November 4, 2019
VIA EDGAR
Mr. Charles Eastman
Senior Staff Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Genesis Healthcare, Inc.
Form 8-K
Filed August 8, 2019
File No. 1-33459
Dear Mr. Eastman:
This letter is provided by Genesis Healthcare, Inc. (the “Company”) in response to and based on our conversations with the staff of the Securities and Exchange Commission (the “Staff”) on September 11, 2019, with respect to the Company’s current report on Form 8-K filed on August 8, 2019 and specifically the Company’s presentation of Adjusted EBITDAR:
COMPANY RESPONSE:
Adjusted EBITDAR is a commonly used measure to estimate the enterprise value of businesses in healthcare and other industries. The Company uses Adjusted EBITDAR as one measure in determining the value of its businesses and the value of prospective acquisitions or divestitures. In addition, financial covenants in the Company’s lease agreements use Adjusted EBITDAR as a key variable to measure compliance.
As discussed with the Staff, in future filings, the Company will more clearly identify Adjusted EBITDAR as a valuation measure and the Company will present Adjusted EBITDAR for the current year periods only. Accordingly, the Company will no longer disclose Adjusted EBITDAR for the comparable periods in the prior year.
The following tables are from the Company’s Exhibit 99.1 filed on August 8, 2019 that have been amended to reflect how the Company proposes to disclose Adjusted EBITDAR in future filings.
Page 2
Memorandum
GENESIS HEALTHCARE, INC.
KEY PERFORMANCE AND VALUATION MEASURES
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, |
| Six months ended June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Financial Results (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Performance Measures: |
|
|
|
|
|
|
|
|
|
|
|
Net revenues (GAAP) | $ | 1,145,052 |
| $ | 1,272,360 |
| $ | 2,306,692 |
| $ | 2,573,432 |
Net loss attributable to Genesis Healthcare, Inc. (GAAP) |
| (4,819) |
|
| (39,612) |
|
| (20,082) |
|
| (108,150) |
EBITDA (Non-GAAP) |
| 72,098 |
|
| 117,707 |
|
| 136,778 |
|
| 175,921 |
Adjusted EBITDA (Non-GAAP) |
| 61,433 |
|
| 131,215 |
|
| 115,869 |
|
| 248,761 |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Measure: |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAR (Non-GAAP) | $ | 156,019 |
|
|
|
| $ | 304,516 |
|
|
|
GENESIS HEALTHCARE, INC.
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO GENESIS HEALTHCARE, INC. TO NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, |
|
| Six months ended June 30, | ||||||||
|
| 2019 |
| 2018 |
|
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Genesis Healthcare, Inc. |
| $ | (4,819) |
| $ | (39,612) |
|
| $ | (20,082) |
| $ | (108,150) |
Adjustments to compute EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests |
|
| (4,164) |
|
| (23,245) |
|
|
| (13,983) |
|
| (63,380) |
Depreciation and amortization expense |
|
| 28,268 |
|
| 63,495 |
|
|
| 66,463 |
|
| 114,998 |
Interest expense |
|
| 52,975 |
|
| 117,955 |
|
|
| 104,491 |
|
| 232,992 |
Income tax benefit |
|
| (162) |
|
| (886) |
|
|
| (111) |
|
| (539) |
EBITDA |
| $ | 72,098 |
| $ | 117,707 |
|
|
| 136,778 |
|
| 175,921 |
Adjustments to compute Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on early extinguishment of debt |
|
| (24) |
|
| (501) |
|
|
| (24) |
|
| 9,785 |
Other income |
|
| (23,413) |
|
| (22,220) |
|
|
| (40,330) |
|
| (22,152) |
Transaction costs |
|
| 8,823 |
|
| 3,112 |
|
|
| 10,084 |
|
| 15,207 |
Long-lived asset impairments |
|
| 900 |
|
| 27,257 |
|
|
| 900 |
|
| 55,617 |
Goodwill and identifiable intangible asset impairments |
|
| — |
|
| 1,132 |
|
|
| — |
|
| 1,132 |
Severance and restructuring |
|
| 673 |
|
| 3,493 |
|
|
| 2,119 |
|
| 6,333 |
Loss (income) of newly acquired, constructed, or divested businesses |
|
| 865 |
|
| (925) |
|
|
| 2,744 |
|
| 2,175 |
Stock-based compensation |
|
| 1,748 |
|
| 2,129 |
|
|
| 3,835 |
|
| 4,556 |
Regulatory defense and related costs |
|
| — |
|
| 31 |
|
|
| — |
|
| 140 |
Other non-recurring costs |
|
| (237) |
|
| — |
|
|
| (237) |
|
| 47 |
Adjusted EBITDA |
| $ | 61,433 |
| $ | 131,215 |
|
| $ | 115,869 |
| $ | 248,761 |
Lease expense |
|
| 94,586 |
|
| 32,111 |
|
|
| 188,647 |
|
| 65,182 |
Adjusted EBITDAR |
| $ | 156,019 |
|
|
|
|
| $ | 304,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash lease payments made pursuant to operating leases, finance leases and financing obligations |
| $ | 105,888 |
| $ | 106,675 |
|
| $ | 213,516 |
| $ | 217,678 |
Page 3
Memorandum
If you have any additional questions or require any additional information with respect to this letter, please do not hesitate to contact me.
Very truly yours,
/s/ Thomas DiVittorio
Thomas DiVittorio
Chief Financial Officer
Genesis Healthcare, Inc.
cc: Stephen Young, SVP, Chief Accounting Officer & Treasurer
Michael S. Sherman, SVP, General Counsel, Secretary & Assistant Treasurer
Brian V. Breheny, Skadden, Arps, Meagher & Flom, LLP., SEC Counsel