RehabCare Group, Inc. (NYSE:RHB) today reported the following
financial results.
Third Second Third
Nine Months Ended Quarter Quarter
Quarter September 30, Amounts in millions, except
per share data
2010
2010
2009
2010
2009
Consolidated Operating Revenues (a) $ 342.7 $ 334.0 $ 208.0
$ 1,004.1 $ 614.7 Consolidated Operating Earnings (a) 34.6 31.3
10.5 98.4 37.6 Consolidated Net Earnings from Continuing Operations
(a),(b) 16.8 15.2 5.7 46.8 21.5 Loss from Discontinued Operations,
Net of Tax (c)
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--
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(0.8 ) Consolidated Net Earnings (a),(b) 16.8 15.2 5.7 46.8 20.7
Net (Earnings) Loss Attributable to
Noncontrolling Interests
(1.1 ) (0.5 ) 1.1 (1.4 ) 1.6 Net Earnings Attributable to RehabCare
(a),(b) 15.7 14.7 6.8 45.4 22.3 Diluted Earnings per Share
Attributable to RehabCare: Earnings from Continuing Operations, Net
of Tax (a),(b) 0.64 0.59 0.37 1.84 1.28 Net Earnings (a),(b) 0.64
0.59 0.37 1.84 1.24 SRS Operating Revenues 130.9 130.9 123.4
388.1 370.3 SRS EBITDA 11.7 12.5 11.4 35.9 34.2 SRS Operating
Earnings 10.4 11.1 9.8 31.8 29.4 HRS Inpatient Operating
Revenues 32.6 31.8 32.9 95.5 97.6
HRS Outpatient Operating Revenues
13.0 13.0 12.1 38.1 35.6 HRS Operating Revenues 45.6 44.8 45.0
133.6 133.2 HRS EBITDA 9.1 8.4 8.8 25.0 24.0 HRS Operating Earnings
8.5 7.9 8.2 23.3 22.2 Hospital Operating Revenues (a) 166.2
158.4 39.7 482.4 111.2 Hospital EBITDA (a) 21.6 18.0 (5.9 ) 60.3
(9.0 ) Hospital Operating Earnings (Loss) (a) 15.7 12.3 (7.6 ) 43.2
(13.7 )
(a) During the 2010 second quarter, the Company recorded a $1.7
million unfavorable pretax revenue adjustment for estimates of
additional amounts due on 2007 and 2008 cost reports for one of its
inpatient rehabilitation facilities. The after-tax impact of this
adjustment was approximately $1.0 million, or $0.04 per diluted
share (see table on page 9).
(b) During the 2010 second quarter, the Company recognized a
$0.8 million, or $0.03 per diluted share, income tax benefit for
the combined impact of the reversal of a contingency reserve due to
a favorable ruling from the Internal Revenue Service and tax
credits identified during the quarter (see table on page 9).
(c) The $0.8 million after-tax loss from discontinued operations
in the first nine months of 2009 included a $0.7 million loss on
the sale of the Company’s Phase 2 Consulting business on June 1,
2009.
Management Comments
John H. Short, Ph.D, RehabCare President and Chief Executive
Officer, commented, “While we are pleased that our legacy RehabCare
hospitals exceeded expectations in the third quarter, we are
focused on improving operations in underperforming Triumph
hospitals. Key performance indicators of our combined operations
are trending up, and we continue to expand our post-acute continuum
of care through growth opportunities in select markets, two of
which we are announcing today.”
“Our contract services divisions had a repeat performance of
solid earnings,” Dr. Short said. “In our Skilled Nursing
Rehabilitation Services division, we successfully reduced our
percentage of patients being treated concurrently to 5% by the end
of the third quarter, in advance of new concurrent therapy rules
that went into effect October 1. Similar to the transition to PPS,
the complex changes associated with MDS 3.0 and RUGs IV have caused
some chaos in the skilled nursing facility market which will
negatively impact margins in the fourth quarter.”
Financial Overview of Third Quarter
Consolidated operating revenues for the third quarter of 2010
were $342.7 million, which included $111.5 million generated by
Triumph, a 64.7% increase compared to $208.0 million in the 2009
third quarter. Excluding Triumph, revenues increased $23.2 million,
or 11.1%.
Consolidated net earnings from continuing operations
attributable to RehabCare were $15.7 million, or $0.64 per diluted
share, in the third quarter of 2010 compared to $6.8 million, or
$0.37 per diluted share, in the prior year quarter. Earnings in the
third quarter of 2009 included $2.2 million of pretax external
merger and acquisition-related expenses, or $0.07 per diluted share
after tax.
Operating revenues in the Skilled Nursing Rehabilitation
Services (SRS) division increased 6.2% from $123.4
million in the third quarter of 2009 to $130.9 million in the third
quarter of 2010, driven by a 4.3% increase in the average number of
contract therapy programs operated. Contract therapy same store
revenues increased 3.4%. Operating earnings were $10.4 million, or
7.9% of revenue, compared to $9.8 million, or 8.0% of revenue, in
the third quarter of 2009.
On September 30, 2010, SRS operated in 1,131 locations compared
to 1,115 locations at the end of the second quarter of 2010 and
1,098 locations at the end of the third quarter of 2009. SRS had 20
signed but unopened contracts at the end of the third quarter.
Openings and closings in the quarter totaled 67 and 51,
respectively, resulting in a net 16 additional units. Accordingly,
the Company is revising its outlook for the full year 2010 from a
net 50 to 75 new units to a net 10 to 20 new units.
The physician fee schedule and Medicare Part B therapy cap
exceptions process are scheduled to expire on November 30 and
December 31, 2010, respectively. Congress may extend both
provisions, but due to the uncertainty of the mid-term elections,
it is unclear as to whether this will occur before their deadlines.
A decision on implementation of the Multiple Procedure Payment
Reduction rule should be forthcoming soon.
The Hospital Rehabilitation Services (HRS) division’s
2010 third quarter operating revenues increased 1.2% to $45.6
million from $45.0 million in the third quarter of 2009. Inpatient
operating revenues declined 1.0% as a result of a 2.6% decline in
the average number of inpatient programs. Inpatient rehabilitation
facility (IRF) same store revenues and discharges increased 3.3%
and 4.7%, respectively, over the prior year quarter. Outpatient
operating revenues increased 7.3% in the 2010 third quarter despite
a 12.1% decline in the average number of outpatient programs. This
was driven by a 22.2% improvement in average revenue per program
including 8.0% same store growth in outpatient revenues. Operating
earnings were $8.5 million, or 18.7% of revenue, compared to
operating earnings of $8.2 million, or 18.2% of revenue, for the
2009 third quarter.
At September 30, 2010, the division operated 106 IRF programs,
flat sequentially and down four from a year ago. The division had
one IRF opening and one IRF closing, one subacute opening and two
outpatient unit closings during the third quarter. At quarter end,
the number of signed but unopened contracts was six, including
three IRFs. The Company anticipates a net one to two new IRF
programs for the fourth quarter.
Operating revenues in the Hospital division for the third
quarter of 2010 increased $7.7 million, or 4.9%, sequentially to
$166.2 million. Same store revenues increased $6.1 million, or 3.9%
on a sequential basis, which included a second quarter unfavorable
$1.7 million adjustment for estimated prior year cost report
settlements at one IRF. Including this adjustment, the legacy
RehabCare hospitals improved operating earnings by $5.2 million
sequentially, a net improvement of $3.5 million.
Triumph generated revenues of $111.5 million, operating earnings
of $12.9 million and EBITDA (earnings before interest, taxes,
depreciation and amortization) of $16.9 million, or 15.2% of
revenue, a sequential 1.5 percentage point decline, during the
third quarter of 2010. The sequential decline primarily was related
to operational issues at four hospitals. In addition, the progress
of start-ups in Philadelphia and Houston Heights has been markedly
slower than anticipated. Volumes increased, supported by the
introduction of new clinical programs at several hospitals, and
costs per patient day were reduced during the quarter.
At the end of the quarter, the Hospital division operated a
total of 35 hospitals, including 29 long-term acute care hospitals
(LTACHs) and six IRFs.
New Hospital Projects
Mishawaka, IN: RehabCare has signed a letter of intent
with Saint Joseph Regional Medical Center in Mishawaka, IN, to form
a joint venture that will own and operate Saint Joseph
Rehabilitation Institute, with RehabCare acquiring a majority
interest. The 40-bed IRF, now managed under an interim agreement by
RehabCare, opened in December 2009 as an off-campus, distinct part
unit of the acute care hospital. The joint venture partnership will
seek to license and certify the facility as a freestanding IRF.
RehabCare’s market presence also includes Triumph Hospital Our Lady
of Peace, a 32-bed LTACH located on an additional campus of Saint
Joseph’s. The Company expects to close on the agreement in the
first quarter of 2011.
Houston, TX: RehabCare is developing a 46-bed IRF in
northeast Houston. Scheduled for completion by the beginning of
2012, RehabCare will lease the approximately 56,000 square foot
facility, which will feature all private patient rooms and
state-of-the art therapy technologies. The RehabCare Houston market
currently consists of 10 LTACHs, one owned IRF, one managed IRF and
27 skilled nursing facility programs.
Balance Sheet and Liquidity
At September 30, 2010, the Company had $22.5 million in cash and
cash equivalents and $421.1 million in outstanding debt excluding
unamortized original issue discounts. The Company has paid down
debt by $43.0 million since the beginning of the year. Days sales
outstanding (DSO) decreased sequentially to 61.9 days from 62.1
days.
For the nine months ended September 30, 2010, the Company
generated cash from operations of $68.7 million and expended $23.5
million for capital expenditures, principally related to the
start-up of Triumph hospitals in Philadelphia and Houston, upgraded
services at several hospitals, companywide information systems and
hospital facility maintenance capital.
Outlook
The Company does not provide revenue and earnings per share
guidance, but provides the following outlook for the fourth quarter
of 2010:
- The Skilled Nursing Rehabilitation
Services division expects 5.5% to 6.5% operating earnings margins
and relatively flat unit growth in the fourth quarter. This outlook
reflects the estimated impact of regulatory changes and the rollout
of new information system technologies.
- The Hospital Rehabilitation Services
division expects 16% to 18% operating earnings margins, 2% to 4%
year-over-year growth in IRF same store discharges and a net one to
two new IRF programs for the fourth quarter.
- The Hospital division, which includes
both the legacy RehabCare and Triumph hospitals, expects combined
fourth quarter revenue of $163 to $168 million and an EBITDA margin
of approximately 14%.
- The effective tax rate, after
consideration of noncontrolling interests, is anticipated to be
38.25% for the remainder of the year.
- The Company continues to expect DSO
between 60 and 63 days.
- Capital expenditures in the fourth
quarter are anticipated to be $9 million, consisting of information
systems investments, expansion projects and maintenance.
Conference Call Information
RehabCare will host a conference call on November 3, 2010,
beginning at 10:00 AM Eastern time. Listeners may access the call
by dialing (800) 640-9765, confirmation number 28163586, 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 3:00 PM
Eastern time on November 3 by dialing (877) 213-9653, confirmation
number 28163586. An online archive of the conference call will
remain on the Company’s website through December 3, 2010.
About RehabCare Group
Established in 1982 and headquartered in St. Louis, MO,
RehabCare (www.rehabcare.com) is a leading provider of post-acute
care, owning and operating 35 long-term acute care and
rehabilitation hospitals and providing program management services
in partnership with over 1,270 hospitals and skilled nursing
facilities in 42 states. 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
Nine Months Ended Sept. 30, June 30, Sept.
30, Sept. 30, Sept. 30,
2010
2010
2009
2010
2009
Operating revenues $ 342,730 $ 334,033 $ 208,040 $ 1,004,124
$ 614,735 Costs and expenses: Operating 273,390 267,299 169,647
801,759 492,500 Selling, general and administrative 26,872 27,814
24,186 81,221 73,254 Depreciation and amortization 7,866 7,642
3,727 22,788 11,379 Total costs and expenses 308,128 302,755
197,560 905,768 577,133 Operating earnings 34,602 31,278
10,480 98,356 37,602 Interest income 32 28
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78 19 Interest expense (8,250 ) (8,551 ) (498 ) (25,301 ) (1,619 )
Other income (expense), net 5 (5 ) 3 7 4 Equity in net income of
affiliates 114 211 52 441 326 Earnings from continuing
operations before income taxes 26,503 22,961 10,037 73,581 36,332
Income tax expense 9,725 7,744 4,331 26,757 14,799 Earnings from
continuing operations 16,778 15,217 5,706 46,824 21,533 Loss from
discontinued operations
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--
(16 )
--
(847 ) Net earnings 16,778 15,217 5,690 46,824 20,686 Net
(earnings) loss attributable to noncontrolling interests (1,079 )
(512 ) 1,067 (1,427 ) 1,614 Net earnings attributable to RehabCare
$ 15,699 $ 14,705 $ 6,757 $ 45,397 $ 22,300 Amounts
attributable to RehabCare: Earnings from continuing operations $
15,699 $ 14,705 $ 6,773 $ 45,397 $ 23,147 Loss from discontinued
operations
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--
(16 )
--
(847 ) Net earnings $ 15,699 $ 14,705 $ 6,757 $ 45,397 $ 22,300
Diluted EPS attributable to RehabCare: Earnings from
continuing operations $ 0.64 $ 0.59 $ 0.37 $ 1.84 $ 1.28 Loss from
discontinued operations
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(0.04 ) Net earnings $ 0.64 $ 0.59 $ 0.37 $ 1.84 $ 1.24
Weighted average diluted shares 24,715 24,766 18,282 24,692 18,050
II. Condensed
Consolidated Balance Sheets
(Amounts in thousands)
Unaudited
September 30, December 31,
2010
2009
Assets Cash and cash equivalents $ 22,465 $ 24,690 Accounts
receivable, net 220,393 199,447 Deferred tax assets 18,640 21,249
Other current assets 16,681 19,530 Total current assets 278,179
264,916 Property and equipment, net 119,274 111,814 Goodwill
566,078 566,078 Intangible assets 129,155 135,406 Investment in
unconsolidated affiliate 4,868 4,761 Other assets 24,976 27,005 $
1,122,530 $ 1,109,980
Liabilities & Equity Current
portion of long-term debt $ 14,284 $ 7,507 Payables & accruals
149,541 144,113 Total current liabilities 163,825 151,620
Long-term debt, less current portion 398,922 447,760 Other
non-current liabilities 54,290 50,980 Stockholders’ equity 484,544
437,338 Noncontrolling interests 20,949 22,282 $ 1,122,530 $
1,109,980
III. Condensed
Consolidated Statements of Cash Flows
(Unaudited; amounts in thousands)
Nine Months Ended
September 30,
2010
2009
Net cash provided by operating activities $ 68,739 $ 46,623
Net cash used in investing activities (23,824 ) (9,918 ) Net cash
used in financing activities (47,140 ) (29,537 ) Net
increase (decrease) in cash and cash equivalents (2,225 ) 7,168
Cash and cash equivalents at beginning of period 24,690 27,373 Cash
and cash equivalents at end of period $ 22,465 $ 34,541
Supplemental
information:
Additions to property and equipment $ (23,489 ) $ (8,932 )
IV. Operating
Statistics (Unaudited; dollars in thousands)
Third
Second Third Nine Months Ended Quarter
Quarter Quarter September 30,
2010
2010
2009
2010
2009
Skilled Nursing
Rehabilitation Services
Operating revenues $ 130,943 $ 130,851 $ 123,350 $ 388,146 $
370,285 Operating expenses 107,067 105,655 99,631 316,055 298,763
Selling, general and administrative 12,138 12,717 12,321 36,222
37,305 Depreciation and amortization 1,385 1,365 1,564 4,057 4,820
Operating earnings $ 10,353 $ 11,114 $ 9,834 $ 31,812 $ 29,397
Operating earnings margin 7.9 % 8.5 % 8.0 % 8.2 % 7.9 %
EBITDA $ 11,738 $ 12,479 $ 11,398 $ 35,869 $ 34,217 Average
number of contract therapy locations 1,136 1,127 1,089 1,131 1,077
End of period number of contract therapy locations 1,131 1,115
1,098 1,131 1,098 Patient visits (in thousands) 2,054 2,080
2,011 6,154 6,033
Hospital
Rehabilitation Services
Operating revenues Inpatient Rehabilitation Facility (IRF) $ 30,144
$ 29,609 $ 31,092 $ 88,769 $ 92,367 Subacute 2,454 2,125 1,834
6,673 5,221 Total Inpatient $ 32,598 $ 31,734 $ 32,926 $ 95,442 $
97,588 Outpatient 13,003 13,000 12,113 38,133 35,614 Total HRS $
45,601 $ 44,734 $ 45,039 $ 133,575 $ 133,202 Operating expenses
32,470 31,856 31,451 95,481 93,092 Selling, general and
administrative 4,040 4,445 4,831 13,112 16,127 Depreciation and
amortization 543 556 561 1,636 1,831 Operating earnings $ 8,548 $
7,877 $ 8,196 $ 23,346 $ 22,152 Operating earnings margin 18.7 %
17.6 % 18.2 % 17.5 % 16.6 % EBITDA $ 9,091 $ 8,433 $ 8,757 $
24,982 $ 23,983 Average number of programs IRF 106 104 111
105 112 Subacute 11 10 9 10 9 Total Inpatient 117 114 120 115 121
Outpatient 31 32 36 31 36 Total HRS 148 146 156 146 157 End
of period number of programs IRF 106 106 110 106 110 Subacute 11 10
9 11 9 Total Inpatient 117 116 119 117 119 Outpatient 30 32 35 30
35 Total HRS 147 148 154 147 154 IRF discharges 10,473
10,376 10,858 30,856 33,216 Outpatient visits (in thousands) 274
279 320 815 959
IV. Operating
Statistics Continued (Unaudited; dollars in
thousands)
Third
Second Third Nine Months Ended Quarter
Quarter Quarter September 30,
2010
2010
2009
2010
2009
Hospitals
Operating revenues $ 166,186 $ 158,448 $ 39,651 $ 482,403 $ 111,248
Operating expenses 133,853 129,788 38,565 390,223 100,645 Selling,
general and administrative 10,694 10,652 7,034 31,887 19,568
Depreciation and amortization 5,938 5,721 1,602 17,095 4,728
Operating earnings (loss) $ 15,701 $ 12,287 $ (7,550 ) $ 43,198 $
(13,693 ) Operating earnings margin 9.4 % 7.8 % -19.0 % 9.0 % -12.3
% EBITDA $ 21,639 $ 18,008 $ (5,948 ) $ 60,293 $ (8,965 )
LTACHs
Number of hospitals – end of period 29 29 7 29 7 Available licensed
beds – end of period 1,605 1,605 353 1,605 353 Admissions 3,754
3,522 775 10,839 1,812 Patient days 96,424 92,854 18,368 279,733
46,798 Average length of stay (Medicare days only) 25 26 24 26 26
Net inpatient revenue per patient day $ 1,513 $ 1,514 $ 1,157 $
1,515 $ 1,191 Occupancy rate 65 % 64 % 60 % 64 % 63 % Percent
patient days - Medicare 74 % 72 % 66 % 73 % 71 %
IRFs
Number of hospitals – end of period 6 6 6 6 6 Available licensed
beds – end of period 243 243 243 243 243 Admissions 1,241 1,157
1,179 3,630 3,627 Discharges 1,210 1,197 1,169 3,595 3,569 Average
length of stay (Medicare days only) 13 12 13 13 12 Net inpatient
revenue per discharge (a) $ 14,658 $ 12,718 $ 14,053 $ 14,074 $
13,968 Occupancy rate 72 % 69 % 68 % 71 % 69 % Percent patient days
- Medicare 63 % 62 % 67 % 64 % 66 % (a) Excluding a $1.7
million unfavorable prior year cost report adjustment recorded
during the second quarter of 2010 for one of the Company’s IRFs,
net inpatient revenue per discharge for IRFs would have been
$14,134 in the second quarter of 2010.
V.
Charges/Credits Included in Statement of Earnings
(Amounts in thousands, except per share
data)
Second Quarter
2010
Third Quarter
2009
Pre-Tax
Impact
After-Tax
Impact
Diluted
EPS
Pre-Tax
Impact
After-Tax
Impact
Diluted
EPS
Unfavorable cost report adjustment $ 1,696 $ 1,047 $ 0.04
--
--
--
Favorable income tax adjustments
--
(842 ) (0.03 )
--
--
--
External merger and acquisition-related costs
--
--
--
$ 2,227 $ 1,358 $ 0.07 $ 1,696 $ 205 $ 0.01 $
2,227 $ 1,358 $ 0.07
VI. Operating
Earnings and EBITDA Reconciliation
Third
Second Third Nine Months Ended Quarter
Quarter Quarter September 30,
2010
2010
2009
2010
2009
Net earnings $ 16,778 $ 15,217 $ 5,690 $ 46,824 $ 20,686
Income tax expense 9,725 7,744 4,331 26,757 14,799 Interest income
(32 ) (28 )
--
(78 ) (19 ) Interest expense 8,250 8,551 498 25,301 1,619 Other
(income) expense, net (5 ) 5 (3 ) (7 ) (4 ) Equity in net income of
affiliates (114 ) (211 ) (52 ) (441 ) (326 ) Loss from discontinued
operations
--
--
16
--
847 Operating earnings 34,602 31,278 10,480 98,356 37,602
Depreciation and amortization 7,866 7,642 3,727 22,788 11,379
Consolidated EBITDA $ 42,468 $ 38,920 $ 14,207 $ 121,144 $ 48,981
SRS operating earnings $ 10,353 $ 11,114 $
9,834 $ 31,812 $ 29,397 SRS depreciation and amortization 1,385
1,365 1,564 4,057 4,820 SRS EBITDA $ 11,738 $ 12,479 $ 11,398 $
35,869 $ 34,217 HRS operating earnings $ 8,548 $
7,877 $ 8,196 $ 23,346 $ 22,152 HRS depreciation and amortization
543 556 561 1,636 1,831 HRS EBITDA $ 9,091 $ 8,433 $ 8,757 $ 24,982
$ 23,983 Hospital operating earnings (loss) $ 15,701
$ 12,287 $ (7,550 ) $ 43,198 $ (13,693 ) Hospital depreciation and
amortization 5,938 5,721 1,602 17,095 4,728 Hospital EBITDA $
21,639 $ 18,008 $ (5,948 ) $ 60,293 $ (8,965 )
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