be repaiddue at maturity. Proceeds from the MidCap Real Estate Loans were used to repay partially the Welltower Real Estate Loans (defined below). On May 1, 2019, the Company divested the real property and operations of five skilled nursing facilities in California, three of which were subject to the MidCap Real Estate Loans. The Company used the sale proceeds to repay $27.7 million on the MidCap Real Estate Loans. During the third quarter of 2019, the Company divested the real property of two skilled nursing facilities in New Jersey and one skilled nursing facility in Maryland that were subject to the MidCap Real Estate Loans and used the sale proceeds to repay $10.5 million on the loans. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Vantage Point Partnership.” The MidCap Real Estate Loans have an outstanding balance of $34.3 million at September 30, 2019.
On November 8, 2018, one1 of the MidCap Real Estate Loans was amended with an additional borrowing of $10.0 million. The proceeds were used to retire a maturing mortgage loan on a corporate office building. The office building has been added as collateral and the loan maturity remains March 30, 2023. The $10.0 million additional loan is subject to an annual interest rate equal to 30-day LIBOR (subject to a floor of 2.0%) plus an applicable margin of 6.25% with principal amortizing immediately and the balance due at maturity. During the third quarter of 2019, the Company repaid $1.6divested the real property and operations of 6 facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $39.8 million on the loans. During the six months ended June 30, 2020, the Company divested the real property and operations of 4 facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $21.6 million on the loans. The MidCap Real Estate Loans had an outstanding principal balance of $20.1 million and $42.2 million at June 30, 2020 and December 31, 2019, respectively. Additionally, 1 facility that is subject to the MidCap Real Estate Loans was classified as held for sale as of June 30, 2020, resulting in the classification of $5.5 million in long term debt as held for sale. The sale of this loanfacility was completed in conjunction with the aforementioned facility sales in New Jersey and Maryland.July 2020. See Note 314 – “Significant TransactionsAssets Held for Sale” and EventsNote 17 – Strategic Partnerships – Vantage Point Partnership.“Subsequent Events.”The loan has an outstanding balance of $8.2 million at September 30, 2019.
Welltower Real Estate Loans
The Company is subject to multiple2 real estate loan agreements with Welltower (Welltower Real Estate Loans). The Welltower Real Estate Loans are subject to payments of interest only during the term with a balloon payment due at maturity, provided, that to the extent the subsidiaries receive any net proceeds from the sale and/or refinance of the underlying facilities such net proceeds are required to be used to repay the outstanding principal balance of the Welltower Real Estate Loans. EachThe Welltower Real Estate Loan hasLoans have a maturity date of January 1, 2022 and an annual interest rate of 12.0%, of which 7.0% will be paid in cash and 5.0%5.0% will be paid in kind. The Company agreed to make commercially reasonable efforts to secure commitments to repay no less than $105.0 million of the Welltower Real Estate Loan obligations. As of SeptemberJune 30, 2019,2020, the Company has not yet secured the total required repayments or commitments. As a result, the annual cash component of the interest payments was increased by approximately $2.0 million with a corresponding decrease in the paid in kind component of interest. At SeptemberJune 30, 2019,2020, the Welltower Real Estate Loans are secured by a mortgage lien on the real property and a second lien on certain receivables of the operators of the five remaining facilities subject to the Welltower Real Estate Loans.unsecured. The Welltower Real Estate Loans contain a conversion option, whereby up to $50.0 million of the balance can be converted into Class A common stock of the Company or a 10-year note bearing 2% paid in kind interest. The conversion option is available to the Company upon the satisfaction of certain conditions, the most significant include: the raise of new capital and application thereof to existing Welltower debt instruments, the repayment of $105.0 million to Welltower, as described above, the partial repayment of the Term Loans, and the partial repayment of the Welltower Real Estate Loans, such that the remaining outstanding principal balance does not exceed $50.0 million. AsDuring the first quarter of September 30, 2019,2020, the Company divested the real property and operations of the remaining facility that was subject to the Welltower Real Estate Loans, haveusing the sale proceeds to repay $9.0 million on the loans. The Welltower Real Estate Loans had an outstanding accreted principal balance of $227.7$203.0 million which includes a debt premium balance of $21.7 million.and $208.0 million at June 30, 2020 and December 31, 2019, respectively.
30
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
HUD Insured Loans
As of SeptemberJune 30, 2019,2020, the Company has 19had 8 owned skilled nursing facility loans insured by the U.S. Department of Housing and Urban Development (HUD) with a combined aggregate principal balance of $167.6 million, which includes a debt premium balance of $2.8 million.
HUD. The HUD insured loans have an original amortization term of 30 to 35 years and an average remaining term of 2929.0 years with fixed interest rates ranging from 3.0% to 4.2%3.5% and a weighted average interest rate of 3.4%3.3%. Depending on the mortgage agreement, prepaymentsPrepayments are generally allowed only after 12 months from the inception of the mortgage. Prepayments are subject to a penalty of 10% of the remaining principal balances in the first year and the prepayment penalty decreases each subsequent year by 1% until no penalty is required thereafter. Any further HUD insured loans will require additional HUD approval.
All HUD insured loans are non-recourse loans to the Company. All loans are subject to HUD
31
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, insurance and for capital replacement expenditures. As of SeptemberJune 30, 2019,2020, the Company has totalbalance of escrow reserve funds, of $15.6$5.3 million, with the loan servicer that are reportedis included within prepaid expenses.expenses in the consolidated balance sheets.
During the ninesix months ended SeptemberJune 30, 2019,2020, the Company sold the real property and operations of three8 skilled nursing facilities and one assisted/senior living facility in Californiathat were subject to HUD financing.financing, 1 of which was classified as held for sale at December 31, 2019. The sale proceeds of which were used to retire HUD insured loans totaling $23.8$74.5 million. See Note 3 – “Significant Transactions and Events – Divestiture of Non-Strategic Facilities – California Divestitures.” In addition, the Company sold one skilled nursing facility in New Jersey and one skilled nursing facility in Virginia. The proceeds of these two sales were used to retire HUD insured loans totaling $18.4 million. See Note 3 – “Significant Transactionsfor owned facilities had an aggregate principal balance of $65.2 million and Events – Strategic Partnerships – Vantage Point Partnership.”
At September$140.6 million at June 30, 2020 and December 31, 2019, respectively. Additionally, the HUD insured loans of four skilled nursing2 facilities with an aggregate principal balance of $19.4 million were classified as held for sale in the consolidated balance sheets. These loans had an aggregate principal balance of $46.3 million, net of debt issuance costs and debt premiums, and aggregate escrow reserve funds of $4.6 million. The sale of the facilities is expected to be completed in 2019 or earlyat June 30, 2020. See Note 14 – “Assets Held for Sale.”
Notes Payable
On January 17, 2018, the Company converted $19.6 million of its trade payables into a note payable. The note, as amended, will be repaid in equal monthly installments through December 2019 at an annual interest rate of 5.75% and has an outstanding balance of $2.0 million at September 30, 2019.
In connection with Welltower’s sale of 64 skilled nursing facilities to Second Spring on November 1, 2016, the Company issued a note totaling $51.2 million to Welltower. The noteWelltower, which accrues cash interest at 3%3.0% and paid-in-kind interest at 7%7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every May 1 and November 1. The note was amended on May 9,During 2019, to extend the maturity date from October 30, 2020of the note was extended to December 15, 2021. Upon the satisfaction of certain conditions, including the repayment of the Term Loans, repayment of the other note payable, noted below, to Welltower, and partial repayment of the Welltower Real Estate Loans, the outstanding note balance in excess of $6.0$6.0 million will be forgiven by Welltower. The note hashad an outstanding accreted principal balance of $62.1$66.5 million and $64.2 million at SeptemberJune 30, 2019. 2020 and December 31, 2019, respectively.
In connection with Welltower’s sale of 28 skilled nursing facilities to CBYW on December 23, 2016, the Company issued a second note totaling $11.7 million to Welltower. The noteWelltower, which accrues cash interest at 3%3.0% and paid-in-kind interest at 7%7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every June 15 and December 15. The note matures on December 15, 2021, and hashad an outstanding accreted principal balance of $14.1$15.1 million and $14.6 million at June 30, 2020 and December 31, 2019, respectively.
In October 2019, the Company converted $23.2 million of its trade payables into a note payable. The note requires monthly interest payments based on an annual interest rate of 3.5%. As of June 30, 2020, the outstanding principal balance of the note payable was $22.6 million. The balance of the note is due on September 30, 2019. 2022.
31
TableIn November 2019, the Company issued a short-term note payable for $15.0 million. During the first and second quarters of Contents2020, the Company paid $6.0 million and $3.0 million, respectively, on the note, resulting in an outstanding principal balance of $6.0 million at June 30, 2020. The balance of the note is due on September 30, 2020.
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
Other Debt
Mortgages and other secured debt (recourse). The Company carries mortgage loans and notes payable on certain of its corporate office buildings and other acquired assets. The loans are secured by the underlying real property and have fixed or variable rates of interest with a weighted average interest rate of 1.6%1.3% at SeptemberJune 30, 2019, with2020, and maturity dates ranging from 20192020 to 2020. 2024.
Mortgages and other secured debt (non-recourse). Loans are carried by certain of theThe Company’s consolidated joint ventures and VIEs.VIEs are subject to various loans, as set forth below. These loans are labeled “non-recourse” because neither the Company nor any of its wholly owned subsidiaries is obligated to perform under the respective loan agreements.
Next Partnership Debt
The Company holds a 46% ownership interest in a partnership with Next Healthcare (Next), a related party (the Next Partnership). The Company has concluded the Next Partnership, which includes 15 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Next Partnership in the accompanying consolidated financial statements.
32
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Next Partnership is subject to a term loan agreement with an original principal balance of $142.1 million and maturity date of January 31, 2022. The term loan bears interest at LIBOR plus 3.50% and is subject to interest-only payments through January 31, 2021. Beginning in April 2021, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. During the second quarter of 2020, the Next Partnership term loan was partially refinanced via 2 new HUD insured loans. Proceeds from the new HUD insured loans were principally used to pay down $24.6 million on the Next Partnership term loan. The term loan had an outstanding principal balance of $78.8 million and $103.4 million as of June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 10 facilities as of June 30, 2020.
The Next Partnership is subject to a mezzanine loan with an original principal balance of $27.0 million and maturity date of February 1, 2029. The mezzanine loan bears interest at 11.50% and is subject to interest-only payments through January 2022, with payments including a principal component thereafter. The mezzanine loan had an outstanding principal balance of $27.0 million as of both June 30, 2020 and December 31, 2019.
The Next Partnership includes 5 facilities that are subject to HUD-insured loans, 2 of which were entered into during the six months ended June 30, 2020. The loans consistmature on dates ranging from January 1, 2055 through June 1, 2055. The loans bear interest at fixed rates ranging from 2.79% to 3.15% and had an aggregate outstanding principal balance of $67.5 million and $41.7 million at June 30, 2020 and December 31, 2019, respectively.
Vantage Point Partnership Debt
The Company holds an approximately 30% ownership interest in a partnership with Vantage Point Capital, LLC (the Vantage Point Partnership). The Company has concluded the Vantage Point Partnership, which includes 19 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Vantage Point Partnership in the accompanying consolidated financial statements.
The Vantage Point Partnership is subject to a term loan agreement with an aggregate original principal balance of $240.9 million and maturity date of September 12, 2026. The term loan bears interest at LIBOR (subject to a floor of 1.75%) plus 3.75% and is subject to interest-only payments through October 1, 2021. The interest-only period can be extended through October 1, 2022 upon satisfaction of certain conditions, such as the achievement of a specified debt service coverage ratio and ratio of adjusted net operating income to the outstanding term loan balance. Following the interest-only period, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. The term loan had an outstanding principal balance of $240.9 million and $233.6 million at June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 19 facilities as of June 30, 2020.
The Vantage Point Partnership is subject to a promissory note in the amount of $76.8 million, the entire balance of which was outstanding at June 30, 2020 and December 31, 2019. The promissory note bears interest at 14.0% and matures on September 12, 2028.
Other Non-Recourse Debt
The Company has other non-recourse loans consisting principally of revenue bonds and secured bank loans. Loansloans with maturities ranging from 2023 through 2034. The loans are secured by the underlying real and personal property of individual facilities and have fixed or variable rates of interest, with a weighted average interest rate of 7.2%4.2% at SeptemberJune 30, 2019. Maturity dates range from 2022 to 2034. Loans are labeled “non-recourse” because neither the Company nor any of its wholly owned subsidiaries is obligated to perform under the respective loan agreements.2020. The loans had an aggregate outstanding principal balance of these loans includes a $1.5 million debt premium on one debt instrument. In the nine months ended September 30, 2019, the Company consolidated the financial statements of the Next Partnership and the Vantage Point Partnership. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Next Partnership” and Note 3 – “Significant Transactions and Events – Strategic Partnerships – Vantage Point Partnership.” The Next Partnership’s debt consists of a three-year term loan in the amount of $142.1$23.1 million and a 10-year mezzanine loan in the amount of $27.0 million. The Vantage Point Partnership’s debt consists of a 7-year term loan with available proceeds of $240.9$23.8 million $233.6 million of which was drawn as of Septemberat June 30, 2020 and December 31, 2019, as well as a promissory note due to Vantage Point in the amount of $76.8 million due on September 12, 2028.respectively.
Debt Covenants
The ABL Credit Facilities, the Term Loan Agreement and the Welltower Real Estate Loans (collectively, the Credit Facilities) each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum interest
33
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
coverage ratio, a minimum fixed charge coverage ratio and minimum liquidity and maximum capital expenditures.liquidity. The Credit Facilities include cross-default provisions with each other and certain material lease agreements. At SeptemberJune 30, 2019, 2020, the Company was in compliance with its financial covenants contained in the Credit Facilities.
The Company’s ability to maintain compliance with its debt covenants depends in part on management’s ability to increase revenue, control costs and control costs.receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt covenant compliance requirements. Should the Company fail to comply with its debt covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing credit agreements. To the extent any cross-default provisions may apply, the default would have an even morea significant impact on the Company’s financial position.
The maturity of total debt of $1,539.6$1,380.7 million, excluding debt issuance costs and other non-cash debt discounts and premiums, at SeptemberJune 30, 20192020 is as follows (in thousands):
|
|
|
| |||
Twelve months ended September 30, |
|
|
| |||
2020 |
| $ | 121,779 | |||
| | | | |||
Twelve months ended June 30, |
| | | |||
2021 |
|
| 5,411 | | $ | 19,122 |
2022 |
|
| 623,764 | | | 572,580 |
2023 |
|
| 341,338 | | | 335,297 |
2024 |
|
| 12,999 | | | 12,490 |
2025 | | | 10,224 | |||
Thereafter |
|
| 434,313 | | | 430,980 |
Total debt maturity |
| $ | 1,539,604 | | $ | 1,380,693 |
(10) | Income Taxes |
32
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
(10)Income Taxes
The Company effectively owns 65.9%67.1% of FC-GEN, which is an entity taxed as a partnership for U.S. income tax purposes and the Company’s only source of taxable income. FC-GEN is subject to income taxes in several U.S. state and local jurisdictions. The income taxes assessed by these jurisdictions are included in the Company’s tax provision, but at its 65.9%67.1% ownership of FC-GEN.
For the three months ended SeptemberJune 30, 2019,2020, the Company recorded income tax benefit of $0.6$0.5 million, from continuing operations, representing an effective tax rate of (1.0%)1.5%, compared to income tax benefit of $1.2$0.2 million, from continuing operations, representing an effective tax rate of 1.3%1.8%, for the same period in 2018. The negative effective tax rate for the three months ended September 30, 2019 compared to the same period in 2018 is the result of US GAAP gain recorded upon the disposition of leased centers during this period in 2019 that is not recognized for US federal or state income taxes.2019.
For the ninesix months ended SeptemberJune 30, 2019,2020, the Company recorded income tax benefit of $0.7$1.2 million, from continuing operations, representing an effective tax rate of (2.8%)(15.2)%, compared to income tax benefit of $1.8$0.1 million, from continuing operations, representing an effective tax rate of 0.7%0.3%, for the same period in 2018.2019. The negativechange in the Company’s effective tax rate forwas primarily attributable to two discrete events that occurred during the nine months ended September 30, 2019 compared tosecond quarter of 2020: the same period in 2018 isCompany recorded a $1.8 million valuation allowance against certain deferred tax assets of FC-GEN and the Company’s Bermuda captive insurance company incurred year-to-date losses, both of which were a result of US GAAP gain recorded upon the dispositionadverse effects of leased centers during this period in 2019 that is not recognized for US federal or state income taxes.COVID-19.
The Company continues to assess the requirement for, and amount of, a valuation allowance in accordance with the “more likely than not” standard. Management had previously determined that the Company would not realize the majority of its deferred tax assets and accordingly, had established a valuation allowance against thesuch deferred tax assets. As of SeptemberJune 30, 2019,2020, management has determined that the existing valuation allowance iswas still necessary.necessary and that an additional $1.8 million valuation allowance was necessary, as noted above.
The Company’s Bermuda captive insurance company incurred year-to-date losses due to the impact of COVID-19. Under the CARES Act, any loss sustained during 2020 is expectedpermitted to produce a minimal U.S. federal taxable loss in 2019. Thebe carried back for five years. Despite the current year-to-date losses, the captive is expected to generate positive pre-tax income in future periods to off-setoffset its deferred tax assets. The 2019 U.S. federal taxable loss cannot be carried back but can be carried forward indefinitely.
34
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company provides rehabilitation therapy services within the People’s Republic of China and Hong Kong. At September 30, 2019, these business operations do not comprise a significant portion of the Company’s overall operating results. Management does not anticipate these operationsexpects that its 2020 tax year will generate significant taxable incomelikely be impacted by certain provisions contained in the near term. The Company, through a wholly owned subsidiary, has made a minimal investment in the stockCARES Act, such as increased limits on interest expense deductions, acceleration of a company providing rehabilitation therapy services in the country of India. The operations currently do not have a material effect on the Company’s effectiverefunds related to alternative minimum tax rate.credits, payroll tax deferrals, and employee retention tax credits.
Exchange Rights and Tax Receivable Agreement
The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option. As a result of such exchanges, the Company’s membershipCompany increases its holding interest in FC-GEN would increase and its purchase price would be reflectedat the cost of the fair market value of the stock that was exchanged with the noncontrolling owners for their interest in its shareFC-GEN. The cost of the exchanges to the Company in excess of the tax basis of FC-GEN’s tangible and intangible assets. Any resulting increases inthe Company’s increased share of the assets of FC-GEN is adjusted to the tax basis are likely to increase tax depreciation and amortization deductions and, therefore, reduce the amount of income tax the Company would otherwise be required to pay in the future. Any such increase would also result in a decreased gain (or increased loss) on future dispositions of the affected assets. There were exchangesCompany’s increased share of 3,174,106the assets of FC-GEN, units and Class C shares in the nine months ended September 30, 2019 equatingpursuant to 3,174,661 Class A shares. The exchanges during the nine months ended September 30, 2019 resulted in a $14.3 million internal revenue code (IRC) Section 743(b), because of FC-GEN’s IRC Section 754 tax basis step-up in the tax deductible goodwill of FC-GEN. There were exchanges of 1,860,592 FC-GEN units and Class C shares in the nine months ended September 30, 2018 equating to 1,860,912 Class A shares.election. The exchanges during the ninesix months ended SeptemberJune 30, 20182020 and 2019 resulted in a $9.5 million IRC Section 754 tax basis step-up in the tax743(b) deductible goodwill of FC-GEN.$6.7 million and $13.7 million, respectively.
The Company is party to a tax receivable agreement (TRA) with the noncontrolling owners of FC-GEN. The agreement provides for the payment by the Company to the noncontrolling owners of FC-GEN of 90% of the cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes as a result of (i) the increases in tax basis attributable to the owners of FC-GEN and (ii) tax
33
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
benefits related to imputed interest deemed to be paid by the Company as a result of the TRA. Under the TRA, the benefits deemed realized by the Company as a result of the increase in tax basis attributable to the noncontrolling owners of FC-GEN generally will be computed by comparing the actual income tax liability of the Company to the amount of such taxes that the Company would have been required to pay had there been no such increase in tax basis.
Estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis and deductions, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including:such as the timing of exchanges, the price of shares of the Company’s Class A common stock at the time of the exchange, the amount and timing of the Company’s income, and future tax rates of jurisdictions in which the Company has tax liability.
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|
|
|
|
|
|
|
The TRA also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, FC-GEN (or its successor’s) obligations under the TRA would be based on certain assumptions defined in the TRA. As a result of these assumptions, FC-GEN could be required to make payments under the TRA that are greater or less than the specified percentage of the actual benefits realized by the Company that are subject to the TRA. In addition, if FC-GEN elects to terminate the TRA early, it would be required to make an early termination payment, which upfront payment may be made significantly in advance of the anticipated future tax benefits.
Payments generally are due under the TRA within a specified period of time following the filing of FC-GEN’s U.S. federal and state income tax return for the taxable year with respect to which the payment obligation arises. Payments under the TRA generally will be based on the tax reporting positions that FC-GEN will determine. Although FC-GEN does not expect the IRS to challenge the Company’s tax reporting positions, FC-GEN will not be reimbursed for any overpayments previously made under the TRA, but any overpayments will reduce future payments. As a result, in certain circumstances, payments could be made under the TRA in excess of the benefits that FC-GEN actually realizes in respect of the tax attributes subject to the TRA.
The term of the TRA generally will continue until all applicable tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA and make an early termination payment.
In certain circumstances (such as certain changes in control, the election of the Company to exercise its right to terminate the agreement and make an early termination payment or an IRS challenge to a tax basis increase) it is possible that cash payments under the TRA may exceed actual cash savings.
35
(11)Related Party TransactionsGENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(11) | Related Party Transactions |
The Company provides rehabilitation services to certain facilities owned and operated by a customer2 customers in which certain members of the Company’s board of directors, board observer, and board observersshareholders with greater than 5% of the Company’s Class A common stock beneficially own a majorityan ownership interest ininterest. In the aggregate. These
34
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
one significant customer, these services resulted in net revenues of $29.1$25.5 million and $88.9$51.3 million in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as compared to net revenues of $30.6$29.9 million and $96.2$59.8 million in the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The services resulted incustomer’s total net accounts receivable balances of $32.5balance was $31.0 million and $32.3$28.9 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. In addition,Further, the Company hasholds a note receivable forfrom this customer, which was derived from past due accounts receivable, in the amount of $56.3 million due from the related party customer.million. The Company has posted areserved $55.0 million reserve againston the note receivable and deems this reserve prudent given the delays in collection on account of this related party customer. Further, thebalance. The reserve represents the judgment of management and does not indicate a forgiveness of any amount of the outstanding accounts receivable owed by this related party customer. The Company is monitoring the financial condition of this customer and will adjust the reserve levels accordingly as new information about their outlook is available.
Certain members In the case of the Company’s board of directors and board observers indirectly beneficially hold ownership interests in FC Compassus LLC (Compassus) totaling less than 10%other customer, services began in the aggregate.third quarter of 2018. The Company is party to certain immaterial preferred provider and affiliation agreements with Compassus. Separately, the Company has a note receivable balancerecorded net revenues of $22.1 million from Compassus outstanding at September 30, 2019. The note, which is comprised of principal of $12.0$1.2 million and accrued interest, is associated with the Company’s sale of its hospice and home health operations to Compassus, which was completed during 2016.
Prior to September 20, 2019, certain members of the Company’s board of directors and board observers indirectly beneficially held ownership interests in Trident USA totaling less than 10% in the aggregate. Effective September 20, 2019, no members of the Company’s board of directors and board observers indirectly beneficially hold any ownership interests in Trident USA. The Company is party to mobile radiology and laboratory/diagnostic services agreements with Trident USA. Fees for these services were $2.4 million and $6.2$2.6 million in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $3.4net revenues of $1.8 million and $10.0$3.6 million in the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The customer’s total net accounts receivable balance was $1.2 million and $1.4 million at June 30, 2020 and December 31, 2019, respectively.
Certain subsidiaries of the Company are subject to a lease and a purchase option of 12 centers in New Hampshire and Florida from 12 separate limited liability companies affiliated with Next (the Next Landlord Entities). The lease was effective June 1, 2018 and the initial annualized rent to be paid iswas $13.0 million. The purchase option will become exercisable in the fifth lease year. In addition, certain subsidiaries of the Company are subject to a lease andincludes a purchase option of 15 centers in Pennsylvania, New Jersey, Connecticut, Massachusetts and West Virginia from 15 separate limited liability companies affiliated with the Next Landlord Entities. The Company owns a 46% membership interest in the Next Partnership. The lease was effective February 1, 2019 and the initial annualized rent to be paid is $19.5 million. The purchase optionthat is exercisable for a period of time in the fifth, sixth and seventh lease years. See Note 3 – “Significant Transactions and Events – Strategic Partnerships – Next Partnership.”2022. Certain members of the Company’s board of directors each directly or indirectly hold an ownership interest in the Next Landlord Entities totaling approximately 4% in the aggregate. These members have earned acquisition fees and may earn asset management fees and other fees with respect topaid from the Next Landlord Entities.
As of SeptemberJune 30, 2019,2020, Welltower held approximately 8.9% of the sharesgreater than 5% of the Company’s Class A Common Stock, representing approximately 5.8% of the voting power of the Company’s voting securities. common stock. The Company is party to a master lease with an affiliate of Welltower. The initial term of the master lease expires on January 31, 2037 and the Company has one eleven-year renewal option. Beginning January 1, 2019, annualoption. Annual rent escalators under the master lease were are 2.0%. During the three and ninesix months ended SeptemberJune 30, 2019,2020, the Company paid rent of approximately $17.9$17.7 million and $56.0$35.4 million, respectively, to Welltower.Welltower, as compared to $18.1 million and $38.2 million during the three and six months ended June 30, 2019, respectively. The Company holds options to purchase certain facilities subject to the master lease. At SeptemberJune 30, 2019,2020, the Company leased 4342 facilities from Welltower. The Company and certain of its affiliates are also party to certain debt instruments with Welltower. See Note 9 – “Long-Term Debt – Term Loan Agreements,” “Long-Term Debt – Real Estate Loans,”During the three and “Long-Term Debt – Notes Payable.”
In the third quarter of 2018,six months ended June 30, 2020, the Company began providing rehabilitationpaid interest to Welltower of $6.7 million and $12.2 million, respectively, as compared to $6.5 million and $11.8 million during the three and six months ended June 30, 2019, respectively.
The Company transitioned operational responsibility for 23 facilities in the states of California, Washington and Nevada to the NewGen Partnership. The Company does not hold a controlling financial interest in the NewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company provided $9.0 million in financing to the NewGen Partnership. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. The Company provides administrative and back office services to five health care centers operated by affiliates of NSPR Centers, LLC (NSpire). Certain members of the Company’s board of directors and board observers beneficially own in the aggregate a majority of the ownership interests in NSpire.facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company also subleases 6 facilities to the NewGen Partnership. Total revenues recorded net revenues of $1.7 million and $5.2 million, respectively, for these services provided to NSpire in the three and ninesix months ended SeptemberJune 30, 2019. The services resulted in net accounts receivable balances of $1.72020 were $6.3 million and $1.1$10.2 million, at September 30, 2019 and December 31, 2018, respectively.
3536
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) | Other Income |
On September 15, 2019, the Company entered into a consulting agreement with one of the Company’s board observers. The consulting agreement has a term of one year and compensation of approximately $0.6 million. Services provided include sourcing, negotiating and assisting with closing of transactions and financing.
(12)Other Income
In the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company completed multiple transactions, including the divestiture of numerous skilled nursing facilities and the termination or modification of certain lease agreements. See Note 3 – “Significant Transactions and Events.” These transactions resulted in a net (gain) loss recorded as other income in the consolidated statements of operations. The following table summarizes those net (gains) losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three months ended June 30, | | Six months ended June 30, | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||||||||
Gain on sale of owned assets |
| $ | (63,645) |
| $ | — |
| $ | (90,992) |
| $ | — | | $ | (23,215) | | $ | (27,345) | | $ | (97,795) | | $ | (27,345) |
Loss recognized for exit costs associated with divestiture of operations |
|
| 6,725 |
|
| 8,223 |
|
| 14,647 |
|
| 17,371 | | | 5,374 | | | 4,578 | | | 10,309 | | | 7,921 |
Gain on lease termination or modification |
|
| (74,891) |
|
| — |
|
| (95,796) |
|
| — | | | (26,259) | | | (646) | | | (41,446) | | | (20,906) |
Gain on lease terminations and amendments - unamortized straight-lining, favorable and unfavorable lease balances |
|
| — |
|
| (76) |
|
| — |
|
| (12,013) | ||||||||||||
Gain on lease terminations and amendments - unamortized financing lease and capital lease obligations |
|
| — |
|
| (31,817) |
|
| — |
|
| (53,027) | ||||||||||||
Loss on lease termination settlement |
|
| — |
|
| 3,463 |
|
| — |
|
| 3,463 | ||||||||||||
Loss associated with lease extensions or newly leased operations, net |
|
| — |
|
| — |
|
| — |
|
| 1,846 | ||||||||||||
Total other income |
| $ | (131,811) |
| $ | (20,207) |
| $ | (172,141) |
| $ | (42,360) | | $ | (44,100) | | $ | (23,413) | | $ | (128,932) | | $ | (40,330) |
(13)Asset Impairment Charges
(1) | The Company sold 3 and 13 owned skilled nursing facilities during the three and six months ended June 30, 2020, respectively. The Company sold 5 owned skilled nursing facilities during the three and six months ended June 30, 2019. The gain represents sale proceeds in excess of the carrying value of the assets sold. |
(2) | The Company divested operations of 19 and 43 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2020, respectively. The Company divested operations of 9 and 19 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2019, respectively. Upon divestiture, the Company recognizes exit costs for uncollectible accounts receivable resulting from a sale, the write-off of inventory balances assumed by the new operator, and other costs associated with the transition of operations. |
(3) | The Company amended numerous lease agreements in the three and six months ended June 30, 2020 and 2019. These transactions resulted in a combination of base rent reductions, annual escalator reductions, lease term extensions or reductions and facility terminations. Each lease amendment triggers a lease reassessment of the respective ROU asset and lease liability with an offsetting adjustment recorded to the consolidated statements of operations as other income or loss. In the three months ended June 30, 2020, the Company recognized a gain on the lease termination of 16 facilities totaling $26.2 million. In the six months ended June 30, 2020, the Company sold the leasehold rights of 13 facilities resulting in a gain of $10.7 million and terminated 24 divested facilities from various lease agreements resulting in a gain of $30.7 million. In the three months ended June 30, 2019, the Company amended the Welltower Master Lease to reflect the lease termination of 2 facilities resulting in a gain of $0.6 million.In the six months ended June 30, 2019, the Company amended the Welltower Master Lease multiple times to reflect the lease termination of 26 facilities resulting in a gain of $20.9 million… |
(13) | Asset Impairment Charges |
Long-Lived Assets with a Definite Useful Life
In each quarter, the Company’s long-lived assets with a definite useful life are tested for impairment at the lowest levels for which there are identifiable cash flows. The primary asset in each long-lived asset group is principally a building or ROU asset in the inpatient segment and customer relationship assets in the rehabilitation therapy services segement. The Company estimated the future net undiscounted cash flows expected to be generated from the use of the long-lived assets and then compared the estimated undiscounted cash flows to the carrying amount of the long-lived assets. The cash flow period was based on the remaining useful lives of the primary asset in each long-lived asset group, principally a building or ROU asset in the inpatient segment and customer relationship assets in the rehabilitation therapy services segment. During the three and nine months ended September 30, 2019, thegroup. The Company recognized asset impairment charges in the inpatient segment of $16.0$77.1 million and $16.9$86.8 million respectively. Duringduring the three and ninesix months ended SeptemberJune 30, 2018,2020, respectively, as compared to $0.9 million during the Company recognized impairment charges in the inpatient segment totaling $32.4 millionthree and $88.0 million, respectively.six months ended June 30, 2019.
(14) | Assets Held for Sale |
(14)Assets Held for Sale
In the normal course of business, the Company continually evaluates the performance of its operating units, with an emphasis on selling or closing underperforming or non-strategic assets. These assets are evaluated to determine whether they qualify as assets held for sale or discontinued operations. The assets and liabilities of a disposal group classified as held for sale shall be presented separately in the asset and liability sections, respectively, of the statement of financial position in the period in which they are identified only. Assets held for sale that qualify as discontinued operations are removed from the results of continuing operations. The results of operations in the current and prior year periods, along with any cost to exit such businesses in the year of discontinuation, are classified as discontinued operations in the consolidated statements of operations.
In the year ended December 31, 2018,At June 30, 2020, the Company identified a disposal group of sevenclassified 3 skilled nursing facilities operated by the Company in the statestates of Texas that qualifiedCalifornia, Nevada, and Rhode Island as assets held for sale. The facilities did not meet the criteria as discontinued operations. The Company is party
37
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
to a purchase and sale agreement,agreements, as amended, to sell the facilities for $20.1an aggregate $31.4 million. FourThe sale of the facilities are subject to Welltower Real Estate Loans and threeRhode Island facility was completed in July 2020.
At December 31, 2019, the Company classified 1 skilled nursing facility operated by the Company in the state of the facilities are subject to HUD-insured loans.California as held for sale. The disposal group doesfacility did not meet the criteria as a discontinued operation. The sale of
36
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
the real estate of the seven skilled nursing facilities is expected to close in 2019 and marks an exit from the inpatient business in Texas.
During the nine months ended September 30, 2019, the Company identified a disposal group of seven skilled nursing facilities and one assisted/senior living facility, operated by the Company in the state of California that qualified as assets held for sale. The Company is partywhich was subject to a purchase and sale agreement, as amended, to sell the facilities for $88.8 million. As of September 30, 2019, seven of the facilities were sold.HUD insured loan, was completed on February 26, 2020. See Note 3 – “Significant Transactions and Events – Divestiture of Non-Strategic Facilities – California Divestitures.Facilities.”The remaining facility is subject to a HUD-insured loan, so closing is subject to licensure and other regulatory approvals and is expected to occur in 2019 or early 2020. The disposal group does not meet the criteria as a discontinued operation.
In total, the Company has classified as assets held for sale in its consolidated balance sheets as of September 30, 2019 and December 31, 2018, the real property and other balances associated with eight facilities and seven facilities, respectively.
The following table sets forth the major classes of assets and liabilities included as part of the disposal groups as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
| ||||||
|
| September 30, 2019 |
| December 31, 2018 | ||||||||
| | | | | | | ||||||
|
| June 30, 2020 |
| December 31, 2019 | ||||||||
Current assets: |
|
|
|
|
|
|
| | |
| | |
Prepaid expenses |
| $ | 4,740 |
| $ | 3,375 | | $ | — | | $ | 1,171 |
Long-term assets: |
|
|
|
|
|
| |
| | |
| |
Property and equipment, net of accumulated depreciation of $5,840 and $3,640 at September 30, 2019 and December 31, 2018, respectively |
|
| 32,517 |
|
| 16,087 | ||||||
Property and equipment, net of accumulated depreciation of $5,079 and $2,201 at June 30, 2020 and December 31, 2019, respectively | |
| 15,992 | |
| 16,306 | ||||||
Total assets |
| $ | 37,257 |
| $ | 19,462 | | $ | 15,992 | | $ | 17,477 |
Current liabilities: |
|
|
|
|
|
| | | | | | |
Current installments of long-term debt |
| $ | 1,020 |
| $ | 639 | ||||||
Current portion of long-term debt | | $ | 394 | | $ | 368 | ||||||
Long-term liabilities: |
|
|
|
|
|
| |
| | |
| |
Long-term debt |
|
| 45,314 |
|
| 25,942 | |
| 24,043 | |
| 19,789 |
Total liabilities |
| $ | 46,334 |
| $ | 26,581 | | $ | 24,437 | | $ | 20,157 |
(15) | Commitments and Contingencies |
(15)Commitments and Contingencies
Loss Reserves For Certain Self-Insured Programs
General and Professional Liability and Workers’ Compensation
The Company self-insures for certain insurable risks, including general and professional liabilities and workers’ compensation liabilities through the use of self-insurance or retrospective and self-funded insurance policies and other hybrid policies, which vary among states in which the Company operates, including wholly owned captive insurance subsidiaries, to provide for potential liabilities for general and professional liability claims and workers’ compensation claims. PoliciesGeneral and professional liability policies are typically written for a duration of 12 months or less and are measured on a “claims made” basis. Regarding workers’ compensation, the Company self-insures to its deductible and purchases statutorily required insurance coverage in excess of its deductible. Excess insurance policies are typically written for a duration of 12 months or less and are measured on an “occurrence” basis. There is a risk that amounts funded by the Company’s self-insurance programs may not be sufficient to respond to all claims asserted under those programs. Insurance reserves represent estimates of future claims payments. This liability includes an estimate of the development of reported losses and losses incurred but not reported. Provisions for changes in insurance reserves are made in the period of the related coverage. The Company also considers amounts that may be recovered from excess insurance carriers in estimating the ultimate net liability for such risks.
The Company’s management employs its judgment and periodic independent actuarial analysis in determining the adequacy of certain self-insured workers’ compensation and general and professional liability obligations recorded as liabilities in the Company’s financial statements. The Company evaluates the adequacy of its self-insurance reserves on a semi-annual basis or more frequently when it is aware of changes to its incurred loss patterns that could impact the accuracy of those reserves. The methods of making such estimates and establishing the resulting reserves are reviewed periodically and are based on historical paid claims information and nationwide nursing home trends. The foundation for most of these methods is the Company’s actual historical reported and/or
37
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
paid loss data. Any adjustments resulting therefrom are reflected in current earnings. Claims are paid over varying periods, and future payments may be different than the estimated reserves.
The Company utilizes a combination of third-party administrators (TPAs), in-house adjusters, and legal counsel, along with systems designed to maintain and process claims to provide it with the data utilized in its assessments of reserve adequacy. Where
38
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
TPAs are utilized, they operate under the oversight of the Company’s in-house risk management and legal functions. These functions and systems ensure that the claims are properly administered so that the historical data is reliable for estimation purposes. Case reserves, which are approved by the Company’s legal and risk management departments, are determined based on an estimate of the ultimate settlement and/or ultimate loss exposure of individual claims.
The provision for general and professional liability risks totaled $7.4 million and $35.1 million for the three and six months ended June 30, 2020, respectively, as compared to $5.4 million and $26.8 million for the three and six months ended June 30, 2019, respectively. The reserves for general and professional liability, which are recorded on an undiscounted basis, were $384.6 million and $392.8 million as of June 30, 2020 and December 31, 2019, respectively.
The provision for workers’ compensation risks totaled $25.1 million and $37.6 million for the three and six months ended June 30, 2020, respectively, as compared to $13.4 million and $28.6 million for the three and six months ended June 30, 2019, respectively. The reserves for loss for workers’ compensation risks were $170.1 million and $160.5 million as of June 30, 2020 and December 31, 2019, respectively. These reserves are discounted based on actuarial estimates of claim payment patterns using a discount rate for the current policy year of 1.8%1.6%. The discount rates are based upon the risk-free rate for the appropriate duration for the respective policy year. The removal of discounting would have resulted in an increased reserve for workers’ compensation risks of $9.5 million and $8.3$12.0 million as of SeptemberJune 30, 20192020 and December 31, 2018, respectively. The reserves for general and professional liability are recorded on an undiscounted basis.
For the three months ended September 30, 2019, and 2018, the provision for general and professional liability risk totaled $16.1 million and $25.0, respectively. For the nine months ended September 30, 2019 and 2018, the provision for general and professional liability risk totaled $42.9 million and $79.2 million, respectively. The reduction in the provision for general and professional liability for the three and nine months ended September 30, 2019 is the result of favorable prior year claim development and lower current year loss exposures. The favorable development is due to the combination of the ongoing impact of tort reform, claim settlements, and other risk management initiatives. The reserves for general and professional liability were $393.2 million and $435.3 million as of September 30, 2019 and December 31, 2018, respectively.
For the three months ended September 30, 2019, and 2018, the provision for workers’ compensation risk totaled $14.0 million and $15.0 million, respectively. For the nine months ended September 30, 2019 and 2018, the provision for workers’ compensation risk totaled $42.7 million and $41.4 million, respectively. The reserves for workers’ compensation risks were $171.0 million and $168.3 million as of September 30, 2019 and December 31, 2018, respectively.
Health Insurance
The Company offers employees an option to participate in self-insured health plans. Health insurance claims are paid as they are submitted to the plans’ administrators. The Company maintains an accrual for claims that have been incurred but not yet reported to the plans’ administrators and therefore have not yet been paid. This accrual for incurred but not yet reported claims was $15.0$13.2 million and $16.6$15.1 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. The liability for the self-insured health plan is recorded in accrued compensation in the consolidated balance sheets. Although management believes that the amounts provided in the Company’s consolidated financial statements are adequate and reasonable, there can be no assurances that the ultimate liability for such self-insured risks will not exceed management’s estimates.
Select Subcommittee on the Coronavirus Crisis
A U.S. House of Representatives subcommittee, the Select Subcommittee on the Coronavirus Crisis, announced an investigation into the ongoing COVID-19 crisis in nursing homes, demanding information from both the federal government and five large operators, including the Company.
Legal Proceedings
The Company and certain of its subsidiaries are involved in or have received notice of various investigations, litigation and potential claims related to the COVID-19 pandemic, including inquiries from state and federal agencies; professional liability claims; and employment-related lawsuits and claims. Such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation. The applicability of such protection has not yet been adjudicated in any pending claim against the Company.
While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and investigations would have a material adverse effect on the results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may evolve based upon further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.
The Company and certain of its subsidiaries are involved in various litigation and regulatory investigations arising in the ordinary course of business. While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and regulatory investigations would have a material adverse effect on the
39
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may be affected by limited information (particularly in the early stages of government investigations). Accordingly, the Company’s assessment of materiality may change in the future based upon availability of discovery and further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.
From time to time the Company may enter into confidential discussions regarding the potential settlement of pending investigations or litigation. There are a variety of factors that influence the Company’s decisions to settle and the amount it may
38
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
choose to pay, including the strength of the Company’s case, developments in the investigation or litigation, the behavior of other interested parties, the demand on management time and the possible distraction of the Company’s employees associated with the case and/or the possibility that the Company may be subject to an injunction or other equitable remedy. The settlement of any pending investigation, litigation or other proceedings could require the Company to make substantial settlement payments and result in its incurring substantial costs.
(16)Fair ValueLease Guarantees
The Company is subject to lease guaranty agreements on 6 of Financial Instrumentsthe facilities leased by the NewGen Partnership, under which it guarantees all payments and performance obligations of the tenants. As of June 30, 2020, the 6 leases have undiscounted cash rent obligations remaining of $87.9 million.
(16) | Fair Value of Financial Instruments |
The Company’s financial instruments consist primarily of cash and cash equivalents, restricted cash and equivalents, restricted investments in marketable securities, accounts receivable, accounts payable and current and long-term debt.
The Company’s financial instruments, other than its accounts receivable and accounts payable, are spread across a number of large financial institutions whose credit ratings the Company monitors and believes do not currently carry a material risk of non-performance.
Recurring Fair Value Measures
Fair value is defined as an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as shown below. An instrument’s classification within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
| | | |
| Level 1 — |
| Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2 — |
| Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. |
| Level 3 — |
| Inputs that are unobservable for the asset or liability based on the Company’s own assumptions (about the assumptions market participants would use in pricing the asset or liability). |
40
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The tables below present the Company’s assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20192020 and December 31, 2018,2019, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|
|
|
|
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|
|
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|
|
| |||||||||||||
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||||||||||||||||
|
|
|
|
| Quoted Prices in |
|
|
|
| Significant |
| |||||||||||||||
|
|
|
|
| Active Markets for |
| Significant Other |
| Unobservable |
| ||||||||||||||||
|
| September 30, |
| Identical Assets |
| Observable Inputs |
| Inputs |
| |||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
| | Fair Value Measurements at Reporting Date Using | | |||||||||||||||||||||||
|
| | |
| Quoted Prices in | | | | Significant |
| ||||||||||||||||
| | | | | Active Markets for | | Significant Other | | Unobservable | | ||||||||||||||||
| | June 30, | | Identical Assets | | Observable Inputs | | Inputs | | |||||||||||||||||
Assets: |
| 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | 2020 | | (Level 1) |
| (Level 2) |
| (Level 3) | | ||||||||
Cash and cash equivalents |
| $ | 34,837 |
| $ | 34,837 |
| $ | — |
| $ | — |
| | $ | 251,651 | | $ | 251,651 | | $ | — | | $ | — | |
Restricted cash and equivalents |
|
| 93,232 |
|
| 93,232 |
|
| — |
|
| — |
| | | 113,725 | | | 113,725 | | | — | | | — | |
Restricted investments in marketable securities |
|
| 128,994 |
|
| 43,829 |
|
| 85,165 |
|
| — |
| | | 132,017 | | | 46,810 | | | 85,207 | | | — | |
Total |
| $ | 257,063 |
| $ | 171,898 |
| $ | 85,165 |
| $ | — |
| | $ | 497,393 | | $ | 412,186 | | $ | 85,207 | | $ | — | |
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| |||||||||||||
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||||||||||||||||
|
|
|
|
| Quoted Prices in |
|
|
|
| Significant |
| |||||||||||||||
|
|
|
|
| Active Markets for |
| Significant Other |
| Unobservable |
| ||||||||||||||||
|
| December 31, |
| Identical Assets |
| Observable Inputs |
| Inputs |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Fair Value Measurements at Reporting Date Using | | |||||||||||||||||||||||
|
| | |
| Quoted Prices in | | | | | Significant |
| |||||||||||||||
| | | | | Active Markets for | | Significant Other | | Unobservable | | ||||||||||||||||
| | December 31, | | Identical Assets | | Observable Inputs | | Inputs | | |||||||||||||||||
Assets: |
| 2018 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | 2019 | | (Level 1) |
| (Level 2) |
| (Level 3) | | ||||||||
Cash and cash equivalents |
| $ | 20,865 |
| $ | 20,865 |
| $ | — |
| $ | — |
| | $ | 12,097 | | $ | 12,097 | | $ | — | | $ | — | |
Restricted cash and equivalents |
|
| 121,411 |
|
| 121,411 |
|
| — |
|
| — |
| | | 113,709 | | | 113,709 | | | — | | | — | |
Restricted investments in marketable securities |
|
| 136,153 |
|
| 40,699 |
|
| 95,454 |
|
| — |
| | | 136,942 | | | 45,903 | | | 91,039 | | | — | |
Total |
| $ | 278,429 |
| $ | 182,975 |
| $ | 95,454 |
| $ | — |
| | $ | 262,748 | | $ | 171,709 | | $ | 91,039 | | $ | — | |
39
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
The Company places its cash and cash equivalents, restricted cash and equivalents and restricted investments in marketable securities in quality financial instruments and limits the amount invested in any one institution or in any one type of instrument. The Company has not experienced any significant losses on such investments. ManyCertain of the Company’s financial instruments have quoted prices but are traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fairly valued using other financial instruments, the parameters of which can be directly observed. These financial instruments have been reported as Level 2 measurements.
Debt Instruments
The table below shows the carrying amounts and estimated fair values, net of debt issuance costs and other non-cash debt discounts and premiums, of the Company’s primary long-term debt instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| September 30, 2019 |
| December 31, 2018 |
| |||||||||||||||||||||
|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | June 30, 2020 | | December 31, 2019 |
| |||||||||||||||||||||
|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| |||||||||||||||||
Asset based lending facilities |
| $ | 384,866 |
| $ | 384,866 |
| $ | 419,289 |
| $ | 419,289 |
| | $ | 277,745 | | $ | 277,745 | | $ | 412,346 | | $ | 412,346 | |
Term loan agreements |
|
| 193,380 |
|
| 193,380 |
|
| 184,652 |
|
| 184,652 |
| | | 203,630 | |
| 203,630 | |
| 196,714 | |
| 196,714 | |
Real estate loans |
|
| 266,003 |
|
| 266,003 |
|
| 307,690 |
|
| 307,690 |
| |
| 229,038 | |
| 229,038 | |
| 265,700 | |
| 265,700 | |
HUD insured loans |
|
| 117,699 |
|
| 117,699 |
|
| 181,762 |
|
| 180,950 |
| |
| 44,670 | |
| 44,670 | |
| 117,117 | |
| 117,117 | |
Notes payable |
|
| 78,157 |
|
| 78,157 |
|
| 81,398 |
|
| 81,398 |
| | | 110,211 | | | 110,211 | | | 116,952 | | | 116,952 | |
Mortgages and other secured debt (recourse) |
|
| 5,450 |
|
| 5,450 |
|
| 4,190 |
|
| 4,190 |
| |
| 6,925 | |
| 6,925 | |
| 6,369 | |
| 6,369 | |
Mortgages and other secured debt (non-recourse) |
|
| 497,142 |
|
| 497,142 |
|
| 26,483 |
|
| 26,483 |
| |
| 506,607 | |
| 506,607 | |
| 498,222 | |
| 498,222 | |
|
| $ | 1,542,697 |
| $ | 1,542,697 |
| $ | 1,205,464 |
| $ | 1,204,652 |
| |||||||||||||
| | $ | 1,378,826 | | $ | 1,378,826 | | $ | 1,613,420 | | $ | 1,613,420 | |
The fair value of debt is based upon market prices or is computed using discounted cash flow analysis, based on the Company’s estimated borrowing rate at the end of each fiscal period presented. The majority of the Company’s debt instruments contain variable rates that are based upon current market prices, or have been refinanced within the recent past. Consequently, management believes the carrying value of these debt instruments approximates fair value. The Company believes this approach approximates the exit price notion of fair value measurement and the inputs to the pricing models qualify as Level 2 measurements.
41
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Non-Recurring Fair Value Measures
The Company recently applied the fair value measurement principles to certain of its non-recurring nonfinancial assets in connection with an impairment test.test.
The following tables presentspresent the Company’s hierarchy for nonfinancial assets measured at fair value on a non-recurring basis (in thousands):
|
|
|
|
|
|
| ||||||
|
|
|
|
| Impairment Charges - | |||||||
|
| Carrying Value |
| Nine months ended | ||||||||
|
| September 30, 2019 |
| September 30, 2019 | ||||||||
| | | | | | | ||||||
|
|
| |
| Impairment Charges - | |||||||
| | Carrying Value | | Six months ended | ||||||||
|
| June 30, 2020 |
| June 30, 2020 | ||||||||
Assets: |
|
|
|
|
|
| | | | | | |
Property and equipment, net |
| $ | 957,218 |
| $ | 10,696 | | $ | 831,333 | | $ | 7,100 |
Finance lease right-of-use assets, net |
|
| 37,685 |
|
| — | |
| 32,956 | |
| 2,600 |
Operating lease right-of-use assets |
|
| 2,416,914 |
|
| 6,241 | |
| 2,134,233 | |
| 77,100 |
Intangible assets, net |
|
| 90,079 |
|
| — | |
| 84,826 | |
| — |
Goodwill |
|
| 85,642 |
|
| — | |
| 85,642 | |
| — |
|
|
|
|
|
|
| ||||||
|
|
|
|
| Impairment Charges - | |||||||
|
| Carrying Value |
| Nine months ended | ||||||||
|
| December 31, 2018 |
| September 30, 2018 | ||||||||
| | | | | | | ||||||
|
|
|
|
| Impairment Charges - | |||||||
| | Carrying Value | | Six months ended | ||||||||
| | December 31, 2019 | | June 30, 2019 | ||||||||
Assets: |
|
|
|
|
|
| | | | | | |
Property and equipment, net |
| $ | 2,887,554 |
| $ | 88,008 | | $ | 962,105 | | $ | 900 |
Finance lease right-of-use assets, net | |
| 37,097 | |
| — | ||||||
Operating lease right-of-use assets | |
| 2,399,505 | |
| — | ||||||
Intangible assets, net |
|
| 119,082 |
|
| 2,061 | |
| 87,446 | |
| — |
Goodwill |
|
| 85,642 |
|
| — | |
| 85,642 | |
| — |
40
GENESIS HEALTHCARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
The fair value allocation related to the Company’s acquisitions and the fair value of tangible and intangible assets related to the Company’s impairment analysis are determined using a discounted cash flow approach, which is a significant unobservable input (Level 3). The Company estimates the fair value using the income approach which(which is a discounted cash flow technique.technique). These valuation methods required management to make various assumptions, including, but not limited to, future profitability, cash flows and discount rates. The Company’s estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential.
Developing discounted future cash flows in applying the income approach requires the Company to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates of revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows requires the selection of risk premiums, which can materially affectimpact the present value of future cash flows.
The Company estimated the fair value of acquired tangible and intangible assets using discounted cash flow techniques that included an estimate of future cash flows, consistent with overall cash flow projections used to determine the purchase price paid to acquire the business, discounted at a rate of return that reflects the relative risk of the cash flows.
The Company believes the estimates and assumptions used in the valuation methods are reasonable.
(17)Subsequent Events
CCGEN Partnership
On October 1, 2019,July 2, 2020, the Company divested or exitedsold 1 facility to Cascade Capital Group, LLC (Cascade) for $26.1 million. Cascade also acquired 8 facilities from Second Spring that the operationsCompany operated under a master lease agreement. The Company will continue to operate all 9 of twothese facilities under a new master lease agreement with Cascade. The initial lease term is 10 years with 1 five-year renewal option available. Initial annual base rent will be $20.7 million. The Company holds a purchase option to acquire the 9 facilities exercisable between the fourth and fifth lease year for a fixed price of $251.6 million. The Company executed a promisory note agreeing to pay Cascade $20.3 million. The promissory note represents capital the Company will
42
GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
contribute into a planned partnership with Cascade (CCGen Partnership). Once the requisite regulatory approvals are received, the prommisory note will be converted into a 49% membership interest in the CCGen Partnership.
Divestiture of Non-Strategic Facilities
On July 6, 2020, the Company sold a skilled nursing facilitiesfacility in New Jersey and California, which in total,Rhode Island for $10.5 million. Proceeds were used to retire $5.5 million of MidCap Real Estate Loans. The facility generated annual revenues of $17.2$9.9 million and pre-tax net lossincome of $0.7$0.2 million. A lossThe facility was classified as held for sale as of June 30, 2020. See Note 14 – “Assets Held For Sale.”
The Company is currently assessing the full impact that these subsequent events will have on divestiture of the two operations totaling $0.7 million was recognized in the three and nine months ended September 30, 2019 and is included in other income in theits consolidated statements of operations.financial statements.
4143
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition as of the dates and for the periods presented and should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q. As used in this MD&A, the words “we,” “our,” “us” and the “Company,” and similar terms, refer collectively to Genesis Healthcare, Inc. and its wholly-owned subsidiaries, unless the context requires otherwise. This MD&A should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as the financial information and MD&A contained in our Annual Report (defined below).
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue,” “plans” or “prospect,” or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about the Company’s expectations and beliefs regarding its future operations and financial performance. Historical results may not indicate future performance. Our forward-looking statements are based on current expectations and projections about future events, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of the Company may differ materially from that expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, particularly in Item 1A, “Risk Factors,” which was filed with the SEC on March 18, 201916, 2020 (the Annual Report), and those discussed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, particularly in Item 1A “Risk Factors,” which was filed with the SEC on May 27, 2020 as well as others that are discussed in this Quarterly Report on Form 10-Q. These risks and uncertainties could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. Our business is also subject to the risks that affect many other companies, such as employment relations, natural disasters, general economic conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. Any forward-looking statements contained herein are made only as of the date of this report. The Company disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.
Business Overview
Genesis is a healthcare services holding company that, through its subsidiaries, owns and operates skilled nursing facilities, assisted living facilities and a rehabilitation therapy business. We have an administrative services company that provides a full complement of administrative and consultative services that allows our affiliated operators and third-party operators with whom we contract to better focus on delivery of healthcare services. At SeptemberJune 30, 2019,2020, we provided inpatient services through 384361 skilled nursing, senior/assisted living and behavioral health centers located in 2625 states. Revenues of our owned, leased and otherwise consolidated inpatient businesses constitute approximately 86%87% of our revenues.
We also provide a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by us, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 11%10% of our revenues.
We provide an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of our revenues.
Going Concern Considerations
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.
44
Our primary focus as the effects of COVID-19 began to impact the United States was the health and safety of our patients, residents, employees and their respective families. We implemented various measures to provide the safest possible environment within our sites of service during this pandemic and will continue to do so.
The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and our businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of our facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to have a material and adverse effect on our operations and supply chains, resulting in a reduction in our operating occupancy and related revenues, and an increase in our expenditures.
We performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of our plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
In completing our going concern assessment, we considered the uncertainties around the impact of COVID-19 on our future results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within 12 months following the date our financial statements were issued. Without giving effect to the prospect, timing and adequacy of future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.
In response to COVID-19, we have taken the following measures to improve our liquidity position:
● | We applied for and received government-sponsored financial relief related to the pandemic; |
● | We are utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022; |
● | While we vigorously advocate, for ourself and the skilled nursing industry, regarding the need for additional government sponsored funding, we continue to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19; |
● | We continue to implement measures to adapt successfully our operational model to function for the long-term in a COVID-19 environment; and |
● | We have pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity. |
These measures and other plans and initiatives of ours are designed to provide us with adequate liquidity to meet our obligations for at least the twelve-month period following the date our financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond our control or may not be available on terms acceptable to us, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if we receive additional funding support from government sources and/or are able to execute successfully all of our plans and initiatives, given the current challenging environment our operating plans and resulting cash flows along with our cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force us to seek reorganization under the U.S. Bankruptcy Code.
45
Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.
Significant Transactions and Events
COVID-19
The Centers for Disease Control and Prevention (CDC) has stated that older adults, such as our patients, are at a higher risk for serious illness and death from COVID-19 due to the prevalence of chronic medical conditions. In addition, our employees are at higher risk of contracting or spreading the disease due to the nature of the work environment when caring for patients. In an effort to prevent the introduction of COVID-19 into our facilities, and to help control further exposure to infections within communities, we have implemented policies restricting visitors at all of our facilities except for essential healthcare personnel and certain end-of-life situations. We also implemented policies for screening employees and anyone permitted to enter the building, implemented in-room only dining, activities programming and therapy. Upon confirmation of a positive COVID-19 exposure at a facility, our policy is to follow government guidance to minimize further exposure, including implementing personal protection protocols, restricting new admissions, and isolating patients. Due to the vulnerable nature of our patients, we expect many of these restrictions will continue at our facilities, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed. Notwithstanding these restrictions and our 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.
COVID-19 has materially and adversely affected our operations and supply chains, resulting in a reduction in our operating occupancy and related revenues, and an increase in our expenditures. Although the ultimate impact of the pandemic remains uncertain, the following disclosures serve to outline the estimated impact of COVID-19 on our business through June 30, 2020, as well as further developments through the filing date of this Quarterly Report on Form 10-Q, including the impact of emergency legislation, temporary changes to regulations and reimbursements issued in response to COVID-19.
Operations
Our first report of a positive case of COVID-19 in one of our facilities occurred on March 16, 2020. Since that time, 241 of the our 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 77% of the patient and resident positive COVID-19 cases in our facilities have occurred in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. Our facilities in these five states represent 45% of its total operating beds. Despite the unprecedented challenges facing our operations, we reported that of the 897 focused infection control surveys conducted during the pandemic by state and federal officials at our centers, 94% achieved a “zero deficiency rate.”
Our occupancy decreased in the early months of the pandemic following the efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of an increasing number of COVID-19 cases in their communities. As the pandemic progressed, occupancy was further decreased by, among other things, implementation of self-imposed admission holds in 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.
46
Net Revenues
Our net revenues for the three and six months ended June 30, 2020 were materially impacted by a significant decline in occupancy as a result of COVID-19. Our skilled nursing facility operating occupancy decreased from 88.2% for the three months ended March 31, 2020 to 77.0% for the three months ended June 30, 2020. However, the revenue lost from the decline in occupancy was partially offset by incremental state sponsored funding programs, changes in payor mix, and the enactment of COVID-19 relief programs, as discussed below. See “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue - COVID-19 Regulatory and Reimbursement Relief.”
After considering a commensurate reduction in operating expenses, we estimate lost revenue caused by COVID-19 decreased earnings by approximately $67.0 million and $74.0 million for the three and six months ended June 30, 2020, respectively. The impact of COVID-19 on our occupancy and net revenues for the remainder of 2020 will depend on future developments, which are highly uncertain and cannot be predicted, including the pace of recovery in occupancy, the future scope and severity of COVID-19 and the actions taken by public and private entities in response to the pandemic.
Operating Expenses
Our operating expenses for the three and six months ended June 30, 2020 were materially and adversely impacted due to 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 employees. During the three months and six months ended June 30, 2020, we estimate we incurred approximately $145.3 million and $152.5 million, respectively, of incremental operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from higher 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, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense.
We are not reasonably able to predict the total amount of costs we will incur related to the pandemic and to what extent such incremental costs can be reduced or will be borne by or offset by actions taken by public and private entities in response to the pandemic.
Strategic Partnerships
NextVantage Point Partnership
On January 31, 2019,10, 2020, Welltower, Inc. (Welltower) sold the real estate of 15 facilitiesone skilled nursing facility located in Massachusetts to the Vantage Point Partnership. The sale represents the final component of a transaction that occurred on September 12, 2019, whereby we acquired an approximately 30% membership interest in the partnership, which acquired the real estate partnership (Next Partnership), of which we acquired a 46% membership interest for $16.0 million. The remaining interest is held by Next Healthcare
42
(Next), a related party. See Note 11 – “Related Party Transactions.” We will continue to operate these18 facilities pursuant to a new master lease with the Next Partnership. The term of the master lease is 15 years with two five-year renewal options available. We will pay annual rent of $19.5 million, with no rent escalators for the first five years and an escalator of 2% beginning in the sixth lease year and thereafter. We also obtained a fixed price purchase option to acquire all of the real property of the facilities. The purchase option is exercisable between lease years five and seven, reducing in price each successive year down to a 10% premium over the original purchase price.
In accordance with U.S. GAAP, we have concluded the Next Partnership qualifies as a VIE and we are the primary beneficiary. As such, we have consolidated all of the accounts of the Next Partnership in the accompanying financial statements. The right-of-use (ROU) assets and lease obligations related to the Next Partnership lease agreement have been fully eliminated in our consolidated financial statements. The Next Partnership acquired 22 skilled nursing facilities for a purchase price of $252.5 million but immediately sold seven of these facilities for $79.0 million. The initial consolidation of the remaining 15 facilities resulted in property and equipment of $173.5 million, non-recourse debt of $165.7 million, net of debt issuance costs, and non-controlling interest of $18.5 million. We have not finalized the analysis of the consideration and purchase price allocation and will continue to review this during the measurement period. The impact of consolidation on the accompanying consolidated statement of operations was not material for the nine months ended September 30, 2019 apartpreviously leased from non-recurring transaction costs of $5.3 million.
Vantage Point Partnership
On September 12, 2019, Welltower and Second Spring Healthcare Investments (Second Spring) sold. As a result of the real estate of four and 14 facilities, respectively, to a real estate partnership (Vantage Point Partnership), in whichJanuary 10, 2020 transaction, we invested $37.5 million, consisting ofwill receive an equity investment of $3.7 million, for an approximate 30% membership interest, and a formation loan of $33.7 million. The remaining membership interest is held by Vantage Point Capital, LLC (Vantage Point) for an investment of $85.3 million consisting of an equity investment of $8.5 million and a formation loan of $76.8 million. In conjunction with the facility sales, we received aggregate annual rent creditscredit of approximately $30.3 million. We will continue to operate these facilities pursuant to$0.7 million from Welltower and recorded a new master lease with the Vantage Point Partnership. The termgain of $0.2 million as a result of the master lease is 15 years with two five-year renewal options available. We will pay annual rent of approximately $33.1 million, with no rent escalators for the first four years and an escalator of 2% beginning in the fifth lease year and thereafter. We also obtained a fixed price purchase option to acquire all of the real property of the facilities. The purchase option is exercisable during certain periods in fiscal years 2024 and 2025 for a 10% premium over the original purchase price. Further, Vantage Point holds a put option that would require us to acquire its membership interests in the Vantage Point Partnership. The put option becomes exercisable if we opt not to purchase the facilities or upon the occurrence of certain events of default.
In accordance with U.S. GAAP, we have concluded the Vantage Point Partnership qualifies as a VIE and we are the primary beneficiary. As such, we have consolidated all of the accounts of the Vantage Point Partnership in the accompanying financial statements. The ROU assets and lease obligations related to the Vantage Point Partnership lease agreement have been fully eliminated in our consolidated financial statements.termination. The Vantage Point Partnership acquired all 18this skilled nursing facilitiesfacility for a purchase price of $339.2$9.1 million. The initial consolidation of this additional skilled nursing facility primarily resulted in property and equipment of $339.2$9.1 million, non-recourse debt of $306.1$7.3 million net of debt issuance costs, and non-controlling interest of $8.5 million. We have not finalizedwith the analysisbalance of the consideration and purchase price allocation and will continue to review this duringsettled primarily with proceeds held in escrow from the measurement period. Other than transaction costs of $11.0 million, the impact of consolidation on the accompanying consolidated statement of operations was not material for the three months ended September 30, 2019.
In order to raise capital for12, 2019 closing. We operate all 19 facilities owned by the Vantage Point Partnership.
NewGen Partnership investment,
On February 1, 2020, we transitioned operational responsibility for 19 facilities in the states of California, Washington and Nevada to a partnership with New Generation Health, LLC (the NewGen Partnership). We sold the real propertyestate and operations of sevensix skilled nursing facilities and one senior/transferred the operations to 13 skilled nursing, behavioral health and assisted living facility located in Georgia, New Jersey, Virginia,facilities for $78.7 million. Net transaction proceeds were used by us to repay indebtedness, including prepayment penalties, of $33.7 million, fund our initial 50% equity contribution and Marylandworking capital requirement of $14.9 million, and provide financing to affiliatesthe partnership of Vantage Point$9.0 million. We recorded a gain on sale of assets and transition of leased facilities of $58.8 million and loss on early extinguishment of debt of $1.0 million. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for an aggregate purchase price of $91.8 million, using the majorityday-to-day operations of the proceedsfacilities. We will continue to acquire ourprovide administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services
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agreements. We do not hold a controlling financial interest in the Vantage PointNewGen Partnership. As such, we have applied the equity method of accounting for our 50% interest in the NewGen Partnership. Our investment in the NewGen Partnership, $20.5 million, is included within other long-term assets in the consolidated balance sheet as of June 30, 2020.
On May 15, 2020, we transitioned operational responsibility for four additional leased facilities in the state of California to the NewGen Partnership. The four facilities generated annual revenues of $55.0 million and repay indebtedness. The operationspre-tax loss of seven$0.5 million. Subsequent to May 15, 2020, we have applied the equity method of accounting for our 50% interest in these operations.
CCGEN Partnership
On July 2, 2020, we sold one facility to Cascade Capital Group, LLC (Cascade) for $26.1 million. Cascade also acquired eight facilities from Second Spring that we operated under a master lease agreement. We will continue to operate all nine of these facilities were also divested. Threeunder a new master lease agreement with Cascade. The initial lease term is 10 years with one five-year renewal option available. Initial annual base rent will be $20.7 million. We hold a purchase option to acquire the nine facilities exercisable between the fourth and fifth lease year for a fixed price of $251.6 million. We executed a promisory note agreeing to pay Cascade $20.3 million. The promissory note represents capital we will contribute into a planned partnership with Cascade (CCGen Partnership). Once the facilities were subject torequisite regulatory approvals are received, the prommisory note will be converted into a 49% membership interest in the CCGen Partnership.
Divestiture of Non-Strategic Facilities
On January 31, 2020, Omega Healthcare Investors, Inc. (Omega) sold the real estate loans and two were subject to HUD insured loans. See Note 7 – “Property and Equipment” andNote 9 – “Long-Term Debt – Real Estate Loans” and “Long-Term Debt – HUD Insured Loans.” We also divested the operations of an additional leasedone skilled nursing facility located in Georgia, markingMassachusetts. We leased the facility under a master lease agreement but closed the facility on July 1, 2019. The sale resulted in a gain on the lease termination of $0.2 million and an exit from the inpatient businessannual rent credit of $0.4 million.
On February 1, 2020, we sold two owned skilled nursing facilities in this state.North Carolina and one owned skilled nursing facility in Maryland for $61.8 million. Proceeds were used to retire $29.1 million of U.S. Department of Housing and Urban Development (HUD) financed debt. The divestedthree facilities had aggregate annualgenerated revenues of $84.1$38.7 million and annual pre-tax net income of $2.6$0.5 million. The divestiturestransactions resulted in a gain on sale of $24.5 million and loss on early extinguishment of debt of $2.6 million.
On February 26, 2020, we completed the sale of one owned HUD-insured skilled nursing facility in California for $20.8 million. The facility had been classified as an aggregateasset held for sale as of December 31, 2019. Proceeds were used to retire $20.5 million of HUD financed debt. The facility generated revenues of $14.0 million and pre-tax loss of $0.1 million. See Note 14 – “Assets Held for Sale.” The transactions resulted in a gain on sale of $58.2$3.0 million and loss on early extinguishment of debt of $0.4 million.
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Divestiture of Non-Strategic Facilities
California Divestitures
During the second quarter of 2019,On March 4, 2020, we sold the real property and divested the operations of fiveone leased assisted/senior living facility in Montana. The lease termination resulted in an annual rent credit of $0.7 million. The facility generated revenues of $2.5 million and pre-tax income of $0.1 million.
On April 1, 2020, we sold two owned skilled nursing facilities in CaliforniaNew Jersey and one owned skilled nursing facility in Maryland for a sale price$45.8 million. Proceeds were used to retire $15.2 million of $56.5 million. Loan repaymentsHUD financed debt and $7.5 million of $41.8 million were paid on the facilities at closing. See Note 7 – “Property and Equipment” and Note 9 – “Long-Term Debt –MidCap Real Estate Loans” and “Long-Term Debt – HUD Insured Loans.” We incurred prepayment penalties and other closing costs of $2.4 million at settlement. The three facilities generated annual revenues of $53.0$35.8 million and pre-tax net income of $1.6 million.was de minimis. The divestituretransactions resulted in a gain on sale of $25.0$21.8 million and loss on early extinguishment of debt of $1.4 million. We also
On April 1, 2020, we divested the operations and terminated the lease of one behavioral health center located in California upon the lease’s expiration in the second quarter of 2019. The center generated annual revenues of $3.1 million and pre-tax net loss of $0.3 million. The divestiture resulted in a loss of $0.1 million.
During the third quarter of 2019, we sold the real property and divested the operations of one additionaltwo skilled nursing facility and one assisted/senior living facilityfacilties in California for an aggregate sale price of $11.5 million. Loan repayments of $9.6 million were paid on the facilities at closing. See Note 7 – “Property and Equipment” and Note 9 – “Long-Term Debt – HUD Insured Loans.” Montana. The two facilities generated annual revenues of $10.4$18.8 million and pre-tax net income of less than $0.1$0.4 million. The divestiturelease termination resulted in an aggregate gainannual rent credit of $1.0$1.1 million.
Other Divestitures
During the first quarter of 2019,On April 20, 2020, we divested the operations of nine facilities located in New Jersey and Ohio that were subject to the master lease with Welltower (the Welltower Master Lease). The nine divested facilities had aggregate annual revenues of $90.2 million and annual pre-tax net loss of $6.0 million. We recognized a loss on exit reserves of $3.3 million. We also completed the closure of one facility located in Ohio. The facility generated annual revenues of $7.7 million and pre-tax net loss of $1.6 million. The closure resulted in a loss of $0.2 million.
During the second quarter of 2019, we divested the operations of three leased skilled nursing facilities. Two of the facilities were located in Connecticut and subject to the Welltower Master Lease, while the third was located in Ohio. The facilities generated annual revenues of $24.7 million and pre-tax net loss of $2.9 million. The divestitures resulted in a loss of $1.1 million.
During the third quarter of 2019, we divested the operations of 11 leasedfour skilled nursing facilities in Florida and completed the closure of a twelfth facility. Nine of thetwo skilled nursing facilities were located in Ohio, marking an exit from the inpatient business in this state, while the remaining three were located in Massachusetts, Utah, and Idaho. Four of the facilitiesMaryland that were subject to a master lease with Omega Healthcare Investors, Inc. (Omega), threeSecond Spring. The six facilities generated annual revenues of which$62.0 million and pre-tax loss of $2.3 million. The lease termination resulted in a net annual rent credit of $8.5 million.
On June 1, 2020, we divested the operations of four leased skilled nursing facilities in Idaho that were removed from thesubject to a master lease resultingwith Omega. The four facilities generated annual revenues of $19.5 million and pre-tax income of $0.1 million. The lease termination resulted in an annual rent credit of approximately $1.9$1.4 million.
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On July 6, 2020, we sold a skilled nursing facility in Rhode Island for $10.5 million. Proceeds were used to retire $5.5 million with the fourth, the closedof MidCap Real Estate Loans. The facility remaining subject to the lease. The twelve facilities generated annual revenues of $75.6$9.9 million and pre-tax lossincome of $4.6 million. The divestitures resulted in a loss of $1.9 million.
Acquisitions
On June 1, 2019, we acquired the operations of one skilled nursing facility in New Mexico. The new facility has 80 licensed beds and generates approximate annual net revenue of $3.4$0.2 million. The facility is leased from Omega and iswas classified as an operating lease. The facility’s 2019 pre-tax net income is anticipated to be de minimis.
Lease Transactions
Welltower
During the first quarter, we amended the Welltower Master Lease several times to reflect the lease terminationheld for sale as of 24 facilities, including the 15 facilities sold and now leased from the Next Partnership. As a result of the lease termination on the 24 facilities, we received annual rent credits of approximately $23.4 million. A lease modification analysis was performed and the remaining 49 facilities subject to the master lease were reclassified from finance leases to operating leases. Finance lease ROU assets and obligations of $61.5 million and $130.2 million, respectively, were written off. On a net basis, operating lease ROU assets and obligations of $159.8 million and $111.3 million, respectively, were written down, resulting in a gain of $20.3 million.
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During the second quarter of 2019, we amended the Welltower Master Lease to reflect the lease termination of two facilities and received annual rent credits of $0.6 million. Operating lease ROU assets and lease obligations of $5.1 million and $5.6 million, respectively, were written off, resulting in a gain of $0.5 million.
During the third quarter of 2019, we amended the Welltower Master Lease to reflect the lease termination of four facilities and received annual rent credits of $1.9 million. Operating lease ROU assets and lease obligations of $102.0 million and $74.4 million, respectively, were written off, resulting in a gain of $27.6 million.
Omega
During the third quarter, we amended our master lease with Omega to reflect the lease termination of three facilities subject to the lease and received annual rent credits of $1.9 million. In conjunction with the lease termination, finance lease ROU assets and lease obligations of $10.1 million and $16.8 million, respectively, were written off. Additionally, for those facilities remaining under the master lease, we reassessed the likelihood of exercising our renewal options and concluded that it no longer met the reasonably certain threshold. Consequently, the remaining facilities subject to the master lease were reclassified from finance leases to operating leases and the corresponding ROU assets and liabilities were reduced by $164.6 million and $181.3 million, respectively. The lease termination and remeasurement resulted in an aggregate gain of $23.4 million.
Second Spring
During the third quarter, we amended our master lease with Second Spring to reflect the lease termination of 14 facilities subject to the lease and received annual rent credits of $28.4 million. In conjunction with the lease termination, finance lease ROU assets and lease obligations of $5.9 million and $8.8 million, respectively, were written off and operating lease ROU assets and lease obligations of $202.7 million and $205.4 million, respectively, were written off. Additionally, for those facilities remaining under the master lease, we reassessed the likelihood of exercising its renewal options and concluded that it no longer met the reasonably certain threshold. Consequently, the remaining facilities subject to the master lease were reclassified from finance leases to operating leases and the corresponding ROU assets and liabilities were increased by $54.4 million and $33.3 million, respectively. The lease termination and remeasurement resulted in an aggregate gain of $26.9 million.
Other
During the first quarter of 2019, we amended a master lease agreement for 19 skilled nursing facilities. The amendment extended the lease term by five years through October 31, 2026, removed our option to purchase certain facilities under the lease and adjusted certain financial covenants. We had previously determined that the renewal option period was not reasonably certain of exercise. Upon execution of the amendment, the operating lease ROU assets and obligations were remeasured, resulting in an increase of $77.2 million to both operating lease ROU assets and obligations.
During the third quarter of 2019, we amended a master lease agreement to reflect the lease termination of six facilities subject to the lease. In conjunction with the lease termination, operating lease ROU assets of $4.9 million were written off, resulting in a loss of $4.9 million.
Gains and losses associated with transactions, such as divestitures, acquisitions and lease transactions, are included in other income in the consolidated statements of operations.June 30, 2020. See Note 1214 – “Other IncomeAssets Held For Sale.”
Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue
Medicare Shared Savings ProgramCOVID-19 Regulatory and Reimbursement Relief
On March 18, 2020, the Families First Coronavirus Response Act was enacted, which provided a temporary 6.2% increase to each qualifying state’s Medicaid Federal Medical Assistance Percentage (FMAP) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter of the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services (HHS), including any extensions or termination, which currently expires October 25, 2020. As part of the industry continuesrequirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporarily increased FMAP is claimed. Further, a number of additional states in which we operate have implemented incremental FMAP related reimbursement provisions and other forms of support to migrate from fee-for-service to pay-for-value, our unique capabilitiesassist providers. For the three and six months ended June 30, 2020, we recognized as net revenues in the areaconsolidated statements of physician services has given us a competitive advantageoperations of $40.2 million and $45.7 million, respectively, of additional FMAP reimbursement relief. We cannot predict the extent to which further FMAP funding programs will be implemented in advancing participationthe states in value-based programs. which we operate.
In 2016, Genesis Healthcare ACO, LLC beganfurther response to the pandemic, on March 27, 2020, the President signed into law the bipartisan CARES Act. The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Nursing facility operators participating in the Medicare Shared Savings Program (MSSP) through our Genesis Physician Services (GPS) division. GPS providers make more than half a million visits annually to both short- and long-stay patients, helping them improve overall healthcare quality and reduce unnecessary hospital readmissions. GPS is the only captive SNFist company in the industry and the only post-acute sponsored accountable care organization (ACO) in the United States.
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2018 Performance Year
During 2018, we managed approximately 6,400 Medicare fee for service beneficiaries under MSSP with annualized Medicare spend of more than $155.0 million. In 2018, the MSSP required us to save at least 3.2% of the total Medicare spend under management to share in up to 50% of the savings with the Centers for Medicare and Medicaid Services (CMS), while assuming no downside risk. In August 2019,may be eligible to receive compensation for costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. The secretary of the HHS has broad authority and discretion to determine payment eligibility and the amount of such payments.
Further, the Paycheck Protection Program and Health Care Enhancement Act was signed into law on April 24, 2020. Congress appropriated $75.0 billion for healthcare providers through the Paycheck Protection Program and Health Care Enhancement Act. HHS is distributing this money through the Provider Relief Fund, and these payments do not need to be repaid. While we were informedbelieve that the relief funds received by CMS thatus to date under the CARES Act have primarily benefited Medicare providers as opposed to Medicaid providers and have provided limited support to our rehabilitation therapy services segment, we reachedcannot predict the minimum savings rate set by CMS required for MSSP gain share. Asextent to which any of our businesses will receive any such additional funds, and to what extent the financial impact of receiving such funds would effectively offset any shortfall in funds received to date as compared to the escalation in our costs and lost revenue as a result in the third quarter of 2019, we recognized MSSP income of approximately $1.7 million, net of expenses and provider distributions.
2019 Performance Year
During the first six months of 2019, we continued to operate under our first MSSP agreement with CMS. Effective July 1, 2019 through December 31, 2024, we entered into our second MSSP agreement with CMS. Under this agreement, we can share in up to 75% of the savingsbroad implications of the pandemic.
We were impacted by certain provisions of the CARES Act, as summarized below.
● | Temporary suspension of certain patient coverage criteria and documentation and care requirements. The CARES Act and a series of temporary waivers and guidance issued by the Centers for Medicare and Medicaid Services (CMS) suspend various Medicare patient coverage criteria as well as certain documentation and care requirements. These accommodations are intended to ensure patients have access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. We believe these regulatory actions could contribute to an increase in census volumes and skilled mix that may not otherwise have occurred, but cannot provide any assurance as to the impact on our businesses. |
● | Relief Funds. During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through the Company’s Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. Our relief funds payments are accounted for as government grants, which are recognized on a systematic and rational basis as other income once there is reasonable assurance that the applicable terms and conditions required to retain the funds will be met. We recognize grants once both of the following |
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conditions are met: (1) we are able to comply with the relevant conditions of the grant and (2) the grant will be received. The terms and conditions note that the relief funds received can be used for health care related expenses or lost revenues that are attributable to COVID-19. For the three and six months ended June 30, 2020, we recognized the entire amount of relief grants received within the “Federal stimulus – COVID-19 other income” caption in the consolidated statements of operations. |
On June 9, 2020 as part of its ongoing efforts to provide financial relief to healthcare providers impacted by COVID-19, HHS announced the Phase 2 general distribution to Medicaid, Medicaid managed care, Children's Health Insurance Program (CHIP) and dental providers. HHS anticipates distributing approximately $15.0 billion to eligible providers that participate in state Medicaid and CHIP programs that did not receive a payment from the Provider Relief Fund General Allocation (Phase 1). Eligible applicants will receive 2% of Gross Revenues from Patient Care for calendar years 2017, 2018 or 2019 as selected by applicant. Applications have been submitted for four assisted living facilities which meet the eligibility criteria.
On July 22, 2020, President Trump announced that an additional $5.0 billion of the Provider Relief Program funds will be allocated to Medicare-certified long term care facilities and state veterans’ homes (nursing homes), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. On August 7, 2020, HHS provided additional details indicating the $5 billion distribution will provide approximately $2.5 billion in upfront funding to support increased testing, staffing and personal protective equipment needs. There will also be funding available to providers who establish COVID-19 isolation facilities. At this time, we have insufficient information to estimate the amount or timing of such distributions.
● | Medicare Accelerated and Advanced Payment Program. During the three months ended June 30, 2020, we applied for and received $156.8 million of advanced Medicare payments. The payments represent interest-free advances on future services to be provided to Medicare patients between August 2020 and November 2020. The advanced Medicare payments represent contract liabilities that are reported within accrued expenses in the consolidated balance sheet as of June 30, 2020. The $156.8 million in contract liabilities will be subsequently recouped over time as revenue is recognized for claims submitted for services provided to Medicare patients between August 2020 and November 2020. If there is a remaining balance owed after this period, we are required to repay the remaining advance. |
● | Payroll Tax Deferral. Under the CARES Act, we have elected to defer payment, on an interest free basis, of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. We have presented the balance of deferred payroll taxes, $35.7 million, within other long term liabilities in the consolidated balance sheet as of June 30, 2020. We estimate the total payroll tax deferral through December 31, 2020 to approximate $90 million. |
● | Temporary Suspension of Medicare Sequestration. The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee for service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements have incurred this mandatory reduction and it will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period of May 1, 2020 through December 31, 2020. During the three and six months ended June 30, 2020, the suspension of sequestration resulted in net revenues of approximately $2.0 million. We estimate the total increase in our revenue due to the suspension of sequestration for 2020 to be approximately $8.0 million. |
● | Employee Retention Tax Credit. The employer payroll tax credit provisions of the CARES Act grant eligible companies a credit against applicable payroll taxes for each calendar quarter in an amount equal to 50% of qualified wages with a maximum credit of $5,000 per employee. The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Qualified employees are those who are not providing services as a result of such orders of a government authority. The impact of the employee retention tax credit program was not material for the three and six months ended June 30, 2020. |
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COVID-19 Testing Requirements
On July 14, 2020, HHS announced rapid point-of-care diagnostic testing devices will be distributed to nursing homes to assist in testing. CMS will also begin requiring, rather than recommending, that all nursing homes in states with CMS, buta 5% positivity rate or greater test all nursing home staff each week. It is hoped that this new staff testing requirement will enhance efforts to keep the virus from entering and spreading through nursing homes by identifying asymptomatic carriers. At this time, we are also at risk for 40% ofcannot predict the extent to which any increase in cost above the defined targets, which is further capped at 15% of our annualized benchmark costs under management. businesses will receive any such additional funds to reimburse us for this additional testing, and to what extent the financial impact of receiving such funds would effectively offset any shortfall in funds resulting from the performance of this testing.
With nearly four years
COVID-19 Reporting Requirements
On April 19, 2020, CMS announced new regulatory requirements that will require skilled nursing homes to report cases of participation under MSSP, we have gained valuable experience driving better outcomes and improved quality, managing episodic cost and developing in-house capabilities to predict program performance. Based upon the data available to us with respectCOVID-19 directly to the 2019 performance year, we recognized $4.7 millionCDC. This information must be reported in accordance with existing privacy regulations and statues. In addition, skilled nursing homes are required to inform residents, their families and representatives of estimated MSSP income, netCOVID-19 cases in their facilities; this notification is required to take place by 5 PM the next calendar day following the occurrence of expensesa single confirmed infection of COVID-19, or of three or more residents or staff with new-onset of respiratory symptoms that occur within 72 hours of one another. Further, the CDC will be providing a reporting tool to skilled nursing homes that will support Federal efforts to collect nationwide data to assist in COVID-19 surveillance and provider distributions,response. There could be civil monetary penalties for not meeting these reporting requirements.
On April 30, 2020, CMS announced that it would be convening an independent commission to conduct comprehensive assessments of nursing home responses to the period January 1, 2019 to September 30, 2019.COVID-19 pandemic. The final reconciliationcommission will consist of skilled nursing facility residents, families, resident/patient advocates, industry experts, clinicians, medical ethicists, administrators, academicians, infection control and settlement of the 2019 performance yearprevention professionals, state and local authorities, and other experts. The commission is expected to develop recommendations specific to (1) protecting residents from COVID-19 and improving the responsiveness of care delivery; (2) strengthening regulations to enable rapid and effective identification and mitigation of COVID-19 transmissions in nursing homes; and (3) enhancing enforcement strategies to improve compliance with infection control policies. Recommendations from the commission will be announced bydelivered to CMS and may be incorporated into the regulatory framework applicable to nursing facilities.
Provider Relief Fund Reporting Requirement
On July 20, 2020, HHS informed Provider Relief Fund (PRF) recipients that received one or more payments exceeding $10,000 in the third quarteraggregate from the PRF of 2020. We will continuethe timing of future reporting requirements. The reports shall be in such form, with such content, as specified by the Secretary of HHS in future program instructions directed to closely monitor and evaluate our estimated performance under the 2019 performance yearall recipients and will adjust our estimated MSSP income accordingly. provide directions on reporting obligations. The reporting system will become available to recipients for reporting on October 1, 2020. All recipients must report within 45 days of the end of calendar year 2020 on their expenditures through the period ending December 31, 2020. Recipients who have expended funds in full prior to December 31, 2020 may submit a single final report at any time during the window that begins October 1, 2020, but no later than February 15, 2021. Recipients with funds unexpended after December 31, 2020, must submit a second and final report no later than July 31, 2021.
Five-Star Quality Rating System
Provider Relief Fund Single Audit Requirement
In April 2019, CMS implemented changes
HHS indicates that PRF payments will be subject to the Five-Star Quality Rating System. These changes include revisions to the inspectionOffice of Management and Budget Single Audit process, adjustmentwhich requires an organization-wide audit of staffing rating thresholds, including increased emphasis on registered nurse staffing, implementationan entity that expends $750,000 or more of new quality measures and changes in the scoring of various quality measures. CMS added two new quality measures: long-stay emergency department transfers and long-stay hospitalizations. CMS also established separate quality ratings for short-stay and long-stay residents and will now provide separate short-stay and long-stay ratings in addition to the overall quality measure rating.
federal assistance. The impactobjective of the most recent five star rating methodologySingle Audit is expectedto provide assurance that federal funds are used appropriately. PRF payments are required to be significant across the industry. CMS estimates the changes will cause 47%included in determining if a recipient that is a commercial (for profit) organization is required to have an audit if reported annual total federal funds received are equal to or above $750,000. Audit reports of all nursing centerscommercial entities are to lose stars in their "Quality" ratings. In addition, 33% will lose stars in their "Staffing" ratings, and 36% will lose stars in their "Overall" ratings. Accordingly, despite no significant changes in our staffing levels or qualitybe submitted directly to HHS, Audit Resolution Division.
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Final Rule - Medicare Annual Market Basket for Fiscal Year 2021
Centers for Medicare and Medicaid Services Final Rules
On July 30, 2019,31, 2020, CMS releasedissued a final rule for skilled nursing facilities prospective payment services (SNF PPS) for fiscal year 2020 Medicare Part A services. The final rule made revisions from the proposed rule for the Patient Driven Payment Model (PDPM)providing a net market basket increase and additional modifications to the skilled nursing facility Quality Reporting Program (QRP). PDPM will replace the existing case-mix classification methodology, the Resource Utilization Groups, Version IV (RUG-IV) at the beginning of fiscal year 2020. The final rule addresses specific issue areas, discussed below, related to the fiscal year 2020 requirements.
Skilled Nursing Facility Medicare Part A Payment Rates
The final rule provides for a net SNF PPS market basket update factor for skilled nursing facilities of 2.4% effective2.2 percent beginning October 1, 2019.2020. This ismarket basket update reflects a full market basket updateincrease of 2.8% with2.2 percentage points, no forecast error incurredcorrection and a 0.4%no multifactor productivity adjustment.
Patient-Driven Payment Model (PDPM)
CMS has finalizedestimates that the implementation of PDPM in a budget neutral manner and has updated the unadjusted federal per diems and related case mix groups (CMGs) and related Case Mix Indices (CMIs). To achieve budget neutrality, the unadjusted PDPM CMIs were multiplied by 1.46 so the total estimated payments under PDPMnet market basket update would be equal to the total actual payments under RUG-IV.
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CMS has updated the PDPM payment year by refreshing fiscal year 2017 data with fiscal year 2018 data and applying a standardization multiplier and a budget neutrality multiplier for each of the PDPM rate components.
Under CMIs, there are differences between RUG-IV and PDPM in terms of patient classifications and billing. CMS has reflected these differences by modifying the PDPM case mixed adjusted federal rates and associated indexes through the application of a CMI multiplier for each PDPM Group.
PDPM utilizes a combination of six components to determine the amount of the per diem payment. Five of the components are case-mix adjusted, meaning they are intended to cover the utilization ofincrease Medicare skilled nursing facility resources that vary according to patient characteristics. These components are as follows: physical therapy (PT), occupational therapy (OT), speech-language pathology (SLP), non-therapy ancillary (NTA) services, and nursing. The sixth component is non-case-mix adjusted, meaning it is intended to cover those skilled nursing facility resources that do not varypayments by patient. The PT, OT, and NTA components are also subject to a variable adjustment factor that serves to adjust the per diem payment over the course of the patient’s stay. PT and OT services have variable per diem adjustments beginning on the 21st day of the Medicare stay and further adjusted every seven days thereafter. NTA services have variable per diem adjustments beginning on the 4th day of the Medicare stay. PDPM utilizes patient specific, data-driven characteristics to classify patients into payment groups within each of the six components, which are used as the basis for the payment amount.
Group Therapy Under PDPM
CMS has revised the definition of skilled nursing facility group therapy so that it aligns with the group therapy definition usedapproximately $750 million in the inpatient rehabilitation facility setting effective October 1, 2019. The new definition defines group therapy in the skilled nursing facility Medicare Part A setting as a qualified rehabilitation therapist or therapy assistant treating two to six patients at the same time who are performing the same or similar activities.
PDPM also revises the limits on group and concurrent therapy. RUG-IV included a 25% limit per discipline (PT, OT, SLP), for group therapy and did not impose a limit for concurrent therapy. PDPM includes a 25% limit per discipline (PT, OT, SLP), for both combined group and concurrent therapy.
Skilled Nursing Facility - Quality Measures Reporting Program (SNF QRP):
The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) imposed new data reporting requirements for certain Post-Acute-Care (PAC) providers. The IMPACT Act requires that each skilled nursing facility submit their quality measures data. Beginning with fiscal year 2018, and each subsequent year, if a skilled nursing facility does not submit required quality data, their payment rates for the year are reduced by 2.0% for that fiscal year. Application of the 2.0% reduction may result in payment rates for a fiscal year being less than the preceding fiscal year. In addition, reporting-based reductions to the market basket increase factor will not be cumulative; they will only apply for the fiscal year involved. A skilled nursing facility will receive a notification letter from its Medicare administrator contractor if it was non-compliant with the Quality Reporting Program reporting requirements and is subject to the payment reduction.2021.
Current performance measures mandated for the SNF QRP for fiscal year 2019 were established in the final SNF PPS rules adopted on August 4, 2017 (FY 2018 SNF PPS Rules). The final rules summarize these requirements, finalize adoption of a new measure removal factor for previously adopted SNF QRP measures, review the quality measures currently adopted for the fiscal year 2020 SNF QRP and finalize the intention to specify new measures to be adopted no later than October 1, 2019 for the fiscal year 2020 SNF QRP. CMS has finalized the decision to adopt two Transfer of Health Information quality measures and standardized patient assessment data elements that skilled nursing facilities would be required to begin reporting with respect to admissions and discharges that occur on or after October 1, 2020. The SNF QRP applies to freestanding skilled nursing facilities, skilled nursing facilities affiliated with acute care facilities, and all non-critical access hospital swing-bed rural hospitals. Final fiscal year 2019 SNF PPS rules (FY 2019 SNF PPS Rules) specified that skilled nursing facilities that do not meet the SNF QRP requirements for a program year will receive a notice of non-compliance. Lastly, CMS has finalized the proposal to publicly display the quality measure, Drug Regimen Review Conducted With Follow-Up for Identified Issues- PAC SNF QRP.Proposed Rule – Physician Fee Schedule
Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program
Under the SNF-VBP Program, CMS began to withhold 2.0% of Medicare payments starting October 1, 2018, to fund the
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incentive payment pool and will redistribute 60% of the withheld payments back to skilled nursing facilities. All skilled nursing facilities will receive an incentive multiplier to apply to each of their RUG rates for the fiscal year that will provide an incentive payment, a full RUG payment, or a reduction. All skilled nursing facilities receive two scores, one for achievement and the other for improvement of their hospital readmission measure over the designated reporting period. All skilled nursing facilities are ranked from high to low based on the higher of the two scores. The highest ranked facilities will receive the highest payments, and the lowest ranked facilities will receive payments that are less than what they otherwise would have received without the SNF-VBP Program. Of the 2.0% withheld under the SNF-VBP Program, we expect to retain 1.3% based on performance for the period of October 1, 2018 to September 30, 2019.
In the fiscal year 2020 final rule, most elements of the program remain the same. The final rule reiterates the decision to transition to fiscal year data from calendar year data for baseline and performance year calculations for FY 2020 SNF VBP Program, estimation of 2022 benchmarks and finalized the proposal to rename the future skilled nursing facility readmission measure without actually changing the measurement itself. Two changes that were proposed for the fiscal year 2020 program that have been finalized under the final rule include (1) the change of the phase one correction process to a 30-day deadline and (2) the suppression of data for facilities with fewer than 25 eligible stays for a baseline or performance period. CMS has finalized the following related to the VBP Score Reports: if a skilled nursing facility has fewer than 25 eligible stays during the baseline period for a program year, CMS would not display the baseline Risk Standard Readmission Rate (RSRR) or improvement score, though CMS would still display the performance period RSRR, achievement score and total performance score if the skilled nursing facility had sufficient data during the performance period; (2) if a skilled nursing facility has fewer than 25 eligible stays during the performance period for a program year and receives an assigned skilled nursing facility performance score as a result, CMS would report the assigned skilled nursing facility performance score and would not display the performance period RSRR, the achievement score or improvement score; and (3) if a skilled nursing facility has zero eligible cases during the performance period for a program year, CMS would not display any information for that skilled nursing facility.
Decisions Regarding Skilled Nursing Facility Payment
In addition to setting the payment rules for skilled nursing facility services using the SNF-VBP Program, CMS annually adjusts its payment rules for other acute and post-acute service providers including hospitals and home health agencies using a similar SNF-VBP Program. It is important to understand the Medicare program and that its reimbursement rates and rules are subject to frequent change. These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which Medicare reimburses us for our services. Budget pressures often lead the federal government to reduce or place limits on reimbursement rates under Medicare. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins.
Requirements of Participation
On October 4, 2016,August 3, 2020, CMS published a final rule to make major changes to improve the care and safety of residents in long-term care facilities that participate in the Medicare and Medicaid programs. The policies in this final rule are targeted at reducing unnecessary hospital readmissions and infections, improving the quality of care, and strengthening safety measures for residents in these facilities.
Changes finalized in this rule include:
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48
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The regulations became effective on November 28, 2016. CMS is implementing the regulations using a phased approach. The phases are as follows:
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Some regulatory sections are divided among more than one phase, and some of the more extensive new requirements have been placed in later phases to allow facilities time to successfully prepare to achieve compliance.
The total costs associated with implementing the new regulations have been absorbed into our general operating costs. Failure to comply with the new regulations could result in exclusion from the Medicare and Medicaid programs and have an adverse impact on our business, financial condition or results of operations. We have substantially complied with the regulations imposed through the Phase 1 and Phase 2 implementation.
Proposed Rule
On July 16, 2019, CMS announcedissued a proposed rule to remove requirements of participation identifiedrevise payment policies under the Medicare physician fee schedule and makes other policy changes related to Medicare Part B payment on or after January 1, 2021. The revised payment policies, as unnecessary, obsolete, or excessively burdensomeproposed, would reduce our reimbursement rate for Medicare Part B therapy services and physician services revenues by an estimated $20 million to $25 million on long-term care facilities. The rule is partan annualized basis. We are evaluating options to mitigate the impact of the agency’s five-part approach to ensuring a high-quality long-term care facility system that focuses on strengthening requirements for such facilities, working with states to enforce statutory and regulatory requirements, increasing transparency of facility performance, and promoting improved health outcomes for facility residents.rate reductions should the rule be finalized as proposed.
This proposed rule would increase facilities’ ability to devote their resources to improving resident care. This would be achieved by the elimination or reduction in the hours and resources that clinicians and providers spend on obsolete and redundant requirements that could impede or divert resources away from the provision of high-quality resident care. Many of the proposed provisions would simplify and/or streamline the Medicare health and safety standards long-term care facilities must meet in order to serve their residents. Importantly, in identifying opportunities for reducing burden, CMS would maintain resident health and safety standards.
In order to give facilities enough time to respond to these proposed changes, CMS also proposes to delay the implementation of certain Phase 3 quality assurance and performance improvement program and compliance and ethics related requirements that are directly impacted by the proposed changes in the regulation to one year following the effective date of this proposed rule, if finalized, to avoid confusion and promote transparency.
Key Performance and Valuation Measures
In order to assess our financial performance between periods, we evaluate certain key performance and valuation measures for each of our operating segments separately for the periods presented. Results and statistics may not be comparable period-over-period due to the impact of acquisitions and dispositions, or the impact of new and lost therapy contracts.
The following is a glossary of terms for some of our key performance and valuation measures and non-GAAPNon-GAAP measures:
“Actual Patient Days” is defined as the number of residents occupying a bed (or units in the case of an assisted/senior living center) for one qualifying day in that period.
“Adjusted EBITDA” is defined as EBITDA adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental performance measure. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAPNon-GAAP measures.
49
“Adjusted EBITDAR” is defined as EBITDAR adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental valuation measure. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAPNon-GAAP measures.
“Available Patient Days” is defined as the number of available beds (or units in the case of an assisted/senior living center) multiplied by the number of days in that period.
“Average Daily Census” or “ADC” is the number of residents occupying a bed (or units in the case of an assisted/senior living center) over a period of time, divided by the number of calendar days in that period.
“EBITDA”“EBITDA” is defined as EBITDAR less lease expense. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAPNon-GAAP measures.
“EBITDAR” is defined as net income or loss attributable to Genesis Healthcare, Inc. before net income or loss of non-controlling interests, net income or loss from discontinued operations, depreciation and amortization expense, interest expense and lease expense. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAPNon-GAAP measures.
“Insurance” refers collectively to commercial insurance and managed care payor sources, including Medicare Advantage beneficiaries, but does not include managed care payors serving Medicaid residents, which are included in the Medicaid category.
“Occupancy Percentage” is measured as the percentage of Actual Patient Days relative to the Available Patient Days.
“Skilled Mix” refers collectively to Medicare and Insurance payor sources.
52
“Therapist Efficiency” is computed by dividing billable labor minutes related to patient care and customer value added services by total labor minutes for the period.
Key performance and valuation measures for our businesses are set forth below, followed by a comparison and analysis of our financial results:
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| Three months ended September 30, |
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| Nine months ended September 30, | |||||||||||||||||||||
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| 2019 |
| 2018 |
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| 2019 |
| 2018 | |||||||||||||||||
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| | Three months ended June 30, |
| | Six months ended June 30, | |||||||||||||||||||||
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| 2020 |
| 2019 |
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| 2020 |
| 2019 | |||||||||||||||||
Financial Results (in thousands) |
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| | | | | | | | | | | | | |
Financial Performance Measures: |
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| | | | | | | | | | | | |
Net revenues (GAAP) |
| $ | 1,123,705 |
| $ | 1,217,271 |
|
| $ | 3,430,397 |
| $ | 3,790,703 |
| $ | 956,259 | | $ | 1,145,052 | | | $ | 2,048,509 | | $ | 2,306,692 |
Net income (loss) attributable to Genesis Healthcare, Inc. (GAAP) |
|
| 46,097 |
|
| (58,128) |
|
|
| 26,015 |
|
| (166,278) | |||||||||||||
Net (loss) income attributable to Genesis Healthcare, Inc. (GAAP) |
| | (22,005) | | | (4,819) | | | | 11,503 | | | (20,082) | |||||||||||||
EBITDA (Non-GAAP) |
|
| 130,360 |
|
| 75,612 |
|
|
| 267,138 |
|
| 251,533 |
|
| 35,950 | |
| 72,098 | | |
| 136,080 | |
| 136,778 |
Adjusted EBITDA (Non-GAAP) |
|
| 34,683 |
|
| 113,520 |
|
|
| 150,552 |
|
| 362,281 |
|
| 59,382 | |
| 61,433 | | |
| 102,241 | |
| 115,869 |
Valuation Measure: |
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|
|
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|
|
|
|
| | | | | | | | | | | | |
Adjusted EBITDAR (Non-GAAP) |
| $ | 134,701 |
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|
|
| $ | 439,217 |
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|
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| $ | 155,777 | |
| | | | $ | 296,656 | | | |
5053
INPATIENT SEGMENT:
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| Three months ended September 30, |
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| Nine months ended September 30, |
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| 2019 |
| 2018 |
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| 2019 |
| 2018 |
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| | Three months ended June 30, |
| | Six months ended June 30, | | ||||||||||||||||||||||
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| 2020 |
| 2019 |
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| 2020 |
| 2019 |
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Occupancy Statistics - Inpatient |
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|
|
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| | | | | | | | | | | | | | |
Available licensed beds in service at end of period |
|
| 43,769 |
|
| 51,634 |
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|
| 43,769 |
|
| 51,634 |
|
|
| 38,193 |
|
| 46,353 | |
|
| 38,193 |
|
| 46,353 |
|
Available operating beds in service at end of period |
|
| 41,912 |
|
| 49,553 |
|
|
| 41,912 |
|
| 49,553 |
|
|
| 36,742 |
|
| 44,408 | |
|
| 36,742 |
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| 44,408 |
|
Available patient days based on licensed beds |
|
| 4,026,748 |
|
| 4,750,328 |
|
|
| 11,939,391 |
|
| 14,096,082 |
|
|
| 3,475,715 |
|
| 4,213,333 | |
|
| 6,951,985 |
|
| 8,378,173 |
|
Available patient days based on operating beds |
|
| 3,856,927 |
|
| 4,555,745 |
|
|
| 11,437,918 |
|
| 13,522,878 |
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|
| 3,340,756 |
|
| 4,036,602 | |
|
| 6,669,380 |
|
| 8,027,459 |
|
Actual patient days |
|
| 3,367,241 |
|
| 3,838,454 |
|
|
| 10,011,691 |
|
| 11,424,759 |
|
|
| 2,571,092 |
|
| 3,496,046 | |
|
| 5,524,820 |
|
| 6,977,410 |
|
Occupancy percentage - licensed beds |
|
| 83.6 | % |
| 80.8 | % |
|
| 83.9 | % |
| 81.0 | % |
|
| 74.0 | % |
| 83.0 | % |
|
| 79.5 | % |
| 83.3 | % |
Occupancy percentage - operating beds |
|
| 87.3 | % |
| 84.3 | % |
|
| 87.5 | % |
| 84.5 | % |
|
| 77.0 | % |
| 86.6 | % |
|
| 82.8 | % |
| 86.9 | % |
Skilled mix |
|
| 17.6 | % |
| 17.9 | % |
|
| 18.4 | % |
| 19.1 | % |
|
| 15.8 | % |
| 18.2 | % |
|
| 17.2 | % |
| 18.6 | % |
Average daily census |
|
| 36,600 |
|
| 41,722 |
|
|
| 36,673 |
|
| 41,849 |
|
|
| 28,254 |
|
| 38,418 | |
|
| 30,356 |
|
| 38,549 |
|
Revenue per patient day (skilled nursing facilities) |
|
|
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|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Medicare Part A |
| $ | 523 |
| $ | 522 |
|
| $ | 525 |
| $ | 525 |
|
| $ | 579 |
| $ | 528 | |
| $ | 570 |
| $ | 526 |
|
Insurance |
|
| 465 |
|
| 456 |
|
|
| 460 |
|
| 458 |
| |
| 508 | |
| 454 | | |
| 492 | |
| 456 | |
Private and other |
|
| 368 |
|
| 337 |
|
|
| 367 |
|
| 336 |
| |
| 368 | |
| 364 | | |
| 370 | |
| 361 | |
Medicaid |
|
| 233 |
|
| 223 |
|
|
| 232 |
|
| 223 |
| |
| 268 | |
| 231 | | |
| 256 | |
| 231 | |
Medicaid (net of provider taxes) |
|
| 213 |
|
| 204 |
|
|
| 213 |
|
| 204 |
| |
| 245 | |
| 211 | | |
| 234 | |
| 211 | |
Weighted average (net of provider taxes) |
| $ | 277 |
| $ | 270 |
|
| $ | 279 |
| $ | 274 |
|
| $ | 308 |
| $ | 277 | |
| $ | 300 |
| $ | 278 |
|
Patient days by payor (skilled nursing facilities) |
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|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Medicare |
|
| 319,656 |
|
| 378,968 |
|
|
| 999,535 |
|
| 1,203,234 |
| |
| 249,909 | |
| 344,916 | | |
| 541,783 | |
| 704,651 | |
Insurance |
|
| 239,060 |
|
| 273,200 |
|
|
| 735,736 |
|
| 854,666 |
| |
| 128,995 | |
| 252,272 | | |
| 345,264 | |
| 518,739 | |
Total skilled mix days |
|
| 558,716 |
|
| 652,168 |
|
|
| 1,735,271 |
|
| 2,057,900 |
| |
| 378,904 | |
| 597,188 | | |
| 887,047 | |
| 1,223,390 | |
Private and other |
|
| 188,157 |
|
| 222,890 |
|
|
| 545,584 |
|
| 670,908 |
| |
| 147,565 | |
| 193,603 | | |
| 322,623 | |
| 379,838 | |
Medicaid |
|
| 2,425,249 |
|
| 2,758,817 |
|
|
| 7,150,761 |
|
| 8,098,284 |
| |
| 1,876,518 | |
| 2,505,024 | | |
| 3,970,177 | |
| 4,975,038 | |
Total Days |
|
| 3,172,122 |
|
| 3,633,875 |
|
|
| 9,431,616 |
|
| 10,827,092 |
| |
| 2,402,987 | |
| 3,295,815 | | |
| 5,179,847 | |
| 6,578,266 | |
Patient days as a percentage of total patient days (skilled nursing facilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Medicare |
|
| 10.1 | % |
| 10.4 | % |
|
| 10.6 | % |
| 11.1 | % | |
| 10.4 | % |
| 10.5 | % |
|
| 10.5 | % |
| 10.7 | % |
Insurance |
|
| 7.5 | % |
| 7.5 | % |
|
| 7.8 | % |
| 8.0 | % | |
| 5.4 | % |
| 7.7 | % |
|
| 6.7 | % |
| 7.9 | % |
Skilled mix |
|
| 17.6 | % |
| 17.9 | % |
|
| 18.4 | % |
| 19.1 | % | |
| 15.8 | % |
| 18.2 | % | |
| 17.2 | % |
| 18.6 | % |
Private and other |
|
| 5.9 | % |
| 6.1 | % |
|
| 5.8 | % |
| 6.2 | % | |
| 6.1 | % |
| 5.9 | % |
|
| 6.2 | % |
| 5.8 | % |
Medicaid |
|
| 76.5 | % |
| 76.0 | % |
|
| 75.8 | % |
| 74.7 | % | |
| 78.1 | % |
| 75.9 | % |
|
| 76.6 | % |
| 75.6 | % |
Total |
|
| 100.0 | % |
| 100.0 | % |
|
| 100.0 | % |
| 100.0 | % | |
| 100.0 | % |
| 100.0 | % | |
| 100.0 | % |
| 100.0 | % |
Facilities at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Skilled nursing facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Leased |
|
| 280 |
|
| 337 |
|
|
| 280 |
|
| 337 |
| |
| 249 | |
| 311 | | |
| 249 | |
| 311 | |
Owned |
|
| 30 |
|
| 44 |
|
|
| 30 |
|
| 44 |
| |
| 16 | |
| 37 | | |
| 16 | |
| 37 | |
Joint Venture |
|
| 38 |
|
| 5 |
|
|
| 38 |
|
| 5 |
| |
| 61 | |
| 20 | | |
| 61 | |
| 20 | |
Managed * |
|
| 12 |
|
| 33 |
|
|
| 12 |
|
| 33 |
| ||||||||||||||
Managed | |
| 12 | |
| 12 | | |
| 12 | |
| 12 | | ||||||||||||||
Total skilled nursing facilities |
|
| 360 |
|
| 419 |
|
|
| 360 |
|
| 419 |
| |
| 338 | |
| 380 | | |
| 338 | |
| 380 | |
Total licensed beds |
|
| 43,712 |
|
| 51,543 |
|
|
| 43,712 |
|
| 51,543 |
| |
| 40,655 | |
| 46,108 | | |
| 40,655 | |
| 46,108 | |
Assisted/Senior living facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
Leased |
|
| 21 |
|
| 19 |
|
|
| 21 |
|
| 19 |
| |
| 19 | |
| 21 | | |
| 19 | |
| 21 | |
Owned |
|
| 1 |
|
| 4 |
|
|
| 1 |
|
| 4 |
| |
| 1 | |
| 3 | | |
| 1 | |
| 3 | |
Joint Venture |
|
| 1 |
|
| 1 |
|
|
| 1 |
|
| 1 |
| |
| 2 | |
| 1 | | |
| 2 | |
| 1 | |
Managed |
|
| 1 |
|
| 2 |
|
|
| 1 |
|
| 2 |
| |
| 1 | |
| 2 | | |
| 1 | |
| 2 | |
Total assisted/senior living facilities |
|
| 24 |
|
| 26 |
|
|
| 24 |
|
| 26 |
| |
| 23 | |
| 27 | | |
| 23 | |
| 27 | |
Total licensed beds |
|
| 1,941 |
|
| 2,209 |
|
|
| 1,941 |
|
| 2,209 |
| |
| 1,829 | |
| 2,233 | | |
| 1,829 | |
| 2,233 | |
Total facilities |
|
| 384 |
|
| 445 |
|
|
| 384 |
|
| 445 |
| |
| 361 | |
| 407 | | |
| 361 | |
| 407 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
Total Jointly Owned and Managed— (Unconsolidated) |
|
| 13 |
|
| 15 |
|
|
| 13 |
|
| 15 |
| |
| 36 | |
| 14 | | |
| 36 | |
| 14 | |
REHABILITATION THERAPY SEGMENT**:
| | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | Six months ended June 30, | | ||||||||
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| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
Revenue mix %: |
| | | | | | | | | | | | | |
Company-operated |
| | 34 | % | | 36 | % | | | 34 | % | | 36 | % |
Non-affiliated and affiliated third party |
| | 66 | % | | 64 | % | | | 66 | % | | 64 | % |
Sites of service (at end of period) |
| | 1,119 | | | 1,203 | | | | 1,119 | | | 1,203 | |
Revenue per site |
| $ | 137,460 | | $ | 153,373 | | | $ | 280,319 | | $ | 302,642 | |
Therapist efficiency % |
|
| 65 | % |
| 68 | % | |
| 68 | % |
| 68 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||
|
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||||
Revenue mix %: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
| 35.3 | % |
| 37.2 | % |
|
| 35.9 | % |
| 37.1 | % |
Non-affiliated |
|
| 64.7 | % |
| 62.8 | % |
|
| 64.1 | % |
| 62.9 | % |
Sites of service (at end of period) |
|
| 1,185 |
|
| 1,327 |
|
|
| 1,185 |
|
| 1,327 |
|
Revenue per site |
| $ | 149,357 |
| $ | 152,273 |
|
| $ | 459,411 |
| $ | 476,010 |
|
Therapist efficiency % |
|
| 70.5 | % |
| 67.5 | % |
|
| 71.6 | % |
| 67.8 | % |
* 2018 includes 20 facilities located in Texas for which the real estate was owned by Genesis
** Excludes respiratory therapy services.
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Reasons for Non-GAAP Financial Disclosure
The following discussion includes references to Adjusted EBITDAR, EBITDA and Adjusted EBITDA, which are non-GAAP financial measures (collectively, Non-GAAP Financial Measures). A Non-GAAP Financial Measure is a numerical measure of a registrant’s historical or future financial performance, financial position and cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. We have provided reconciliations of the Non-GAAP Financial Measures to the most directly comparable GAAP financial measures.
We believe the presentation of Non-GAAP Financial Measures provides useful information to investors regarding our results of operations because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business. By excluding certain expenses and other items that may not be indicative of our core business operating results, these Non-GAAP Financial Measures:
●allow investors to evaluate our performance from management’s perspective, resulting in greater transparency with respect to supplemental information used by us in our financial and operational decision making;
●facilitate comparisons with prior periods and reflect the principal basis on which management monitors financial performance;
●facilitate comparisons with the performance of others in the post-acute industry;
●provide better transparency as to the measures used by management and others who follow our industry to estimate the value of our company; and
●allow investors to view our financial performance and condition in the same manner as our significant landlords and lenders require us to report financial information to them in connection with determining our compliance with financial covenants.
We use two Non-GAAP Financial Measures primarily (EBITDA and Adjusted EBITDA) as performance measures and believe that the GAAP financial measure most directly comparable to themthese two Non-GAAP Financial Measures is net income (loss) attributable to Genesis Healthcare, Inc. We use one Non-GAAP Financial Measure (Adjusted EBITDAR) as a valuation measure.measure and believe that the GAAP financial measure most directly comparable to this Non-GAAP Financial Measures is net income (loss) attributable to Genesis Healthcare, Inc. We use Non-GAAP Financial Measures to assess the value of our business and the performance of our operating businesses, as well as the employees responsible for operating such businesses. Non-GAAP Financial Measures are useful in this regard because they do not include such costs as interest expense, income taxes and depreciation and amortization expense which may vary from business unit to business unit depending upon such factors as the method used to finance the original purchase of the business unit or the tax law in the state in which a business unit operates. By excluding such factors when measuring financial performance, many of which are outside of the control of the employees responsible for operating our business units, we are better able to evaluate value and the operating performance of the business unit and the employees responsible for business unit performance. Consequently, we use these Non-GAAP Financial Measures to determine the extent to which our employees have met performance goals, and therefore the extent to which they may or may not be eligible for incentive compensation awards.
We also use Non-GAAP Financial Measures in our annual budget process. We believe these Non-GAAP Financial Measures facilitate internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. The presentation of these Non-GAAP Financial Measures is consistent with our past practice and we believe these measures further enable investors and analysts to compare current non-GAAPNon-GAAP measures with non-GAAPNon-GAAP measures presented in prior periods.
Although we use Non-GAAP Financial Measures as financial measures to assess value and the performance of our business, the use of these Non-GAAP Financial Measures is limited because they do not consider certain material costs necessary to operate the business. These costs include our lease expense (only in the case of Adjusted EBITDAR), the cost to service debt, the depreciation
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and amortization associated with our long-lived assets, losses on early extinguishment of debt, transaction costs, long-lived asset
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impairment charges, federal and state income tax expenses, the operating results of our discontinueddivested businesses and the income or loss attributable to noncontrolling interests. Because Non-GAAP Financial Measures do not consider these important elements of our cost structure, a user of our financial information who relies on Non-GAAP Financial Measures as the only measures of our performance could draw an incomplete or misleading conclusion regarding our financial performance. Consequently, a user of our financial information should consider net income (loss) attributable to Genesis Healthcare, Inc. as an important measure of our financial performance because it provides the most complete measure of our performance.
Other companies may define Non-GAAP Financial Measures differently and, as a result, our Non-GAAP Financial Measures may not be directly comparable to those of other companies. Non-GAAP Financial Measures do not represent net income (loss), as defined by GAAP. Non-GAAP Financial Measures should be considered in addition to, not a substitute for, or superior to, GAAP Financial Measures.
We use the following Non-GAAP Financial Measures that we believe are useful to investors as key valuation and operating performance measures:
EBITDA
We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (interest expense) and our asset base (depreciation and amortization expense) from our operating results. In addition, financial covenants in our debt agreements use EBITDA as a measure of compliance.
Adjustments to EBITDA
We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with GAAP net loss attributable to Genesis Healthcare, Inc., and EBITDA, is beneficial to an investor’s complete understanding of our operating performance. In addition, such adjustments are substantially similar to the adjustments to EBITDA provided for in the financial covenant calculations contained in our lease and debt agreements.
We adjust EBITDA for the following items:
● | Loss (gain) on early extinguishment of debt. We recognize gains or losses on the early extinguishment of debt when we refinance our debt prior to its original term, requiring us to write-off any unamortized deferred financing fees. We exclude the effect of gains or losses recorded on the early extinguishment of debt because we believe these gains and losses do not accurately reflect the underlying performance of our operating businesses. |
● | Other income. We primarily use this income statement caption to capture gains and losses on the sale or disposition of assets. We exclude the effect of such gains and losses because we believe they do not accurately reflect the underlying performance of our operating businesses. |
● | Transaction costs. In connection with our restructuring, acquisition and disposition transactions, we incur costs consisting of investment banking, legal, transaction-based compensation and other professional service costs. We exclude restructuring, acquisition and disposition related transaction costs expensed during the period because we believe these costs do not reflect the underlying performance of our operating businesses. |
● | Long-lived asset impairments. We exclude non-cash long-lived asset impairment charges because we believe including them does not reflect the ongoing performance of our operating businesses. Additionally, such impairment charges represent accelerated depreciation expense, and depreciation expense is also excluded from EBITDA. |
● | Severance and restructuring. We exclude severance costs from planned reduction in force initiatives associated with restructuring activities intended to adjust our cost structure in response to changes in the business environment. We |
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believe these costs do not reflect the underlying performance of our operating businesses. We do not exclude severance costs that are not associated with such restructuring activities. |
● | (Income) loss of newly acquired, constructed or divested businesses. The acquisition and construction of new businesses is an element of our growth strategy. Many of the businesses we acquire have a history of operating losses and continue to generate operating losses in the months that follow our acquisition. Newly constructed or developed businesses also generate losses while in their start-up phase. We view these losses as both temporary and an expected component of our long-term investment in the new venture. We adjust these losses when computing Adjusted EBITDA in order to better analyze the performance of our mature ongoing business. The activities of such businesses are adjusted when computing Adjusted EBITDA until such time as a new business generates positive Adjusted EBITDA. The divestiture of underperforming or non-strategic facilities is also an element of our business strategy. We eliminate the results of divested facilities beginning in the quarter in which they become divested. We view the income or losses associated with the wind-down of such divested facilities as not indicative of the performance of our ongoing operating business. |
● | Stock-based compensation. We exclude stock-based compensation expense because it does not result in an outlay of cash and such non-cash expenses do not reflect the underlying performance of our operating businesses. |
● | Impact of COVID-19. We excluded the net impact of the COVID-19 pandemic on our revenues and expenses for the three and six months ended June 30, 2020 due to the extraordinary nature of the virus and its impact across the globe. We view the incremental expenses, lost revenue and government relief grants as not indicative of the underlying potential long-term performance of our operating businesses. Our estimate of the pandemic’s impact on earnings for the three and six months ended June 30, 2020 includes the following components: (1) incremental funding received to address escalating expenses and lost revenue; (2) incremental expenses incurred as a result of the pandemic; and (3) the net impact of lost revenue, after considering a resulting reduction in operating expenses. For the three and six months ended June 30, 2020, we excluded funding recognized under the CARES Act and additional funding provided by certain states totaling approximately $228.0 million and $234.0 million, respectively. For the three and six months ended June 30, 2020, we excluded incremental expenses incurred in connection with the COVID-19 pandemic of approximately $145.3 million and $152.5 million, respectively. For the three and six months ended June 30, 2020 we excluded the estimated net impact of lost revenue offset by any resulting reduction in operating expenses, of approximately $67.0 million and $74.0 million, respectively. |
Adjusted EBITDAR
We use Adjusted EBITDAR as one measure in determining the value of our business and the value of prospective acquisitions or divestitures. Adjusted EBITDAR is also a commonly used measure to estimate the enterprise value of businesses in the healthcare and other industries. In addition, financial covenants in our lease agreements use Adjusted EBITDAR as a measure of compliance. The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR.
Supplemental Information
We provide supplemental information about certain capital costs we believe are beneficial to an investor’s understanding of our capital structure and cash flows. This supplemental information includes (1) cash interest payments on our recourse and HUD guaranteed indebtedness (2) cash rent payments made to partially owned real estate joint ventures that is eliminated in consolidation, net of any distributions returned to us, and (3) total cash lease payments made pursuant to operating leases and finance leases.
This supplemental information is used by us to evaluate our leverage, fixed charge coverage and cash flow. This supplemental information is consistent with information used by our major creditors in evaluating compliance with financial covenants contained in our material lease and loan agreements.
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See the reconciliation of net (loss) income attributable to Genesis Healthcare, Inc. to Non-GAAP financial information included herein (in thousands):
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Net (loss) income attributable to Genesis Healthcare, Inc. | | $ | (22,005) | | $ | (4,819) | | | $ | 11,503 | | $ | (20,082) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to compute EBITDA: | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | | | (7,311) | | | (4,164) | | | | (2,138) | | | (13,983) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense | | | 33,816 | | | 28,268 | | | | 59,804 | | | 66,463 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | | | 31,907 | | | 52,975 | | | | 68,147 | | | 104,491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit | | | (457) | | | (162) | | | | (1,236) | | | (111) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA | |
| 35,950 | | $ | 72,098 | | | | 136,080 | | | 136,778 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to
| |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
| 1,421 | |
| | |
| 5,460 |
| |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income | | | (44,100) | | | (23,413) | | | | (128,932) | | | (40,330) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction costs | | | 5,543 | | | 8,823 | | | | 11,134 | | | 10,084 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-lived asset impairments | | | 77,100 | | | 900 | | | | 86,800 | | | 900 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Severance and | | | 346 | | | 673 | | | | 701 | | | 2,119 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Income) loss of
| |
| (3,329) |
| |
| |
|
| |
| 2,744 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 1,831 | | | 1,748 | | | | 3,725 | | | 3,835 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated impact of | | | (15,380) | | | — | | | | (7,477) | | | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-recurring income | | | — | | | (237) | | | | — | | | (237) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA | | $ | 59,382 | | $ | 61,433 | | | $ | 102,241 | | $ | 115,869 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease expense | | | 96,395 | | | 94,586 | | | | 194,415 | | | 188,647 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDAR | | $ | 155,777 | | | | | | $ | 296,656 | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental information: | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash interest payments on | |
| 15,280 | | $ | 20,491 | | | $ | 34,660 | | $ | 42,940 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash payments made to | | | 12,679 | | | 4,193 | | | | 25,379 | | | 4,193 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total cash lease payments made pursuant to operating leases and | |
| 90,436 |
| $ |
|
| $ |
| |
| 213,516
|
Results of Operations
Same-store Presentation
We continue to execute on a strategic plan which includes expansion in core markets and operating segments which we believe will enhance the value of our business in the ever-changing landscape of national healthcare. We are also focused on “right-sizing” our operations to fit that new environment and to divest underperforming and non-strategic assets, many of which were consolidated as part of larger acquisitions in recent years to achieve the net overall growth strategy.
We define our same-store inpatient operations as those skilled nursing and assisted/senior living centers which have been operated by us, in a steady-state, for each comparable period in this Results of Operations discussion. We exclude from that definition those skilled nursing and assisted/senior living facilities recently acquired that were not operated by us for the entire period, as well as those that were divested prior to or during the most recent period presented. In cases where we are developing new skilled nursing or assisted/senior living centers, those operations are excluded from our “same-store” inpatient operations until the revenue driven by operating patient census is stable in the comparable periods.
Since the nature of our rehabilitation therapy services operations experiences high volume of both new and terminated contracts in an annual cycle, and the scale and significance of those contracts can be very different to both the revenue and operating expenses of that business, a same-store presentation based solely on the contract or gym count does not provide an accurate depiction of the business. Accordingly, we do not reference same-store figures in this MD&A with regard to that business.
The volume of services delivered in our other services businesses can also be affected by strategic transactional activity. To the extent there are businesses to be excluded to achieve same-store comparability those will be noted in the context of the Results of Operations discussion.
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Impact of COVID-19 on Results of Operations
The COVID-19 pandemic will impact the comparability of our 2020 financial results with those of other periods. That reduced comparability will be highlighted in the discussion of our results of operations, separate from our same-store presentation. For more information about the COVID-19 pandemic and its impact on our results of operations and financial position, see “COVID-19” described more fully in this MD&A.
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
A summary of our unaudited results of operations for the three months ended June 30, 2020 as compared with the same period in 2019 follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||
|
| Revenue |
| Revenue |
| Revenue |
| Revenue | | | |
| | | ||
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||
Revenues: | | | | | | | | | | | | | | | | |
Inpatient services: | | | | | | | | | | | | | | | | |
Skilled nursing facilities | | $ | 796,961 |
| 83.4 | % | $ | 964,541 |
| 84.2 | % | $ | (167,580) | | (17.4) | % |
Assisted/Senior living facilities | |
| 20,041 |
| 2.1 | % |
| 23,702 |
| 2.1 | % |
| (3,661) | | (15.4) | % |
Administration of third party facilities | |
| 2,110 |
| 0.2 | % |
| 2,054 |
| 0.2 | % |
| 56 | | 2.7 | % |
Elimination of administrative services | |
| (784) |
| (0.1) | % |
| (799) |
| (0) | % |
| 15 | | 1.9 | % |
Inpatient services, net | |
| 818,328 |
| 85.6 | % |
| 989,498 |
| 86.4 | % |
| (171,170) |
| (17.3) | % |
| | | | | | | | | | | | | | | | |
Rehabilitation therapy services: | | | | | | | | | | | | | | | | |
Total therapy services | |
| 153,625 |
| 16.1 | % |
| 192,906 |
| 16.8 | % |
| (39,281) | | (20.4) | % |
Elimination of intersegment rehabilitation therapy services | |
| (57,101) |
| (6.0) | % |
| (71,971) |
| (6.3) | % |
| 14,870 | | 20.7 | % |
Third party rehabilitation therapy services, net | |
| 96,524 |
| 10.1 | % |
| 120,935 |
| 10.5 | % |
| (24,411) |
| (20.2) | % |
| | | | | | | | | | | | | | | | |
Other services: | | | | | | | | | | | | | | | | |
Total other services | |
| 70,959 |
| 7.4 | % |
| 45,489 |
| 4.0 | % |
| 25,470 | | 56.0 | % |
Elimination of intersegment other services | |
| (29,552) |
| (3.1) | % |
| (10,870) |
| (0.9) | % |
| (18,682) | | (171.9) | % |
Third party other services, net | |
| 41,407 |
| 4.3 | % |
| 34,619 |
| 3.1 | % |
| 6,788 |
| 19.6 | % |
| | | | | | | | | | | | | | | | |
Net revenues | | $ | 956,259 |
| 100.0 | % | $ | 1,145,052 |
| 100.0 | % | $ | (188,793) | | (16.5) | % |
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||
|
| | |
| Margin |
| | |
| Margin |
| | |
| | |
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||
EBITDA: | | | | | | | | | | | | | | | | |
Inpatient services | | $ | 43,049 |
| 5.3 | % | $ | 87,649 |
| 8.9 | % | $ | (44,600) |
| (50.9) | % |
Rehabilitation therapy services | |
| 27,716 |
| 18.0 | % |
| 25,586 |
| 13.3 | % |
| 2,130 |
| 8.3 | % |
Other services | |
| 4,454 |
| 6.3 | % |
| 1,248 |
| 2.7 | % |
| 3,206 |
| 256.9 | % |
Corporate and eliminations | |
| (39,269) |
| — | % |
| (42,385) |
| — | % |
| 3,116 |
| 7.4 | % |
EBITDA | | $ | 35,950 |
| 3.8 | % | $ | 72,098 |
| 6.3 | % | $ | (36,148) |
| (50.1) | % |
59
A summary of our unaudited condensed consolidating statement of operations follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| |
| | |
| | |
| | |
| |
| | Three months ended June 30, 2020 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | |
| ||
| | Inpatient | | Therapy | | Other | | | | | | | | | |
| |||
| | Services | | Services | | Services | | Corporate | | Eliminations | | Consolidated |
| ||||||
Net revenues | | $ | 819,112 | | $ | 153,625 | | $ | 67,857 | | $ | 3,102 | | $ | (87,437) | | $ | 956,259 | |
Salaries, wages and benefits | |
| 451,176 | |
| 121,984 | |
| 43,784 | |
| — | |
| — | |
| 616,944 | |
Other operating expenses | | | 374,583 | |
| 8,760 | |
| 21,493 | |
| — | |
| (87,562) | |
| 317,274 | |
General and administrative costs | | | — | | | — | | | — | | | 39,769 | | | — | | | 39,769 | |
Lease expense | | | 95,279 | |
| 313 | |
| 503 | |
| 300 | |
| — | |
| 96,395 | |
Depreciation and amortization expense | | | 29,544 | |
| 1,677 | |
| 208 | |
| 2,406 | |
| (19) | |
| 33,816 | |
Interest expense | | | 12,829 | |
| 13 | |
| 9 | |
| 20,236 | |
| (1,180) | |
| 31,907 | |
Loss on early extinguishment of debt | | | — | |
| — | |
| — | |
| 1,421 | |
| — | |
| 1,421 | |
Investment income | | | — | |
| — | |
| — | |
| (2,141) | |
| 1,180 | |
| (961) | |
Other income | | | (44,100) | |
| — | |
| — | |
| — | |
| — | |
| (44,100) | |
Transaction costs | | | — | |
| — | |
| — | |
| 5,543 | |
| — | |
| 5,543 | |
Long-lived asset impairments | | | 77,100 | | | — | | | — | | | — | | | — | | | 77,100 | |
Federal stimulus - COVID-19 other income | | | (177,975) | | | (5,148) | | | (2,377) | | | — | | | — | | | (185,500) | |
Equity in net (income) loss of unconsolidated affiliates | | | — | |
| — | |
| — | |
| (4,297) | |
| 721 | |
| (3,576) | |
Income (loss) before income tax benefit | | | 676 | |
| 26,026 | |
| 4,237 | |
| (60,135) | |
| (577) | |
| (29,773) | |
Income tax benefit | | | — | |
| — | |
| — | |
| (457) | |
| — | |
| (457) | |
Net income (loss) | | $ | 676 | | $ | 26,026 | | $ | 4,237 | | $ | (59,678) | | $ | (577) | | $ | (29,316) | |
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | |||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | |||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | ||||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated | | |||||||
Net revenues | | $ | 990,297 | | $ | 192,906 | | $ | 45,325 | | $ | 164 | | $ | (83,640) | | $ | 1,145,052 | | |
Salaries, wages and benefits | |
| 442,028 | |
| 154,855 | |
| 29,276 | |
| — | |
| — | |
| 626,159 | | |
Other operating expenses | | | 389,637 | |
| 12,130 | |
| 14,402 | |
| — | |
| (83,641) | |
| 332,528 | | |
General and administrative costs | | | — | |
| — | |
| — | |
| 35,562 | |
| — | | | 35,562 | | |
Lease expense | | | 93,557 | |
| 335 | |
| 338 | |
| 356 | |
| — | |
| 94,586 | | |
Depreciation and amortization expense | | | 22,328 | |
| 3,112 | |
| 174 | |
| 2,654 | |
| — | |
| 28,268 | | |
Interest expense | | | 29,051 | |
| 13 | |
| 8 | |
| 23,903 | |
| — | |
| 52,975 | | |
Gain on early extinguishment of debt | | | — | |
| — | |
| — | |
| (24) | |
| — | |
| (24) | | |
Investment income | | | — | |
| — | |
| — | |
| (2,143) | |
| — | |
| (2,143) | | |
Other (income) loss | | | (23,474) | |
| — | |
| 61 | |
| — | |
| — | |
| (23,413) | | |
Transaction costs | | | — | |
| — | |
| — | |
| 8,823 | |
| — | |
| 8,823 | | |
Long-lived asset impairments | | | 900 | | | — | | | — | | | — | | | — | | | 900 | | |
Equity in net loss (income) of unconsolidated affiliates | | | — | |
| — | |
| — | |
| 1,910 | |
| (1,934) | |
| (24) | | |
Income (loss) before income tax benefit | | | 36,270 | |
| 22,461 | |
| 1,066 | |
| (70,877) | |
| 1,935 | |
| (9,145) | | |
Income tax benefit | | | — | |
| — | |
| — | |
| (162) | |
| — | |
| (162) | | |
Net income (loss) | | $ | 36,270 | | $ | 22,461 | | $ | 1,066 | | $ | (70,715) | | $ | 1,935 | | $ | (8,983) | |
Net Revenues
Net revenues for the three months ended June 30, 2020 decreased by $188.8 million, or 16.5%, as compared with the three months ended June 30, 2019.
Inpatient Services – Revenue decreased $171.2 million, or 17.3%, in the three months ended June 30, 2020 as compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, inpatient services revenue decreased $35.1 million, or 4.3%, excluding 76 divested underperforming facilities and the acquisition or development of 3 additional facilities. The same-store revenue decrease is net of $8.8 million related to a new provider tax program in the state of New Mexico, which was not in place for the corresponding period in 2019 and an additional increase of $10.2 million in the three months ended June 30, 2020 is attributed to the transition from the resource utilization group based reimbursement to the Patient-Driven Payment Model (PDPM) reimbursement methodology in the fourth quarter of fiscal 2019. Giving effect to these factors, we estimate the remaining same-store inpatient revenue decrease of $54.1 million in the three months ended June 30, 2020 compared with the same period in 2019 is due to the impact of COVID-19, partially offset by increasing payor rates, primarily in our Medicaid population, reflecting a trend that was observed before COVID-19 impacted our operations. While census was adversely impacted by admission holds and declining in-house census as the pandemic progressed, average payor rates increased as acuity of the in-house census increased with treatment of the population testing positive for the virus. COVID-19, has, and will likely
60
continue to disrupt this favorable overall census trend and may have an unpredictable impact on the skilled mix of our inpatient facilities as a result of the temporary change to patient coverage criteria.
For an expanded discussion regarding the factors influencing our operating census and challenges to our ability to grow inpatient service revenues, see Item 1, “Business – Industry Trends” in our Annual Report on Form 10-K filed with the SEC, “Key Performance and Valuation Measures” in this MD&A for quantification of the census trends and revenue per patient day as well as “COVID-19” in this MD&A.
Rehabilitation Therapy Services – Revenue decreased $24.4 million, or 20.2% comparing the three months ended June 30, 2020 with the same period in 2019. Of that decrease, $11.8 million is due to lost contract business, offset by $5.0 million attributed to new contracts. COVID-19 began to impact the skilled nursing customers of our rehabilitation services at an accelerating rate by March 2020 and continuing through June 30, 2020, resulting in a decrease of revenue of $7.5 million in the three months ended June 30, 2020 as compared with the same period in 2019. The remaining decrease of $10.1 million is principally due to reduced volume of services provided to existing customers and amended customer pricing terms in connection with the implementation of PDPM.
Other Services – Revenue increased $6.8 million, or 19.6% in the three months ended June 30, 2020 as compared with the same period in 2019. Our other services revenue is comprised mainly of our physician services and staffing services businesses, in addition to our Accountable Care Organization (ACO). In the three months ended June 30, 2020 and 2019, the ACO did not recognize any revenue under the Medicare Shared Savings Program (MSSP). We are participating in the MSSP in 2020; however, uncertainty around how the 2020 MSSP will perform in light of COVID-19 precludes us from recognizing any savings to the Medicare program at this stage. Revenue in our physician services business decreased $0.4 million in the three months ended June 30, 2020 as compared with the same period in 2019, all of which is attributed to reduced census volumes from the impact of COVID-19 on the inpatient business. The remaining increase of revenue of $7.2 million is in our staffing services business, which has shifted its focus to developing its services to our affiliated nursing facilities and therapy gyms. While the staffing business gross revenue has increased over 87% in the three months ended June 30, 2020 as compared with the same period in 2019, its revenue from external customers has only increased 25.9% over that same period. Further penetration of the internal staffing needs is a strategic goal for our staffing business, and, if successful, it will provide a benefit to our inpatient and rehabilitation therapy segments to combat a historically strong labor market and accelerating wage pressures, in addition to the evolving demands of post-acute care in light of the COVID-19 impact on our various lines of business.
EBITDA
EBITDA for the three months ended June 30, 2020 decreased by $36.1 million, or 50.1%, as compared with the three months ended June 30, 2019. Excluding the impact of loss on early extinguishment of debt, other (income) loss, transaction costs, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA decreased $168.0 million, or 287.7% when compared with the same period in 2019. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.
Inpatient Services – EBITDA decreased by $44.6 million, or 50.9% for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of other (income) loss, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $167.0 million when compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, the inpatient EBITDA as adjusted decreased $158.5 million. Same-store staffing costs, net of nursing agency and other purchased services and adjusted for the impact of COVID-19, increased $100.9 million. Wages and purchased services include supplemental premium pay rates and bonuses to insure we could attract adequate staff to address our clinical needs during the pandemic. Nursing wage inflation increased 28.8% while non-nursing wage inflation increased 20.8% in the three months ended June 30, 2020 as compared with the same period in 2019. Same-store lease expense increased $2.7 million, primarily due to lease amendments in 2019 resulting in certain financing leases being reclassified as operating leases. Our self-insurance programs, including general and professional liability, workers’ compensation and health insurance benefits, resulted in a decrease of $15.4 million EBITDA as adjusted in the three months ended June 30, 2020 as compared with the same period in 2019. Prior to the COVID-19 pandemic our self-insurance programs were performing as anticipated and within normal claims reporting patterns of our same-store operations recently. The provisions for general and professional liability recorded in both the three months ended June 30, 2020 and the comparable period in 2019 reflect continued favorable claims development and accelerated claims settlement initiated in 2018. We have not changed our reserving methodology or assumptions for any COVID-19 specific exposures. Our self-insured health benefit plans have seen reduced expenses principally due to other medical care settings limiting non-emergency services during the COVID-19 pandemic, however, we anticipate those
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deferred procedures will impact expense over the remainder of fiscal year 2020. $24.9 million of the net EBITDA decrease relating to self-insurance programs is for an incremental provision of COVID-19 related workers’ compensation exposure incurred through June 30, 2020. The introduction of the new provider tax program in New Mexico resulted in an increase of EBITDA of $5.8 million compared to the same period in 2019 before the program was enacted. The remaining $45.3 million decrease in EBITDA, as adjusted, of the segment is principally due to the negative affects COVID-19 has had on our business, partially offset with reduced therapy services cost due to the implementation of PDPM. See “Significant Transactions and Events – COVID-19.”
Rehabilitation Therapy Services – EBITDA increased by $2.1 million, or 8.3%, for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $3.0 million when compared with the same period in 2019. Lost therapy contracts exceeded new contracts by $2.1 million in the three months ended June 30, 2020 as compared with the same period in 2019. COVID-19 resulted in a decrease of EBITDA of $4.4 million in the three months ended June 30, 2020. The remaining increase of $3.5 million is principally attributed to overhead cost reductions and improved accounts receivable collections in the period. Therapist efficiency was negatively impacted by the impact of COVID-19, decreasing to 64.8% in the three months ended June 30, 2020 compared with 67.9% in the comparable period in the prior year. This decline in therapist efficiency is expected to be temporary as we have adjusted staffing and service models to address the clinical needs of our skilled nursing customers impacted by COVID-19.
Other Services — EBITDA increased $3.2 million, or 256.9%, for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted increased $0.8 million when compared with the same period in 2019. The EBITDA of our staffing services business increased $2.4 million in the three months ended June 30, 2020 as compared with the same period in 2019, principally due to growth in its services with affiliated customers. The remaining decrease of $1.6 million pertains to our physician services business and ACO. Both businesses have been negatively impacted by COVID-19 reducing patient encounters due to reduced skilled nursing census across the industry and increased costs to support practitioners.
Corporate and Eliminations — EBITDA increased $3.1 million, or 7.4%, for the three months ended June 30, 2020 as compared with the same period in 2019. EBITDA of our corporate function includes loss on early extinguishment of debt and losses associated with transactions that are outside of the scope of our reportable segments. These and other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $1.8 million of the net increase in EBITDA. Corporate overhead costs, net of fee income, increased $1.3 million, or 3.6%, in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to investments in information technology and related upgrades. The remaining increase in EBITDA of $2.4 million is primarily the result of an increase in investment earnings from our unconsolidated affiliates accounted for on the equity method and other investments.
Other (income) loss — Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other (income) loss for the three months ended June 30, 2020 principally represents gains on sales of real estate and leasehold rights in the period. See also Note 12 – “Other Income.”
Transaction costs — In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the three months ended June 30, 2020 and 2019 were $5.5 million and $8.8 million, respectively.
Long-lived asset impairments — In the three months ended June 30, 2020, we recognized impairments of property and equipment and right-of-use (ROU) assets of $77.1 million. For more information about the conditions of the business which contributed to these impairments, see “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue” and “Financial Condition and Liquidity Considerations” in this MD&A, as well as Note 13 – “Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.”
Federal stimulus – COVID 19 – other income – During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through our Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost
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revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.
Other Expense
The following discussion applies to the consolidated expense categories between EBITDA and net income (loss) of all reportable segments, corporate and eliminations in our consolidating statement of operations for the three months ended June 30, 2020 as compared with the same period in 2019.
Depreciation and amortization — Each of our reportable segments and corporate overhead have depreciating property, plant and equipment, including amortization of finance lease ROU assets. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense increased $5.5 million in the three months ended June 30, 2020 as compared with the same period in 2019. On a same-store basis, depreciation and amortization increased $2.8 million in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to acceleration of depreciation of assets sold into real estate joint ventures in the current quarter, offset by reductions in the amortization of the right to use assets of our remaining leases.
Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as finance leases. Interest expense decreased $21.1 million in the three months ended June 30, 2020 as compared with the same period 2019. On a same-store basis, interest expense is down $16.0 million in the three months ended June 30, 2020 as compared with the same period in 2019. An increase of $4.4 million of interest expense is attributed to consolidating debt and the associated interest expense of two real-estate partnerships in 2019, which were determined to be variable interest entities (VIEs) of which we are the primary beneficiary. See Note 1 – “General Information – Basis of Presentation” and Note 9 – “Long-Term Debt.” Cash rent decreased $3.6 million in the three months ended June 30, 2020 as compared with the same period in 2019 as a result of a reduction in outstanding borrowings under our revolving credit facility, primarily due to the timing of the Medicare Advance payments in connection with CARES Act relief funding. Borrowing levels are expected to increase over the period the Medicare Advance is required to be recouped. The remaining decrease in interest expense of $16.8 million is principally due to lease amendments entered in 2019 and early 2020 that resulted in modifications to the accounting for certain leases, converting them from financing leases with interest expense to operating leases presented as lease expense.
Income tax benefit — For the three months ended June 30, 2020, we recorded income tax benefit of $0.5 million from continuing operations representing an effective tax rate of 1.5% compared to an income tax benefit of $0.2 million from continuing operations, representing an effective tax rate of 1.8% for the same period in 2019. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2020, we have determined that the valuation allowance is still necessary.
Net Income (Loss) Attributable to Genesis Healthcare, Inc.
The following discussion applies to categories between net income (loss) and net income (loss) attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the three months ended June 30, 2020 as compared with the same period in 2019.
Net income (loss) attributable to noncontrolling interests — On February 2, 2015, FC-GEN Operations Investment, LLC (FC-GEN) combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 9.0 million Class C common stock, leaving a remaining direct noncontrolling economic interest of approximately 32.9%. For the three months ended June 30, 2020 and 2019, loss of $(6.5) million and $(1.9) million, respectively, has been attributed to the Class C common stock.
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In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any VIEs where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the three months ended June 30, 2020 and 2019, loss of $(0.8) million and $(2.2) million, respectively, has been attributed to these unaffiliated third parties.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
A summary of our unaudited results of operations for the six months ended June 30, 2020 as compared with the same period in 2019 follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | | | |||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||
|
| Revenue |
| Revenue |
| Revenue |
| Revenue | | | |
| | | ||
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||
Revenues: | | | | | | | | | | | | | | | | |
Inpatient services: | | | | | | | | | | | | | | | | |
Skilled nursing facilities | | $ | 1,726,834 |
| 84.5 | % | $ | 1,946,937 |
| 84.3 | % | $ | (220,103) | | (11.3) | % |
Assisted/Senior living facilities | |
| 41,863 |
| 2.0 | % |
| 47,351 |
| 2.1 | % |
| (5,488) | | (11.6) | % |
Administration of third party facilities | |
| 4,151 |
| 0.2 | % |
| 4,301 |
| 0.2 | % |
| (150) | | (3.5) | % |
Elimination of administrative services | |
| (1,570) |
| (0.1) | % |
| (1,599) |
| — | % |
| 29 | | 1.8 | % |
Inpatient services, net | |
| 1,771,278 |
| 86.6 | % |
| 1,996,990 |
| 86.6 | % |
| (225,712) |
| (11.3) | % |
| | | | | | | | | | | | | | | | |
Rehabilitation therapy services: | | | | | | | | | | | | | | | | |
Total therapy services | |
| 318,421 |
| 15.5 | % |
| 387,977 |
| 16.8 | % |
| (69,556) | | (17.9) | % |
Elimination of intersegment rehabilitation therapy services | |
| (116,428) |
| (5.7) | % |
| (146,202) |
| (6.3) | % |
| 29,774 | | 20.4 | % |
Third party rehabilitation therapy services, net | |
| 201,993 |
| 9.8 | % |
| 241,775 |
| 10.5 | % |
| (39,782) |
| (16.5) | % |
| | | | | | | | | | | | | | | | |
Other services: | | | | | | | | | | | | | | | | |
Total other services | |
| 125,782 |
| 6.1 | % |
| 87,607 |
| 3.8 | % |
| 38,175 | | 43.6 | % |
Elimination of intersegment other services | |
| (50,544) |
| (2.5) | % |
| (19,680) |
| (0.9) | % |
| (30,864) | | (156.8) | % |
Third party other services, net | |
| 75,238 |
| 3.6 | % |
| 67,927 |
| 2.9 | % |
| 7,311 |
| 10.8 | % |
| | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,048,509 |
| 100.0 | % | $ | 2,306,692 |
| 100.0 | % | $ | (258,183) | | (11.2) | % |
| | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | | | |||||||||
| | 2020 | | 2019 | | Increase / (Decrease) | | |||||||||
|
| | |
| Margin |
| | |
| Margin |
| | |
| | |
| | Dollars | | Percentage | | Dollars | | Percentage | | Dollars | | Percentage | | |||
EBITDA: | | | | | | | | | | | | | | | | |
Inpatient services | | $ | 168,647 |
| 9.5 | % | $ | 161,122 |
| 8.1 | % | $ | 7,525 |
| 4.7 | % |
Rehabilitation therapy services | |
| 49,129 |
| 15.4 | % |
| 52,354 |
| 13.5 | % |
| (3,225) |
| (6.2) | % |
Other services | |
| 5,181 |
| 4.1 | % |
| 926 |
| 1.1 | % |
| 4,255 |
| 459.5 | % |
Corporate and eliminations | |
| (86,877) |
| — | % |
| (77,624) |
| — | % |
| (9,253) |
| (11.9) | % |
EBITDA | | $ | 136,080 |
| 6.6 | % | $ | 136,778 |
| 5.9 | % | $ | (698) |
| (0.5) | % |
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A summary of our unaudited condensed consolidating statement of operations follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2020 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues | | $ | 1,772,848 | | $ | 318,421 | | $ | 121,896 | | $ | 3,886 | | $ | (168,542) | | $ | 2,048,509 | |
Salaries, wages and benefits | |
| 862,218 | |
| 256,553 | |
| 78,706 | |
| — | |
| — | |
| 1,197,477 | |
Other operating expenses | | | 770,109 | |
| 17,262 | |
| 39,176 | |
| — | |
| (168,792) | |
| 657,755 | |
General and administrative costs | | | — | | | — | | | — | | | 79,386 | | | — | | | 79,386 | |
Lease expense | | | 192,261 | |
| 625 | |
| 930 | |
| 599 | |
| — | |
| 194,415 | |
Depreciation and amortization expense | | | 51,178 | |
| 3,363 | |
| 406 | |
| 4,895 | |
| (38) | |
| 59,804 | |
Interest expense | | | 26,395 | |
| 27 | |
| 19 | |
| 44,066 | |
| (2,360) | |
| 68,147 | |
Loss on early extinguishment of debt | | | — | |
| — | |
| — | |
| 5,460 | |
| — | |
| 5,460 | |
Investment income | | | — | |
| — | |
| — | |
| (4,477) | |
| 2,360 | |
| (2,117) | |
Other (income) loss | | | (129,212) | |
| — | |
| 280 | |
| — | |
| — | |
| (128,932) | |
Transaction costs | | | — | |
| — | |
| — | |
| 11,134 | |
| — | |
| 11,134 | |
Long-lived asset impairments | | | 86,800 | | | — | | | — | | | — | | | — | | | 86,800 | |
Federal stimulus - COVID-19 other income | | | (177,975) | | | (5,148) | | | (2,377) | | | — | | | — | | | (185,500) | |
Equity in net (income) loss of unconsolidated affiliates | | | — | |
| — | |
| — | |
| (4,109) | |
| 660 | |
| (3,449) | |
Income (loss) before income tax benefit | | | 91,074 | |
| 45,739 | |
| 4,756 | |
| (133,068) | |
| (372) | |
| 8,129 | |
Income tax benefit | | | — | |
| — | |
| — | |
| (1,236) | |
| — | |
| (1,236) | |
Net income (loss) | | $ | 91,074 | | $ | 45,739 | | $ | 4,756 | | $ | (131,832) | | $ | (372) | | $ | 9,365 | |
| | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2019 | | ||||||||||||||||
| | | | | Rehabilitation | | | | | | | | | | | | | ||
| | Inpatient | | Therapy | | Other | | | | | | | | | | | |||
|
| Services |
| Services |
| Services |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
Net revenues | | $ | 1,998,589 | | $ | 387,977 | | $ | 87,390 | | $ | 217 | | $ | (167,481) | | $ | 2,306,692 | |
Salaries, wages and benefits | |
| 898,790 | |
| 311,947 | |
| 57,832 | |
| — | |
| — | |
| 1,268,569 | |
Other operating expenses | | | 791,569 | |
| 23,087 | |
| 27,891 | |
| — | |
| (167,481) | |
| 675,066 | |
General and administrative costs | | | — | | | — | | | — | | | 71,094 | | | — | | | 71,094 | |
Lease expense | | | 186,523 | |
| 665 | |
| 680 | |
| 779 | |
| — | |
| 188,647 | |
Depreciation and amortization expense | | | 54,200 | |
| 6,276 | |
| 348 | |
| 5,639 | |
| — | |
| 66,463 | |
Interest expense | | | 56,091 | |
| 27 | |
| 17 | |
| 48,356 | |
| — | |
| 104,491 | |
Gain on early extinguishment of debt | | | — | |
| — | |
| — | |
| (24) | |
| — | |
| (24) | |
Investment income | | | — | |
| — | |
| — | |
| (4,007) | |
| — | |
| (4,007) | |
Other (income) loss | | | (40,315) | |
| (76) | |
| 61 | |
| — | |
| — | |
| (40,330) | |
Transaction costs | | | — | |
| — | |
| — | |
| 10,084 | |
| — | |
| 10,084 | |
Long-lived asset impairments | | | 900 | | | — | | | — | | | — | | | — | | | 900 | |
Equity in net loss (income) of unconsolidated affiliates | | | — | |
| — | |
| — | |
| 1,386 | |
| (1,471) | |
| (85) | |
Income (loss) before income tax benefit | | | 50,831 | |
| 46,051 | |
| 561 | |
| (133,090) | |
| 1,471 | |
| (34,176) | |
Income tax benefit | | | — | |
| — | |
| — | |
| (111) | |
| — | |
| (111) | |
Net income (loss) | | $ | 50,831 | | $ | 46,051 | | $ | 561 | | $ | (132,979) | | $ | 1,471 | | $ | (34,065) | |
Net Revenues
Net revenues for the six months ended June 30, 2020 decreased by $258.2 million, or 11.2%, as compared with the six months ended June 30, 2019.
Inpatient Services – Revenue decreased $225.7 million, or 11.3%, in the six months ended June 30, 2020 as compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, inpatient services revenue increased $13.7 million, or 0.8%, excluding 87 divested underperforming facilities and the acquisition or development of 3 additional facilities. The same-store revenue increase is net of $18.1 million related to a new provider tax program in the state of New Mexico, which was not in place for the corresponding period in 2019 and an additional $19.9 million of the increase in the six months ended June 30, 2020 is attributed to the transition from the resource utilization group based reimbursement to the Patient-Driven Payment Model (PDPM) reimbursement methodology in the fourth quarter of fiscal 2019. Giving effect to these factors, we estimate the remaining same-store inpatient revenue decrease of $24.3 million in the six months ended June 30, 2020 compared with the same period in 2019 is due to the impact of COVID-19, partially offset by increasing payor rates, primarily in our Medicaid population, reflecting a trend that was observed before COVID-19 impacted our operations. While census was adversely impacted by admission holds and declining in-house census as the pandemic progressed, average payor rates increased as acuity of the in-house census increased with treatment of the population testing positive for the virus. COVID-19, has,
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and will likely continue to disrupt this favorable overall census trend and may have an unpredictable impact on the skilled mix of our inpatient facilities as a result of the temporary change to patient coverage criteria.
For an expanded discussion regarding the factors influencing our operating census and challenges to our ability to grow inpatient service revenues, see Item 1, “Business – Industry Trends” in our Annual Report on Form 10-K filed with the SEC, “Key Performance and Valuation Measures” in this MD&A for quantification of the census trends and revenue per patient day as well as “COVID-19” in this MD&A.
Rehabilitation Therapy Services – Revenue decreased $39.8 million, or 16.5% comparing the six months ended June 30, 2020 with the same period in 2019. Of that decrease, $19.1 million is due to lost contract business, offset by $8.2 million attributed to new contracts. COVID-19 began to impact the skilled nursing customers of our rehabilitation services at an accelerating rate by March 2020 and continued through June 30, 2020, resulting in a decrease of revenue of $10.4 million in the six months ended June 30, 2020 as compared with the same period in 2019. The remaining decrease of $18.5 million is principally due to reduced volume of services provided to existing customers and amended customer pricing terms in connection with the implementation of PDPM.
Other Services – Revenue increased $7.3 million, or 10.8% in the six months ended June 30, 2020 as compared with the same period in 2019. Our other services revenue is comprised mainly of our physician services and staffing services businesses, in addition to our Accountable Care Organization (ACO). In the six months ended June 30, 2020 and 2019, the ACO did not recognize any revenue under the Medicare Shared Savings Program (MSSP). We are participating in the MSSP in 2020; however, uncertainty around how the 2020 MSSP will perform in light of COVID-19 precludes us from recognizing any savings to the Medicare program at this stage. Revenue in our physician services business increased $1.1 million in the six months ended June 30, 2020 as compared with the same period in 2019. The remaining increase of revenue of $6.2 million is in our staffing services business, which has shifted its focus to developing its services to our affiliated nursing facilities and therapy gyms. While the staffing business gross revenue has increased over 66% in the six months ended June 30, 2020 as compared with the same period in 2019, its revenue from external customers has only increased 9.6% over that same period. Further penetration of the internal staffing needs is a strategic goal for our staffing business, and, if successful, it will provide a benefit to our inpatient and rehabilitation therapy segments to combat a historically strong labor market and accelerating wage pressures, in addition to the evolving demands of post-acute care in light of the COVID-19 impact on our various lines of business.
EBITDA
EBITDA for the six months ended June 30, 2020 decreased by $0.7 million, or 0.5%, as compared with the six months ended June 30, 2019. Excluding the impact of loss on early extinguishment of debt, other (income) loss, transaction costs and long-lived asset impairments, EBITDA decreased $14.4 million, or 29.4% when compared with the same period in 2019. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.
Inpatient Services – EBITDA increased by $7.5 million, or 4.7% for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of other (income) loss, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $173.4 million, or 142.5% when compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, the inpatient EBITDA as adjusted decreased $153.0 million. Same-store staffing costs, net of nursing agency and other purchased services and adjusted for the impact of COVID-19, increased $130.4 million. Wages and purchased services include supplemental premium pay rates and bonuses to insure we could attract adequate staff to address our clinical needs during the pandemic. Nursing wage inflation increased 16.9% while non-nursing wage inflation increased 11.6% in the six months ended June 30, 2020 as compared with the same period in 2019. Same-store lease expense increased $6.0 million, primarily due to lease amendments in 2019 resulting in certain financing leases being reclassified as operating leases. Our self-insurance programs, including general and professional liability, workers’ compensation and health insurance benefits, resulted in a decrease of $20.4 million EBITDA as adjusted in the six months ended June 30, 2020 as compared with the same period in 2019. Prior to the COVID-19 pandemic our self-insurance programs were performing as anticipated and within normal claims reporting patterns of our same-store operations recently. The provisions for general and professional liability recorded in both the six months ended June 30, 2020 and the comparable period in 2019 reflect continued favorable claims development and accelerated claims settlement initiated in 2018. We have not changed our reserving methodology or assumptions for any COVID-19 specific exposures. Our self-insured health benefit plans have seen reduced expenses principally due to other medical care settings limiting non-emergency services during the COVID-19 pandemic, however, we anticipate those deferred procedures will impact expense over the remainder of fiscal year 2020. $24.9 million of the net EBITDA decrease relating to self-insurance programs is for an incremental provision of COVID-19 related workers’ compensation
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exposure incurred through June 30, 2020. The introduction of the new provider tax program in New Mexico resulted in an increase of EBITDA of $11.3 million compared to the same period in 2019 before the program was enacted. The remaining $7.5 million decrease in EBITDA, as adjusted, of the segment is principally due to the negative affects COVID-19 has had on our business, partially offset with reduced therapy services cost due to the implementation of PDPM. See “Significant Transactions and Events – COVID-19.”
Rehabilitation Therapy Services – EBITDA decreased by $3.2 million, or 6.2%, for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $8.3 million when compared with the same period in 2019. Lost therapy contracts exceeded new contracts by $3.6 million in the six months ended June 30, 2020 as compared with the same period in 2019. COVID-19 resulted in a decrease of EBITDA of $6.7 million in the six months ended June 30, 2020. The remaining increase of $2.0 million is principally attributed to reduced overhead costs. Therapist efficiency improved to 68.1% in the six months ended June 30, 2020 compared with 68.0% in the comparable period in the prior year.
Other Services — EBITDA increased $4.3 million, or 459.5%, for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted increased $2.1 million when compared with the same period in 2019. The EBITDA of our staffing services business increased $3.1 million in the six months ended June 30, 2020 as compared with the same period in 2019, principally due to growth in its services with affiliated customers. The remaining decrease of $1.0 million pertains to our physician services business and ACO. Both businesses have been negatively impacted by COVID-19 reducing patient encounters due to reduced skilled nursing census across the industry and increased costs to support practitioners.
Corporate and Eliminations — EBITDA decreased $9.3 million, or 11.9%, for the six months ended June 30, 2020 as compared with the same period in 2019. EBITDA of our corporate function includes loss on early extinguishment of debt and losses associated with transactions that are outside of the scope of our reportable segments. These and other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $6.5 million of the net decrease in EBITDA. Corporate overhead costs, net of fee income, increased $4.6 million, or 6.5%, in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to investments in information technology and related upgrades. The remaining increase in EBITDA of $1.8 million is primarily the result of an increase in investment earnings from our unconsolidated affiliates accounted for on the equity method and other investments.
Other (income) loss — Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other (income) loss for the six months ended June 30, 2020 principally represents gains on sales of real estate and leasehold rights in the period. See also Note 12 – “Other Income.”
Transaction costs — In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the six months ended June 30, 2020 and 2019 were $11.1 million and $10.1 million, respectively.
Long-lived asset impairments — In the six months ended June 30, 2020, we recognized impairments of property and equipment and right-of-use (ROU) assets of $86.8 million. For more information about the conditions of the business which contributed to these impairments, see “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue” and “Financial Condition and Liquidity Considerations” in this MD&A, as well as Note 13 – “Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.”
Federal stimulus – COVID 19 – other income – During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through our Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.
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Other Expense
The following discussion applies to the consolidated expense categories between EBITDA and net income (loss) of all reportable segments, corporate and eliminations in our consolidating statement of operations for the three and six months ended June 30, 2020 as compared with the same period in 2019.
Depreciation and amortization — Each of our reportable segments and corporate overhead have depreciating property, plant and equipment, including amortization of finance lease ROU assets. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense decreased $6.7 million in the six months ended June 30, 2020 as compared with the same period in 2019. On a same-store basis, depreciation and amortization decreased $10.6 million in the six months ended June 30, 2020 as compared with the same period in 2019. In the inpatient services segment, $9.4 million of the decrease is principally due reduction in the amortization of right to use assets in our continuing lease portfolio, with the remaining $1.2 million reduction principally due to prior year acceleration related to multiple lease transactions.
Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as finance leases. Interest expense decreased $36.4 million in the six months ended June 30, 2020 as compared with the same period 2019. On a same-store basis, interest expense is down $26.7 million in the three months ended June 30, 2020 as compared with the same period in 2019. An increase of $12.1 million of interest expense is attributed to consolidating debt and the associated interest expense of two real-estate partnerships in 2019, which were determined to be variable interest entities (VIEs) of which we are the primary beneficiary. See Note 1 – “General Information – Basis of Presentation” and Note 9 – “Long-Term Debt.” Cash rent decreased $5.3 million in the six months ended June 30, 2020 as compared with the same period in 2019 as a result of a reduction in outstanding borrowings under our revolving credit facility, primarily due to the timing of the Medicare Advance payments in connection with CARES Act relief funding. Borrowing levels are expected to increase over the period the Medicare Advance is required to be recouped. The remaining decrease in interest expense of $33.5 million is principally due to lease amendments entered in 2019 and early 2020 that resulted in modifications to the accounting for certain leases, converting them from financing leases with interest expense to operating leases presented as lease expense.
Income tax benefit — For the six months ended June 30, 2020, we recorded income tax benefit of $1.2 million from continuing operations representing an effective tax rate of (15.2)% compared to an income tax benefit of $0.1 million from continuing operations, representing an effective tax rate of 0.3% for the same period in 2019. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2020, we have determined that the valuation allowance is still necessary.
Net Income (Loss) Attributable to Genesis Healthcare, Inc.
The following discussion applies to categories between net income (loss) and net income (loss) attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the six months ended June 30, 2020 as compared with the same period in 2019.
Net income (loss) attributable to noncontrolling interests — On February 2, 2015, FC-GEN Operations Investment, LLC (FC-GEN) combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 9.0 million Class C common stock, leaving a remaining direct noncontrolling economic interest of approximately 32.9%. For the six months ended June 30, 2020 and 2019, loss of $(0.6) million and $(12.2) million, respectively, has been attributed to the Class C common stock.
In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any VIEs where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the
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entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the six months ended June 30, 2020 and 2019, loss of $(1.5) million and $(1.8) million, respectively, has been attributed to these unaffiliated third parties.
Liquidity and Capital Resources
Cash Flow and Liquidity
The following table presents selected data from our consolidated statements of cash flows (in thousands):
| | | | | | | | |
| | | Six months ended June 30, |
| ||||
|
| | 2020 |
| 2019 |
| ||
Net cash provided by operating activities | | | $ | 340,597 | | $ | 36,081 | |
Net cash provided by (used in) investing activities | | |
| 146,602 | |
| (162,208) | |
Net cash (used in) provided by financing activities | | |
| (247,629) | |
| 80,642 | |
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents | | |
| 239,570 | |
| (45,485) | |
Beginning of period | | |
| 125,806 | |
| 142,276 | |
End of period | | | $ | 365,376 | | $ | 96,791 | |
Net cash provided by operating activities in the six months ended June 30, 2020 increased $304.5 million compared with the same period in 2019. The six months ended June 30, 2020 include receipt of Medicare advances of $156.8 million and $36.0 million from the deferral of payroll taxes under the CARES Act. The remaining increase in cash provided by operating activities is attributed to a combination of state and federal COVID-19 grants, offset by the cost and lost revenue caused by COVID-19 and the timing of payments.
Net cash provided by investing activities in the six months ended June 30, 2020 was $146.6 million compared to net cash used in investing activities of $162.2 million in the six months ended June 30, 2019. Routine capital expenditures for the six months ended June 30, 2020 decreased by $4.5 million as compared with the same period in the prior year. Net sales and maturities of marketable securities of $6.8 million in 2020 exceeded net purchases of marketable securities of $6.8 million in 2019, resulting in a net change in cash provided of $13.6 million. In the six months ended June 30, 2020, there were asset purchases of $9.8 million primarily as a result of the acquisition of one skilled nursing facility by the consolidated Vantage Point Partnership as described in “Significant Transaction and Events” compared to asset sales of $207.8 million comprised primarily of the real property of 13 owned facilities and leasehold rights of 13 leased facilities described in “Significant Transaction and Events”. In the six months ended June 30, 2019, there were asset purchases of $252.5 million by the consolidated expense categories between consolidated EBITDA and net income (loss) from continuing operations of all reportable segments, corporate and eliminations in our consolidating statement of operations for the nine months ended September 30, 2019 as compared with the same period in 2018.
Depreciation and amortization — Each of our reportable segments and corporate overhead have depreciating property, plant and equipment, including amortization of finance lease ROU assets. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense decreased $66.6 million in the nine months ended September 30, 2019 as compared with the same period in 2018. On a same-store basis, depreciation and amortization decreased $44.8 million in the nine months ended September 30, 2019 as compared with the same period in 2018. Of this decrease, approximately $37.7 million resulted from the adoption of Topic 842, which was effective on January 1, 2019 for us. The impact to our financial position and statements of operation from the adoption of this accounting standard is more fully described in Note 1 – “General Information - Recently Adopted Accounting Pronouncements” and Note 8 – “Leases.” In the inpatient services segment, $3.3 million of the decrease is principally due to prior year acceleration offset by current year acceleration related to multiple lease transactions. The remaining $3.8 million of decrease is principally due to asset impairments and assets reaching the end of their depreciable term.
Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as finance leases or financing obligations. Interest expense decreased $207.1 million in the nine months ended September 30, 2019 as compared with the same period 2018. On a same-store basis, interest expense is down $187.8 million in the nine months ended September 30, 2019 as compared with the same period in 2018. Of this decrease, approximately $200.5 million resulted from the adoption of Topic 842, which was effective on January 1, 2019 for us. The impact to our financial position and statements of operation from the adoption of this accounting standard is more fully described in Note 1 – “General Information - Recently Adopted Accounting Pronouncements” and Note 8 – “Leases.” The
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remaining increase of $12.7 million is principally the result of higher rates of interest incurred in the nine months ended September 30, 2019 on the debt instruments impacted by the financial restructuring, which was not fully realized in the prior year period, in addition to consolidating debt and the associated interest expense of a real-estate partnership in the first quarter of 2019, which was determined to be a VIE. See Note 1 – “General Information – Basis of Presentation” and Note 9 – “Long-Term Debt.”
Income tax benefit — For the nine months ended September 30, 2019, we recorded income tax benefit of $0.6 million from continuing operations representing an effective tax rate of (2.8)% compared to an income tax benefit of $1.8 million from continuing operations, representing an effective tax rate of 0.7% for the same period in 2018. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of September 30, 2019, we have determined that the valuation allowance is still necessary.
Net Income (Loss) Attributable to Genesis Healthcare, Inc.
The following discussion applies to categories between net income (loss) from continuing operations and net income (loss) attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the nine months ended September 30, 2019 as compared with the same period in 2018.
Net income (loss) attributable to noncontrolling interests — On February 2, 2015, FC-GEN combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 7.9 million Class C common stock, leaving a remaining direct noncontrolling economic interest of approximately 34.1%. For the nine months ended September 30, 2019 and 2018, a loss of $7.7 million and $98.7 million, respectively, has been attributed to the Class C common stock.
In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any VIEs where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the nine months ended September 30, 2019 and 2018, (loss) income of $(8.9) million and $1.5 million, respectively, has been attributed to these unaffiliated third parties.
Liquidity and Capital Resources
Cash Flow and Liquidity
The following table presents selected data from our consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, |
| ||||
|
|
| 2019 |
| 2018 |
| ||
Net cash provided by operating activities |
|
| $ | 15,758 |
| $ | 14,066 |
|
Net cash used in investing activities |
|
|
| (393,034) |
|
| (54,877) |
|
Net cash provided by financing activities |
|
|
| 363,069 |
|
| 110,273 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash and equivalents |
|
|
| (14,207) |
|
| 69,462 |
|
Beginning of period |
|
|
| 142,276 |
|
| 58,638 |
|
End of period |
|
| $ | 128,069 |
| $ | 128,100 |
|
Net cash provided by operating activities in the nine months ended September 30, 2019 increased $1.7 million compared with the same period in 2018. The nine months ended September 30, 2019 are highlighted by an increase in cash provided of $15.9 million for the collection of outstanding accounts receivable partially offset by an increase in cash used of $1.1 million for payments on accounts payable and other accrued expenses and other.
Net cash used in investing activities in the nine months ended September 30, 2019 was $393.0 million compared to net cash used in investing activities of $54.9 million in the nine months ended September 30, 2018. Routine capital expenditures for the nine
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months ended September 30, 2019 increased by $5.7 million as compared with the same period in the prior year. Net sales and maturities of marketable securities of $8.8 million in 2019 exceeded net purchases of marketable securities of $12.6 million in 2018, resulting in a net change in cash provided of $21.4 million. In the nine months ended September 30, 2019, there were asset purchases of $252.5 million as a result of the consolidation of the Next Partnership and its acquisition of 22 skilled nursing facilities and asset sale proceeds of $79.0 million resulting from the simultaneous sale of seven skilled nursing facilities. The six months ended June 30, 2019 also included $55.4 million in proceeds from the sale of five skilled nursing facilities in California. The six months ended June 30, 2020 also included cash used of $16.9 million for an investment in a new joint venture and cash used of $9.0 million extending the new joint venture a loan as described in “Significant Transaction and Events.” The remaining incremental source of cash in the six months ended June 30, 2020 as compared to the same period in the prior year of $0.6 million was due primarily to restricted deposit and notes receivable activity.
Net cash used in financing activities in the six months ended June 30, 2020 was $247.6 million compared to net cash provided by financing activities of $80.6 million in the June 30, 2019. The net increase in cash used in financing activities of $328.3 million is principally attributed to debt repayments exceeding new borrowings in the six months ended June 30, 2020 as compared to the same period in 2019. In the six months ended June 30, 2020, we had proceeds from the issuance of debt of $34.0 million, consisting primarily of $7.3 million by the consolidated Vantage Point Partnership and $26.1 million in HUD refinancings by our consolidated Next Partnership. In the six months ended June 30, 2019, we had proceeds from the issuance of debt of $170.6 million primarily from the consolidated Next Partnership. Repayment of long-term debt in the six months ended June 30, 2020 was $141.5 million compared to $90.0 million in the same period of the prior year. In the six months ended June 30, 2020, we repaid $74.5 million in HUD-insured loans, $21.6 million in MidCap Real Estate Loans, $9.0 million in Welltower Real Estate Loans, $9.0 million in a short-term note payable and $24.5 million in term loan paydowns associated with the consolidated Next Partnership. In the six months ended June 30, 2019, we repaid $27.7 million in MidCap Real Estate Loans and $14.2 million in HUD-insured loans using proceeds from the sale of five skilled nursing facilities in California and reduced the term loan facility of the ABL Credit Facilities by $40.0 million while increasing the revolving credit facilities by the same amount. The remaining decrease in cash used to repay long-term debt of $5.2 million relates to a decrease in routine debt payments. In the six months ended June 30, 2020, we had net repayments under the revolving credit facilities of $136.0 million as compared with $10.9 million of net repayments under the revolving credit facilities in the same period in 2019. In the six months ended June 30, 2020, we paid debt issuance costs of $0.5
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million from the consolidated Vantage Point Partnership. In the six months ended June 30, 2019, we paid debt issuance costs of $3.7 million from the consolidated Next Partnership. In the six months ended June 30, 2019, we received contributions from a noncontrolling interest for $18.5 million resulting from the aforementioned Next Partnership.
Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our asset based lending facilities (ABL Credit Facilities).
The objectives of our capital planning strategy are to ensure we maintain adequate liquidity and flexibility. Pursuing and achieving those objectives allow us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment. Maintaining adequate liquidity is a function of our results of operations, restricted and unrestricted cash and cash equivalents and our available borrowing capacity.
At June 30, 2020, we had total liquidity of $282.9 million consisting of cash on hand of $275.0 million and available borrowings under our ABL Credit Facilities of $7.9 million. During the six months ended June 30, 2020, we maintained liquidity sufficient to meet our working capital, capital expenditure and development activities.
COVID-19 Impact on Liquidity
We have taken, and will continue to take, actions to enhance and preserve our liquidity in response to the pandemic. During the three and six months ended June 30, 2020, our usual 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, we applied for and received $156.8 million of advanced Medicare payments and in April and May 2020 received $185.5 million of relief grants. In addition, we have elected to implement the CARES Act payroll tax deferral program, which has preserved, on an interest free basis, approximately $36 million of cash through June 30, 2020. The advance Medicare payments of $156.8 million, which are also interest free, are scheduled to be recouped 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 we operate, currently estimated at $47.2 million, since the outset of the pandemic. These sources of cash provided by federal and state governments have and will continue to be used to fund the impact of escalating expenses and the net effect of lost revenue caused by the COVID-19 pandemic.
We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses, continuing to evaluate our capital structure, pursuing strategic liquidity enhancing transactions and seeking further government-sponsored financial relief related to the pandemic. We 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.
Liquidity and Going Concern Considerations
We performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of our plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
In completing our going concern assessment, we considered the uncertainties around the impact of COVID-19 on our future results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within 12 months following the date our financial statements were issued. Without giving effect to the prospect, timing and adequacy of future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.
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In response to COVID-19, we have taken the following measures to improve our liquidity position:
● | We applied for and received government-sponsored financial relief related to the pandemic; |
● | We are utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, 50% to be repaid by December 31, 2021 and 50% to be repaid by December 31, 2022; |
● | While we vigorously advocate, for ourself and the skilled nursing industry, regarding the need for additional government sponsored funding, we continue to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19; |
● | We continue to implement measures to adapt successfully our operational model to function for the long-term in a COVID-19 environment; and |
● | We have pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity. |
These measures and other plans and initiatives of ours are designed to provide us with adequate liquidity to meet our obligations for at least the twelve-month period following the date our financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond our control or may not be available on terms acceptable to us, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if we receive additional funding support from government sources and/or are able to execute successfully all of our plans and initiatives, given the current challenging environment our operating plans and resulting cash flows along with our cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force us to seek reorganization under the U.S. Bankruptcy Code.
Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.
Risk and Uncertainties
Although we are in compliance with the covenants required by our material debt and lease agreements at June 30, 2020, the ongoing uncertainty related to the impact of healthcare reform initiatives and the effect of the COVID-19 pandemic may have an adverse impact on our ability to remain in compliance with our financial covenants through August 10, 2021. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.
There can be no assurance that the confluence of these and other factors will not impede our ability to meet our debt and lease covenants in the future.
Financing Activities
Divestiture of Non-Strategic Facilities
Consistent with our strategy to divest assets in non-strategic markets, we have exited 44 inpatient operations, including 37 skilled nursing facilities, two assisted/senior living facilities and five behavioral health centers in 11 states beginning January 1, 2020 through August 1, 2020, including:
● | The sale of three owned skilled nursing facilities located in North Carolina and Maryland on February 1, 2020. A gain was recognized totaling $24.9 million. |
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● | The transition of operational responsibility for 19 facilities in the states of California, Washington and Nevada to NewGen on February 1, 2020. The transaction included the sale of the real estate and operations of six skilled nursing facilities and |
● | The sale of one owned skilled nursing facility located in |
● | The lease termination of |
● | The sale of |
● | The |
● | The lease termination of |
● | The transition of operational responsibility for four additional leased facilities in California |
● | The lease termination of
|