RehabCare Group, Inc. (NYSE:RHB) today reported financial
results for the quarter ended March 31, 2010. Comparative results
for the quarter follow.
First Fourth First
Quarter Quarter Quarter Amounts in
millions, except per share data 2010
2009 2009
Consolidated Operating Revenues $ 327.4 $ 254.7 $ 201.5
Consolidated Operating Earnings (a) 32.5 6.9 14.3 Consolidated Net
Earnings from Continuing Operations 14.8 0.3 8.4 Gain from
Discontinued Operations, Net of Tax
-
-
0.1 Consolidated Net Earnings 14.8 0.3 8.5 Net Losses Attributable
to Noncontrolling Interests 0.2 0.4 0.2 Net Earnings Attributable
to RehabCare 15.0 0.7 8.7 Diluted Earnings per Share Attributable
to RehabCare: Earnings from Continuing Operations, Net of Tax 0.61
0.03 0.48 Net Earnings 0.61 0.03 0.48 SRS Operating Revenues
126.4 126.0 123.1 SRS EBITDA (a) 11.7 9.8 12.1 SRS Operating
Earnings (a) 10.3 8.4 10.5 HRS Inpatient Operating Revenues
31.1 33.3 31.8 HRS Outpatient Operating Revenues 12.1 11.7 11.3 HRS
Operating Revenues 43.2 45.0 43.1 HRS EBITDA (a) 7.5 7.9 6.9 HRS
Operating Earnings (a) 6.9 7.3 6.3 Hospital Operating
Revenues 157.8 83.8 35.3 Hospital EBITDA (a) 20.6 (5.8 ) (0.8 )
Hospital Operating Earnings (Loss) (a) 15.2 (8.8 ) (2.3 )
(a) The fourth quarter of 2009
includes pretax transaction and severance expenses primarily
related to the Triumph merger of $9.4 million, or $0.34 per diluted
share after tax (see table on page 11).
“After a slow start to the quarter, all three divisions had
strong performance in March, which generated better than
anticipated results. Total operating revenues and earnings
increased dramatically as a result of our merger with Triumph
HealthCare,” said John H. Short, Ph.D, RehabCare President and
Chief Executive Officer.
“While Triumph’s operating results for January and February were
hampered by lower acute care volumes and achieving 25-day length of
stay compliance in six hospitals, they reported an EBITDA margin of
17.7% for the quarter. Our 13 legacy hospitals continued to improve
operating performance in the first quarter, reaffirming our
expectations for a breakeven operating earnings run rate by the end
of the second quarter and breakeven operating earnings for the full
year. We are making excellent progress with integration efforts and
are on track for margin expansion in our legacy long-term acute
care hospitals (LTACHs),” he said.
Dr. Short continued, “Despite the impact of Part B therapy caps
on the first 61 days of the quarter, our Skilled Nursing
Rehabilitation Services division delivered strong earnings results.
Based on first quarter performance, we are raising our operating
earnings margin outlook for the full year to 7% - 8%, recognizing
the uncertain impact of concurrent therapy provisions that go into
effect October 1, the rollout of new technologies in the division
and reimbursement changes for skilled nursing operators under
healthcare reform.
“While the full effect of healthcare reform legislation remains
to be seen, we are pleased with its short-term benefits, including
the extension of LTACH-related provisions and the exceptions
process for Part B therapy caps, and we are well positioned for
many of its long-term initiatives.”
Financial Overview of First Quarter
Consolidated operating revenues for the first quarter of 2010,
which included $112.6 million generated by Triumph HealthCare, were
$327.4 million, a 62.4% increase compared to $201.5 million in the
2009 first quarter.
Consolidated net earnings attributable to RehabCare were $15.0
million in the first quarter of 2010 compared to $8.7 million in
the prior year quarter. Diluted earnings per share attributable to
RehabCare for the first quarter of 2010 was $0.61 compared to $0.48
for the 2009 first quarter.
Operating revenues in the Skilled Nursing Rehabilitation
Services (SRS) division increased 2.6% from $123.1
million in the first quarter of 2009 to $126.4 million in the first
quarter of 2010, driven by a 5.3% increase in the average number of
contract therapy programs operated. Contract therapy same store
revenues decreased by 0.6%, impacted by lower Medicare Part B
volumes in January and February due to therapy caps. The therapy
cap exceptions process was reinstated through a package of
short-term extenders that cleared the Senate on March 2 and was
subsequently extended through the end of 2010 with passage of the
Patient Protection and Affordable Care Act on March 23.
On March 31, 2010, SRS operated in 1,125 locations compared to
1,118 locations at the end of 2009 and 1,063 locations at the end
of the first quarter of 2009.
The SRS division’s operating earnings were $10.3 million, or
8.2% of revenue, compared to $10.5 million, or 8.5% of revenue, in
the first quarter of 2009. The negative impact of Part B therapy
caps in the 2010 first quarter was offset by higher productivity
and Part A volumes, better leveraging of corporate general and
administrative expenses as a result of integrating Triumph, lower
bad debt expense and lower depreciation and amortization. The
division will continue to be challenged in 2010 by pricing
pressures, wage rate increases, new rules for concurrent therapy
and the rollout of new technologies.
The Hospital Rehabilitation Services (HRS) division’s
first quarter 2010 operating revenues increased 0.4% to $43.2
million from $43.1 million in the first quarter of 2009. Inpatient
operating revenues declined 2.0% as a result of a 6.2% decline in
the average number of inpatient programs. Inpatient rehabilitation
facility (IRF) same store revenues and discharges increased 4.1%
and 1.6%, respectively, over the prior year quarter. Outpatient
operating revenues increased 7.1% in the 2010 first quarter despite
a 14.8% decline in the average number of outpatient programs. Same
store outpatient revenues improved 11.3%.
At March 31, 2010, the division operated 103 IRF programs
compared to 106 at the beginning of the quarter and 113 a year ago.
The division had one IRF opening and four IRF closings during the
first quarter and signed contracts for two IRFs. At March 31, 2010,
the number of signed but unopened IRF contracts was three, compared
to two IRFs at the end of the fourth quarter. Given increased sales
activity, the Company reaffirms its expectation for unit recovery
in the second half of the year
HRS first quarter 2010 operating earnings were $6.9 million, or
16.0% of revenue, compared to operating earnings of $6.3 million,
or 14.6% of revenue, for the 2009 first quarter.
Operating revenues in the Hospital division for the first
quarter of 2010 increased $74.0 million, or 88.4%, sequentially to
$157.8 million. RehabCare legacy same store revenues increased 2.7%
on a sequential basis.
The legacy hospitals’ operating loss in the 2010 first quarter
was $1.0 million, a sequential improvement of $3.1 million, after
excluding $8.4 million in 2009 fourth quarter transaction and
severance expenses primarily related to the Triumph merger. The
first quarter operating loss included $1.3 million in start-up
losses for Greater Peoria Specialty Hospital, which ended its
Medicare demonstration period on April 30. The first quarter also
included a $0.6 million operating loss at Dallas LTAC Hospital,
compared to a $1.8 million loss in the prior quarter. The Company
continues to expect this hospital to be accretive by the end of the
2010 second quarter.
Triumph HealthCare generated revenues of $112.6 million,
operating earnings of $16.2 million and EBITDA of $19.9 million, or
17.7% of revenue, during the first quarter of 2010.
At the end of the quarter, the combined division operated a
total of 34 hospitals, including 28 LTACHs and six IRFs. Triumph
Hospital-The Heights, an LTACH in Houston, admitted its first
patient on April 15.
Balance Sheet and Liquidity
At March 31, 2010, the Company had $27.4 million in cash and
cash equivalents and $462.3 million in outstanding debt excluding
unamortized original issue discounts. Days sales outstanding (DSO)
increased from 60.2 days at December 31, 2009 to 61.8 days at March
31, 2010.
For the three months ended March 31, 2010, the Company generated
cash from operations of $8.5 million and expended $5.2 million for
capital expenditures, principally related to companywide
information systems, the start-up of Triumph Hospital-The Heights
and hospital facility maintenance capital.
Legislative Update
The enactment of healthcare reform legislation in March set the
stage for a series of new programs, pilots and payments in both
Medicare and other payors over the next 10 years. Positive
provisions for RehabCare included an extension of the Part B
therapy cap exceptions process through December 31, 2010, as well
as an extension of LTACH provisions contained in the 2007 Medicare,
Medicaid and SCHIP Extension Act through the end of 2012. The
Company is taking a leadership role in post-acute payment bundling,
accountable care organizations and establishing LTACH facility and
admission criteria.
As a means to finance healthcare reform, hospitals face a series
of Medicare rate reductions phased in over the next 10 years, some
of which went into effect for IRFs and LTACHs in April. In
addition, on April 19, 2010, the Centers for Medicare and Medicaid
Services (CMS) issued its proposed rate year (RY) 2011 rule for
acute care hospitals and LTACHs. The Company does not expect the
rate reductions or the RY2011 rule for LTACHs, as proposed, to
alter its 2010 outlook. Proposed rules for IRFs and skilled nursing
facilities are anticipated in the days ahead.
Outlook
The Company does not provide revenue and earnings per share
guidance, but provides the following outlook for the total year
2010:
- The Skilled Nursing
Rehabilitation Services division expects 7% to 8% operating
earnings margins for the full year 2010, which will be driven by
mid-single digit year-over-year same store revenue growth and which
reflects the estimated impact of new concurrent therapy rules, the
rollout of new technologies, pricing pressures and wage rate
increases during the year. The division expects 50 to 75 net new
units in 2010.
- The Hospital Rehabilitation
Services division expects 15% to 17% operating earnings margins and
2% to 4% year-over-year growth in IRF same store discharges for the
full year 2010. Unit count is anticipated to decrease in the first
half of the year and recover in the second half, resulting in flat
unit growth for the total year 2010.
- The Hospital division expects
total year revenue of $650 to $675 million and EBITDA of $90 to
$100 million. As previously stated, the Company expects a breakeven
operating earnings run rate for its 13 legacy hospitals by the end
of the second quarter of 2010 and to achieve breakeven operating
earnings for the full year 2010.
- The effective tax rate, after
consideration of noncontrolling interests, is now anticipated to be
38.25% for 2010 compared to the prior outlook of 39%.
- Net income attributable to
noncontrolling interests is expected to approximate $3 million for
the total year 2010.
- The Company expects continued
strong operating cash flow with DSO between 60 and 63 days.
- Capital expenditures are
anticipated to be $32 million in 2010, consisting of $12.5 million
of information systems investments, $12.5 million in expansion
projects and $7 million related to maintenance.
Conference Call Information
RehabCare will host a conference call on May 5, 2010, beginning
at 11:00 AM Eastern time. Listeners may access the call by dialing
(800) 640-9765, confirmation number 26760582, or in a listen-only
mode through the Company’s website at
http://www.rehabcare.com/about/investors/webcast.html. A replay of
the call will be available beginning at approximately 4:00 PM
Eastern Time on May 5 by dialing (877) 213-9653, confirmation
number 26760582. An online archive of the conference call will
remain on the Company’s website through June 4, 2010.
Investor Day Information
RehabCare will host an Investor Day for financial analysts and
investors on May 18, 2010, from 8:00 AM to 4:00 PM Central Time at
the JW Marriott in Houston, TX. The event will include
presentations by senior management and tours of two RehabCare
wholly-owned hospitals. From 8:30 AM to 12:00 PM, a live webcast of
the management presentations may be accessed on the Company’s
website.
About RehabCare Group
Established in 1982 and headquartered in St. Louis, MO,
RehabCare (www.rehabcare.com) is a leading provider of
rehabilitation program management services in partnership with
nearly 1,270 hospitals and skilled nursing facilities in 41 states.
The Company also operates 34 freestanding long-term acute care and
rehabilitation hospitals across the country. RehabCare is included
in the Russell 2000 and Standard and Poor’s Small Cap 600
Indices.
This press release contains forward-looking statements that are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements are based
on the Company’s current expectations and could be affected by
numerous factors, risks and uncertainties discussed in the
Company’s filings with the Securities and Exchange Commission,
including its most recent report on Form 10-K, subsequent quarterly
reports on Form 10-Q and current reports on Form 8-K. Do not rely
on forward-looking statements as the Company cannot predict or
control many factors that affect its ability to achieve the results
estimated. The Company makes no promise to update any forward-
looking statements because of changes in underlying factors, new
information, future events or otherwise.
This press release contains non-GAAP financial measures as such
term is defined in Regulation G under the rules of the Securities
and Exchange Commission. While the Company believes these non-GAAP
financial measures are useful in evaluating the Company, this
information should be considered as supplemental in nature and not
as a substitute for or superior to the related financial
information prepared in accordance with GAAP. Further, these
non-GAAP financial measures may differ from similarly titled
measures presented by other companies. The Company has included
reconciliations of these non-GAAP measures to the most directly
comparable GAAP measure in the tables of this release.
I. Condensed Consolidated Statements of
Earnings
(Unaudited; amounts in thousands, except per share data)
Three Months Ended Mar. 31, Dec.
31, Mar. 31, 2010
2009 2009 Operating
revenues $ 327,361 $ 254,692 $ 201,531 Costs and expenses:
Operating 261,070 208,824 159,291 Selling, general and
administrative 26,535 33,876 24,081 Depreciation and amortization
7,280 5,120 3,869 Total costs and expenses 294,885 247,820 187,241
Operating earnings 32,476 6,872 14,290 Interest
income 18 79 15 Interest expense (8,500 ) (3,927 ) (572 ) Other
income, net 7 8 1 Equity in net income of affiliates 116 105 166
Earnings from continuing operations before income taxes
24,117 3,137 13,900 Income tax expense 9,288 2,842 5,503 Earnings
from continuing operations 14,829 295 8,397 Gain from discontinued
operations
-
8 51 Net earnings 14,829 303 8,448 Net loss attributable to
noncontrolling interests 164 352 212 Net earnings attributable to
RehabCare $ 14,993 $ 655 $ 8,660 Amounts attributable to
RehabCare: Earnings from continuing operations $ 14,993 $ 647 $
8,609 Gain from discontinued operations
-
8 51 Net earnings $ 14,993 $ 655 $ 8,660 Diluted EPS
attributable to RehabCare: Earnings from continuing operations $
0.61 $ 0.03 $ 0.48 Gain from discontinued operations
-
-
-
Net earnings $ 0.61 $ 0.03 $ 0.48 Weighted average diluted
shares 24,655 21,284 17,899
II. Condensed Consolidated Balance
Sheets
(Amounts in thousands)
Unaudited March
31, December 31, 2010
2009 Assets Cash and cash equivalents $
27,351 $ 24,690 Accounts receivable, net 215,472 199,447 Deferred
tax assets 21,240 21,249 Other current assets 18,380 19,530 Total
current assets 282,443 264,916 Property and equipment, net
112,070 111,814 Goodwill 566,078 566,078 Intangible assets 133,280
135,406 Investment in unconsolidated affiliate 4,754 4,761 Other
assets 26,277 27,005 $ 1,124,902 $ 1,109,980
Liabilities &
Equity Current portion of long-term debt $ 11,747 $ 7,507
Payables & accruals 142,933 144,113 Total current liabilities
154,680 151,620 Long-term debt, less current portion 442,016
447,760 Other non-current liabilities 52,013 50,980 Stockholders’
equity 453,605 437,338 Noncontrolling interests 22,588 22,282 $
1,124,902 $ 1,109,980
III. Condensed Consolidated Statements of
Cash Flows
(Unaudited; amounts in thousands)
Three Months Ended
March 31, 2010
2009 Net cash provided by operating
activities $ 8,511 $ 9,388 Net cash used in investing activities
(5,151 ) (1,468 ) Net cash provided by (used in) financing
activities (699 ) 2,908 Net increase in cash and cash
equivalents 2,661 10,828 Cash and cash equivalents at beginning of
period 24,690 27,373 Cash and cash equivalents at end of period $
27,351 $ 38,201
Supplemental information:
Additions to property and equipment $ (5,241 ) $ (1,557 )
IV. Operating Statistics
(Unaudited; dollars in thousands)
First Fourth First
Quarter Quarter Quarter
2010 2009
2009
Skilled Nursing Rehabilitation
Services
Operating revenues $ 126,352 $ 125,965 $ 123,148 Operating expenses
103,333 103,698 98,998 Selling, general and administrative 11,367
12,448 12,017 Depreciation and amortization 1,307 1,463 1,678
Operating earnings $ 10,345 $ 8,356 $ 10,455 Operating earnings
margin 8.2 % 6.6 % 8.5 % EBITDA $ 11,652 $ 9,819 $ 12,133
Average number of contract therapy locations 1,131 1,121
1,074 End of period number of contract therapy locations 1,125
1,118 1,063 Patient visits (in thousands) 2,020 2,023 2,005
Hospital Rehabilitation
Services
Operating revenues Inpatient Rehabilitation Facility (IRF) $ 29,016
$ 31,294 $ 30,018 Subacute 2,094 1,981 1,725 Total Inpatient $
31,110 $ 33,275 $ 31,743 Outpatient 12,130 11,691 11,323 Total HRS
$ 43,240 $ 44,966 $ 43,066 Operating expenses 31,155 31,666 30,634
Selling, general and administrative 4,627 5,373 5,490 Depreciation
and amortization 537 592 646 Operating earnings $ 6,921 $ 7,335 $
6,296 Operating earnings margin 16.0 % 16.3 % 14.6 % EBITDA
$ 7,458 $ 7,927 $ 6,942 Average number of programs IRF 104
110 113 Subacute 10 9 9 Total Inpatient 114 119 122 Outpatient 31
34 36 Total HRS 145 153 158 End of period number of programs
IRF 103 106 113 Subacute 10 9 9 Total Inpatient 113 115 122
Outpatient 31 30 36 Total HRS 144 145 158 IRF discharges
10,007 10,907 10,999 Outpatient visits (in thousands) 262 305 311
IV. Operating Statistics Continued
(Unaudited; dollars in thousands)
First Fourth First
Quarter Quarter Quarter
2010 2009
2009
Hospitals
Operating revenues $ 157,769 $ 83,761 $ 35,317 Operating expenses
126,582 73,460 29,659 Selling, general and administrative 10,541
16,055 6,455 Depreciation and amortization 5,436 3,065 1,545
Operating earnings (loss) $ 15,210 $ (8,819 ) $ (2,342 ) Operating
earnings margin 9.6 % -10.5 % -6.6 % EBITDA $ 20,646 $
(5,754 ) $ (797 )
LTACHs
Number of hospitals – end of period 28 28 5 Available licensed beds
– end of period 1,593 1,593 243 Admissions 3,563 1,759 516 Patient
days 90,455 47,465 13,844 Average length of stay (Medicare days
only) 26 27 27 Net inpatient revenue per patient day $ 1,515 $
1,346 $ 1,248 Occupancy rate 63 % 61 % 63 % Percent patient days -
Medicare 73 % 72 % 74 %
IRFs
Number of hospitals – end of period 6 6 6 Available licensed beds –
end of period 243 243 243 Admissions 1,228 1,207 1,210 Discharges
1,188 1,223 1,148 Average length of stay (Medicare days only) 13 13
12 Net inpatient revenue per discharge $ 14,845 $ 14,310 $ 14,187
Occupancy rate 73 % 71 % 68 % Percent patient days - Medicare 66 %
67 % 64 %
V. Operating Earnings and EBITDA
Reconciliation
First Fourth First Quarter
Quarter Quarter 2010
2009 2009 SRS
operating earnings $ 10,345 $ 8,356 $ 10,455 HRS operating earnings
6,921 7,335 6,296
Hospital operating earnings (loss) 15,210 (8,819 ) (2,342 )
Unallocated items
-
-
(119 ) Consolidated operating earnings 32,476 6,872 14,290
Depreciation and amortization 7,280 5,120 3,869 Consolidated EBITDA
$ 39,756 $ 11,992 $ 18,159
VI. Charges Included in Statement of
Earnings
(Amounts in thousands,
except per share data)
Fourth Quarter 2009
Pre-Tax
Impact After-Tax
Impact Diluted
EPS Transaction expenses1 $ 7,070 $ 4,313 $
0.20 Tax impact of non-deductible transaction expenses2
-
1,502 0.07 Severance expenses3 862 526 0.03 Long-term incentive
plan expense resulting from the transaction2 1,443
880 0.04 $ 9,375 $ 7,221 $ 0.34
Breakdown by division
Skilled Nursing Rehabilitation Services $ 648 Hospital
Rehabilitation Services 322 Hospitals 8,405 $ 9,375
1$6,781 pretax related to the Triumph merger 2Transaction expenses
directly related to the Triumph merger 3Severance expenses were
primarily incurred in an effort to reduce corporate overhead and
eliminate redundancies created by the Triumph merger
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