Q2 2020 Genesis Healthcare Inc Earnings and COVID-19 Update Call
[music].
To this second quarter 2020 earnings call.
At this time all participants are in a listen only mode.
After the speakers presentation, there will be a question and answer session.
That's a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
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Oh, no like too hard to conference over to your Speaker today, Lori Mayor Vice President of Investor Relations. Thank you. Please go ahead man.
Good morning, and thank you for joining US today, we issued our press release last evening with announcement is available in the Investor Relations section of our web site at Genesis each Si Si Dot com a replay of this call will also be available on our website for one year before we begin I would like to quickly review a few housekeeping matters.
First any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business in the environment in which we operate including statements about the impact of the code. The 19 pandemic. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied on today's call.
All listeners should not place undue reliance on forward looking statements and are encouraged to review our FTC filing for a more complete discussion of factors that could impact our results.
Except as required by Federal Securities Law, Genesis healthcare and its affiliate does not undertake to publicly update or revise any forward looking statements or changes that arise as a result from new information future events changing circumstances or for any other reason.
In addition, any operation we mentioned today is operated by a separate independent operating subsidiary has its own management employees and assets.
To the consolidated company in its assets and activities as well as they used to the terms, we us our and similar verbiage are not meant to imply that Genesis healthcare has direct operating assets and lease revenue or the any of the various operations are operated by the same entity or.
Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR EBITDA and adjusted EBITDA, which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending in.
I think benchmarking the performance of value of our business, but such non-GAAP financial measures should not be relied upon exclusion of GAAP financial measure.
Please refer to the company's reasons for non-GAAP financial disclosure on a GAAP to non-GAAP reconciliations contained in todays earnings release.
With that I'll turn the call or George Hager yield Genesis healthcare.
Thank you Lord good morning, and thank you for joining us today.
The number of members of the gym senior management team on the call today.
Dr. Richard fiber.
Healthcare, Chief Medical Officer, Dr., Joe and wipes later.
Chief Nursing officer, as well as Kabi Vittorio.
Our Chief Financial Officer.
Before I turn the call over to Dr. play for I would like to make a few opening remarks.
From the very beginning of this pandemic.
We had been focused on the best interest of our patients.
Residents and stuff.
Welcome quoting extraordinary challenges presented by Cobot 19.
Including severe shortage is a personal protective equipment and testing.
We took early.
Sites have been ongoing action.
As you prepare control for the Corona virus and are building.
To this day.
We continue to provide our set or with the latest precautions and protocols to manage through this bad debt.
Since our first came.
Back in the Middle March 2020.
241, the Genesis is 361 facilities.
I've reported one or more positive cases of Coca died team among patients and residents.
We have these facilities have cleared their outbreaks that are now accepting new admissions.
Nearly 80%.
About positive covert 19 cases.
Among patients and residents occurred in just five of the 25 inpatient states, where we operate.
New Jersey, Connecticut, Massachusetts.
Pennsylvania and Maryland.
Clearly sub earliest and hardest hit community outbreak areas across the country.
The so called early hotspot.
In fact, all of these things are in the top 10 states for Cobot, 19, nursing home infection rates and death rates, but according to current CMS data.
I am extremely grateful for the your <unk> heroism resolve and sacrifice.
Of our front line care givers.
And workers fighting the pandemic.
Along with our dedicated regional and corporate staff core supporting their effort on the ground.
I'm also very proud of the leadership role Genesis is playing in the fight against Cobot night team in partnership with the administration.
Public health officials at the federal state and local level.
Appears in partners in the industry as well as the academic community.
I'd now like turn the call over to Dr. Richard quote for.
Genesis is chief Medical Officer Dr. spectrum.
Thank you George.
As we are close to five months into this pandemic I wanted to take a few moments today to provide an update on where we are with managing cobiz 19 in our facilities.
Let me begin by saying that this virus is unlike any other infectious disease, we have experienced in our careers or lifetimes not only because of the complex nature of the virus itself, but also because we along with the rest of the health care community and had to learn about this virus in real time.
As the outbreaks began and our facilities nobody knew how to best control and treat this virus and even now months later there are still many open to questions, which we end the medical community are working to answered going forward.
With that said, we have made a lot of headway in understanding how to limit or contain the spread of covert 19, if the virus should make its way into a facility.
We have learned about the critical importance of tested and screening people, even when they're asymptomatic and cohort in people based upon test results not upon symptoms for exposure.
Throughout this pandemic, we have had an unwavering commitment to protect our patients and residents as we have learned more about Cobra 19, we have implemented new protocols and procedures to help keep everyone as safe as possible, even as we admit new patients and residents.
First our centers have established what we call admission observation units, so that new patients can be admitted safely following a rigorous screening process.
Patient contact and interaction or minimized, while they are monitored for changes in condition and our tested for Cobra 19th at several intervals during their 14 day stay on a unit.
Steph numbers are trained and use a personal protective equipment TP.
And proactive clinical infection control guidelines.
All staff members are screen for temperature and other symptoms every shift work only if they passed this clinical screening process and are tested for covert 19 on a regular basis.
In fact, we haven't got gone above and beyond state and federal requirements to test our patients residents and steps frequently as it is one of the best ways to protect our patience and residents from the virus.
All Genesis locations have an infection control specialists focused on infection control procedures as well as staff education.
In addition, each facility ensures that an infection control designee is present on all ships 24 by seven.
This focus has resulted in a 94% of infection control surveys conducted in our affiliated centers achieving a zero deficiency rating on nearly 900 focused infection control surveys conducted by state and federal officials during the pandemic as of July 28, 2020. This is signal.
Typically better the national averages.
We use a high touch cleaning checklist to ensure our patience and residents safety, we use EPA approved disinfectants there are effective against the virus and other microorganisms.
We also understand how difficult it has been for patients residents and their families to be isolated from one another we remain committed to keeping our patients in resin is connected with their loved ones.
Some states are already allowing visitation outside with appropriate precautions for residents without symptoms in states, where outside visitation is not yet available or for those who cannot visit outside in approved states. We provide the ability for families and loved ones to connected via video conferencing technology, and we update families.
On a regular video conference calls.
I would now like to address the issue of testing.
The current process of sending out PCR preliminary chain reaction tests to outside less has slowed significantly as turnaround times for tests are in some cases backup to five to seven days for more making these tests nearly useless.
We are thankful to CMS as recent action to address the testing issues that the industry has experienced for months.
CMS has made a commitment to deliver a point of care testing devices to every nursing home in the country over the coming months.
Point of care test art antigen tests, which are very different from the PCR tests that the industry has been using and also different for antibody test.
Antigen tests also look for the virus what are less sensitive so could lead to more false negatives, but they also have the very important advantages that they are faster providing results within an hour of sampling and considerably less expensive.
The ability to have easy access to instant results for our patients residents and staff will allow us and the industry to more effectively fight this virus.
As of today, we have been notified by CMS of about 34, genesys facilities that will be receiving the next deliveries a point of care testing devices.
We expect the remainder to receive their devices in the coming weeks tomorrow.
That said that remains possible, even likely that we will still need PCR test. In addition to antigen test, especially for symptomatic residents with initially negative engine test results.
For screening of asymptomatic residents antigen testing may suffice suffice if it is run more often to make up for the lesser sensitivity.
Turning back to my earlier comments about effort to continue we learn more about this virus through careful analysis.
You may be asking yourself why was Genesis hit so hard by Cobot 19, and other nursing home providers were not.
The truth truth is that there are over 15000 skilled nursing facilities in the U.S. and not all have had the same experience with this battle.
Genesis was hit early and very hard by the initial cobot 19 surge that occurred in hotspot mid Atlantic and northeastern states before much was known about the virus for how to contain it I would like to share a few details with you.
First Genesis was initially exposed to covert 19 in March at that's fine Dms haven't even issued its first time for universal face masking and masks were in short supply nationwide.
Ultimately CNS issued guidance on April 2nd.
Although genesis had already fully implemented universal masking in late March.
But by this time the virus that already spreads.
Two.
Early in the pandemic not much was known about asymptomatic carriers of the virus. It wasn't until the end of March that the CDC released a report on Kirkland, showing that nursing home residents can be asymptomatic put carrying the virus and spreading it in this instance, 57% of residents who initially tested positive for.
Ladies and dramatic.
But by the time this information was available the virus had already spreads.
Three.
Third relates to cohort it early in this pandemic there was an inadequate guidance and department of health told us that patients already expose should not be moved around the building for fear of spreading the virus unintentionally.
So for example, if you had a positive patient and a roommate not showing symptoms.
Not yet tested department of health instructed us to not moves the roommate.
It wasn't until the end of April that CMS issued guidance to cohort positives with positives and separate expose roommate.
But by this time.
The buyers had already spreads.
And for the final point I will bring up today.
Although there are plenty of other examples is testing.
Early in this endemic tests were scarce in some cases, we were instructed by department of health to presume symptomatic patients were positive as test simply werent available.
And there certainly weren't enough test to proactively test all patients residents and staff on a regular basis like we do today, we were fighting a virus with a blindfold on.
The good news is that we know so much more now about how this virus behaves and as a result, we can utilize better infection control testing and cohort in practices, particularly as a necessary supplies and equipment have become more readily available.
Ultimately, we are now able to reduce the amount of virus available to create exposure and infection.
While additional study is needed added knowledge treatment and tools to fight the virus appear to have significantly improved the case recovery rate and better control the spread of the virus. If it does enter the building.
Finally, nearly 90% of impacted facilities now have resolve their outbreaks, particularly in areas of the country, where we saw significant community prevalent early in this endemic we're now seeing new outbreaks in some southern states with community outbreaks, including Florida, New Mexico and Arizona.
This hearkens back to the research studies I shared with you last quarter completed by Brown University, Harvard University, and the University of Chicago.
Which showed that the two key factors that determine whether the virus enters and spreads within a nursing home.
First its location whether the surrounding community is a high density area heavily affected by covert 19.
And second the size of the facility the larger it is the more traffic in and out no matter how many restrictions are in place.
These two factors continue to corresponds to our own experience.
Before I turn the call back to George I want to thank all of our physicians nurses AIDS surface and other centre in the regional staff members, who had been working around the clock to keep our patients residents and employees safe during this difficult time.
They are true heroes, and we will forever be grateful for their commitments and compassion.
Thanks Rich.
The pandemic, obviously has had a material impact on our business.
Operationally and financially.
The second quarter 40 Twond.
We estimate the negative impact.
I've lost revenue and higher but.
Caused by the pandemic with $213 million.
That is before taking into account approximately 228 million.
Federal and state financial support.
I'd like to emphasize.
But first number.
Impacted the pandemic.
In just a three month.
Ended June Thirtyth was $213 million.
We're very grateful for the federal and state financial support received thus far.
But as this pandemic continue.
Well some areas but.
Additional untimely support.
Is needed to continue funding the higher cost of labor.
And the significant precautions and protocols, we have put in place.
To keep our patient.
A resident and our employees safe.
In addition to escalating costs.
Occupancy levels are down over 11%.
Although occupancy appear folks at bottom.
Pace of recovery in new admission has been very slow thus far.
I'd now, let's take a minute provide perspective.
On the dramatic disparity between the pandemic impact.
On our center located in states, having high density cope with my team outbreak in their community.
As compared to our centers in state with low to moderate outbreaks.
Financially speaking the key performance drivers in this business have always been continued to be overall occupancy levels. I mean, you build ability to effectively can pro labor costs.
He had been a 1% change in occupancy or labor costs in this business the big deal.
All other driver quite frankly.
When comparing.
Demonstrates the same store occupancy in the second quarter of 20 Twond.
Rob 11%.
From the sequential court.
And the weighted average wage rate per hour.
For our nurses, which includes our end lcms and DNA.
Grew 49%.
Over the second quarter of 2019.
Please keep in mind, our nursing staff.
Make up 50% of Genesis its entire labor force.
Now, let's look at these same statistic.
In the five hard hit state.
Of New Jersey, Massachusetts, Connecticut that 2 billion barrel.
Where we operate nearly 50% of our beds.
In these five states.
Occupancy in the second quarter of 2020.
Dropped seven <unk> percent.
More than twice the 8% drop in all other states.
In the state of Connecticut.
Our occupancy occupancy actually decreased 23%.
Also in these five states.
Our weighted average nursing cost for out in the second quarter of 40 40 increased.
45% over the prior year quarter.
In the state of New Jersey.
The hardest hit state in our portfolio the weighted average converting.
Labour cost per hour increased.
63%.
These are astonishing figures that highlight just tell a wider range of impact can be.
On skilled nursing facilities located in markets, having high prevalence of community spreads.
Compared to those with low or moderate community spreads.
Which brings me back to the issue of adequate entirely funding support.
Early in the pandemic.
The federal government move swiftly and decisively.
To infuse much needed support to all skilled nursing facilities across the country.
The three rounds of funds distributed to date.
From the provider relief fund.
Were allocated to all skilled nursing facilities across the U.S. on a pro rata base.
Regardless of whether or not there were heavily impacted by the virus or not.
This pro rata allocation was generally based on historical revenue and facility size.
Again.
This approach was simple.
With an effective.
But a consequence of this approach is that some providers received more fun than they need another receive significantly less than they need.
Because of our geographic geographic density and argued market.
Early in the pandemic.
And the resulting disproportionate impact.
Our occupancy in operating costs.
Coupled with what appears to be a slower.
And more complex recovery, but initially hoped for.
Got it than many others in the industry.
Need timely an additional government sponsored by the actual support.
Which is essential to meeting our responsibilities and obligation to patients resident employees and all other stakeholders.
On August seven.
The administration and out some details around the distribution of the $5 billion provider relief fund allocation.
Specifically earmarked for skilled nursing facility.
While we greatly appreciate the support that the administration has provided to the skilled nursing industry throughout the bad debt.
We are concerned that this route the funding does not address.
Yeah acute incremental funding needs of skilled nursing providers disproportionately impacted by the buyer.
We strongly believe skilled nursing providers should be afforded the same treatment as acute care hospital.
There were granted additional federal funds based on the number of cobot 19 patients they care.
We will continue to engage in more closely with our industry advocate.
Elected officials them the administration, the thoughtfully articulate the resource needs of our industry.
Particularly those hardest hit by the 10 done that.
We are so appreciative.
In conclusion, I, just want to want to express.
My sincere appreciation.
We are actually humbled by the commitment and dedication of all those caregivers that genesys and around the nation.
But the well being up our frail and vulnerable 10 years ahead of the ROE.
We will never stop by the bar occasion.
Our residents and our staff.
As well as the industry as a whole.
With that I like from the call over Oreo Jones, Chief Financial Officer, Bob.
Thank you George good morning.
My comments. This morning, we're focused on the Pandemics impact to our second quarter financial results.
Along with some updates through July.
I will also address liquidity and other capital related matters.
Beginning with the topline.
Reimbursement rates grew across all payer types.
With weighted average rate growth of 11%.
This increase reflects higher patient acuity as well as Covidien specific supplemental funding provided by many state Medicaid programs.
We recognize $40 million of additional cobot 19 state funding into Q, 20, and $46 million year to date.
We have commitments for an additional $10 million of supplemental state funding.
We remain optimistic that additional funding will be appropriated over the next few months.
As George noted operating occupancy of 77% in Twoq, you 20 was down 11% on a same store basis from Twoq to 19.
The occupancy low point in the quarter occurred in the month of June when occupancy was 74.2%.
Occupancy grew 60 basis points to 74.8% in July and continues to move in a positive direction, thus far in August.
These trends in occupancy correspond to the number of facilities, we placed on self imposed admission restrictions over the course of the second quarter.
At its peak in May the company had voluntarily placed over 140 of its facilities simultaneously on admission hold.
And over the course of the entire quarter 217 facilities had admission restrictions for some period of time.
By the end of June there were only 41 facility is on admission hold and there are currently just 31 facilities with these restrictions.
At the outset of a pandemic. These self imposed restrictions were implemented to limit risks of potential spread of the virus by individuals.
Either testing positive for cobot, 19, or those who exhibited symptoms.
With the recent rollout of our admission observation units, we have adapted our operating model to safely admit patients while operating in a cobot 19 environment.
Our operations team members are hard at work executing on a series of census development plans designed to rebuild occupancy in the new Cobot 19 arena.
We remain hopeful occupancy will grow at an accelerated pace as we get passed the seasonally weak summer months and as hospitals in our markets continue ramping up elective surgical procedures.
Excluding state and federal support recognized during two to 20, we estimate the net impact of lost revenue caused by the pandemic once adjusted for a commensurate reduction in variable costs resulted in reduced earnings of $67 million.
Moving now to operating expenses.
The second quarter of 2020, we incurred over $145 million of incremental operating expenses as a direct result of the pandemic.
This increase stems from higher labor costs predominantly in the nursing function and includes increased use of agency staff overtime and bonus pay as well as additional workers compensation related expenses.
Increases in non labor cost stem from both the cost and usage of personal protective equipment medical equipment testing dietary support and enhanced cleaning and and environmental sanitation costs.
Nearly 90% of the $145 million of Covance specific cost incurred in the second quarter, where labor related.
These cost levels have come down since their peak in the month of May as we systematically reduce reliance on expensive agency labor.
And thoughtfully ratchet back enhanced pay programs and practices that we're absolutely essential during the peak of the outbreaks we experienced in the initial hotspot Covance 19 markets.
Moving now to liquidity and related matters.
Although the pandemic had a material impact on the company's revenues and expenses in Twoq or 20, the timely receipt of $228 million of federal and state grants proved sufficient to offset the $213 million of cobot related costs and lost revenue.
As a result, the company was in compliance with financial covenants at June Thirtyth 2020, and remains in compliance today.
Liquidity at June 32020 was $282 million.
Included in liquidity is approximately $150 million a funds received under the Medicare accelerated and advanced payment program administered by CMS.
Recruitment of these advances is scheduled to begin next week.
And we'll be.
Number 2020.
We are hopeful the federal government delays the scheduled recruitment of these funds.
But to date no action has been taken.
Looking past the June quarter, the adverse effects of a depleted occupancy base and higher expenses necessary to safely operate our facilities are expected to moderate but persist.
These conditions have it and we'll continue to result in operating losses, and the depletion of liquidity levels until such time as our occupancy and expense levels return to pre pandemic levels.
Until such time, we remain reliance on timely receipt of federal and state resources to fund operating losses and to ensure the company can continue to meet all of its financial obligations.
Because the pace of business recovery cannot be predicted.
And the continued timely receipt of adequate government financial support cannot be assured we.
We determined that such conditions raise substantial doubt about the company's ability to continue as a going concern.
Given the circumstances, we are reviewing our options to materially reduce expenses and increase liquidity without negatively impacting our overall operations and the care we provide.
We will continue to vigorously advocate for Genesis and others in the skilled nursing industry, who were disproportionately impacted by cobot 19.
By virtue of their physical location in relation to community is having high density outbreaks.
Regardless of these financial challenges, we remain squarely focused on serving our patients in residents through the current cobot 19 environment and into the future.
And with that rain was please open up the line for any questions.
Operator, I would ask if there are any questions at this time.
Okay.
As a reminder times. The question you will need to press star one on your telephone keypad.
Your first question comes from the line of Frank Morgan from RBC Capital. Your line is open. Please ask your question.
No I guess I'll start with that last comment you made Tom about Uh huh.
Dressing going concern a issues.
Any initial thoughts on kind of what you might proceed with obviously the this a advance payment.
Repayment they'll start soon is clearly an issue, but any initial kind of thoughts on what how your strategy may develop.
Okay.
Yeah, Hi, this is George I'll take that.
Look we what's what's hard to measure right now is the center of the recovery you know July as you know July and August start traditionally.
Seasonally low occupancy levels for the industry at least in our market.
So it's very difficult to measure the extent of the recovery.
We still do not have clarity around the 5 billion dollar recently announced $5 billion allocation.
That allocation is critically important.
It has both a pro rata allocation and that as well as the value based.
Component to it or we still are lacking detail on both a method in timing without allocation. No also critically important oh, we continue to do everything possible.
Prioritizing protection of our a mistake of our patients and staff around the cost levels. We continue to look at bringing down agency utilization premium labor costs.
As as result of the of the pandemic so.
It's a moving target it at this point, we're continuing to focus on.
Maximizing liquidity a private expenses you know at the lowest possible level we can.
And are continuing to advocate for the necessary support we need.
As we are principally located in the early hot but they are from from the federal and state government to support our efforts.
Gotcha, and then are you you.
I mentioned additional divestitures that you're completing the quarter, but is there anything there from a timing standpoint do you think you can realistically do at this point, where there are enough assets that you could shed.
In any kind of timely manner or get any kind of a whether kind of concessions or are there were assistance.
The Frac, we you know, it's there's been a surprising especially in earlier parts of the pandemic, we were able to execute some transactions there continues to be.
Strong interest, especially in Jordan about market on on the East coast.
Pandemic you know accelerated.
And more significantly impacted some of those market.
The ability to execute some of those transactions Ah became more difficult I do think when we.
Got a little more clarity around recovery rate on census.
We can begin getting the transactions that we are actually positive in the market you know completed.
No and I think the very positive thing from a financial perspective is the per bed value.
In our industry prepare them it continued to be very very strong and especially in.
Starting with our market. So we will continue to pursue those transactions they arc liquidity enhancing transaction and that continues to meet our strategic objective to narrow footprint and focus on the markets, where we are strongest from an operating perspective, but.
And we sit here today I would say those transactions are delayed for four yeah.
Some period until we see a recovery recovery rate tone on today.
Oh got to one final one I'll hop off here.
Did you break out like how much you're you're potentially could receive an incremental state programs.
In terms of temporary relief and then I'm just I noticed that that the skill mix drop was like it was a problem the insurance, but not so much on the Medicare So any color there and I'll hop back.
Yes, Frank thus far we have a $10 million of hard commitments from the states that we're operating in but we we expect that we're going to see more there it's tough to quantify it until we have validation from the states, but we know states like New Jersey are working on something that we're hopeful for.
And other states that have provided funding up to a certain date, we expect that they'll continue to extend.
Those additional dollars as you know the state of emergencies continue in those states, but tough tough to quantify beyond the $10 million of hard commitments, we have today, but again optimistic there.
And then Frank your last question remind me.
Yes, just the it looks like your skill mix, yeah, it'll give us like the commercial or insurance that drop but the fee for service not see flat just what.
Thanks, Yeah, yeah. So so when you think about the fact that with a three day hospital stay being lifted and one of the strategy is there from the government, which was very wise was in cases, where we could care in place for patients traditional long term care Medicaid patient say that had skilled needs as a result of Cowen.
We could keep them in our beds out of the hospitals and care for them effectively in our building so imagine that although a fair amount of our traditional skilled mix on the Medicare side. The short stay patient was depleted because of discharges and because of lack of admissions we were able to supplement that with the scaling of pace.
Once that required skilled care that trip traditionally would have been in a long term Medicaid status on the insurance side. However, those are typically more your traditional very short stay younger patient population of the greater than 60 fives and of course, you know those were the patients that we you know, we're discharged and not being.
Readmitted and very few of our long term care patients who were dually eligible at that stage of their life are choosing Medicare advantage plans. There you know they are falling back on traditional indemnity.
Does that answer your question.
It does thank you very much.
Thanks right.
There are no further questions. Please continue.
There are no further questions. We are very much appreciate.
Ruminants continued supportive Genesis obviously this is very difficult tied for not only genesis, but the industry.
We as I said appreciate your support hope everyone stay safe and well as we see the the virus to begin to accelerate uncertain certain markets.
Tom and rich in Joanne and team Lorien.
The available for questions. After the call. Thank you again, then does stay safe.
This concludes today's conference call. Thank you for participating in May now disconnect.
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Thank you for standing by welcome to the second quarter 2020 earnings call.
Oh this I'm all participants will listen only mode.
After the speakers presentation, there will be a question answer session.
That's a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you acquire any British assistance, Please press star zero.
I'd now like to have a conference over to your speaker today, Lori Mayor Vice President of Investor Relations. Thank you. Please go ahead.
Good morning, and thank you for joining US today, we issued our press release last evening. This announcement is available in the Investor Relations section up or web site, a Genesis H.C.C. Dot com a replay of this call will also be available on our website for one year.
Before we begin I would like to quickly review a few housekeeping matters.
First any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business in the environment in which we operate including statements about the impact of the Kobin 19 pandemic. These statements are subject to risks and uncertainties that could cause our actual results could differ materially from those expressed or implied on today's call.
Mr should not place undue reliance on forward looking statements and are encouraged to review our S. E filing for a more complete discussion of factors that could impact our result.
Except as required with the old <unk> Securities Law, Genesis healthcare and as affiliate does not undertake to publicly update or revise any forward looking statements or changes that arise as a result from new information future events changing circumstances or for any other reasons.
In addition, any operation you mentioned today is operated by separate independent operating subsidiary has its own management employees in assets.
First is to the consolidated company and its assets and activities as well as they used to the terms we ask our in some more verbiage are not meant to imply that Genesis healthcare has direct operating assets and waste revenue or the any of the various operations are operated by the same entity or.
Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR EBITDA and adjusted EBITDA, which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending.
I think benchmarking the performance the value of our business, but such non-GAAP financial measures should not be relied upon illusion of GAAP financial measure.
Please refer to the company's reasons for non-GAAP financial disclosure <unk> GAAP non-GAAP reconciliations contained in todays earnings release.
With that I'll turn the call it George Hager Yale Jen.
Thank you Lord good morning, and thank you for joining us today.
The number of members at the gym senior management team on the call today.
Dr. Richard Piper.
Health care, Chief Medical Officer, Dr., Joe in wipes Nadir.
Chief marketing officer, as well as called the but toribio.
Our Chief Financial Officer.
Before I turn the call over to Dr. play for I would like to make a few opening remarks.
From the very beginning of this pandemic.
We've been focused on the best interest of our patient.
Resident though.
Walking quoting extraordinary challenges presented by Cobot Nike.
Including severe shortage is a personal protective equipment.
Nothing.
We took early.
Like stuff and ongoing action.
To prepare control the Corona virus in our building.
To this day.
We continue to provide our et cetera, what the latest precautions and protocols to manage through that's been done.
Since our first came.
Back in the middle more 20 Twond.
241, the Genesis is 361 facilities.
I've reported one or more positive cases, the golden 19, among patients and residents.
Yeah. These facilities have cleared their outbreaks and are now accepting new admission.
Nearly 80%.
Have a positive cobot 19 cases.
Among patients and Resids occurred in just five of the 25 inpatient states, where we operate.
<unk> Jersey, Connecticut, Massachusetts.
Pennsylvania unbearable.
Quarterly settled earlier.
And the hardest hit community outbreak areas across the country.
So called early hotspot.
In fact, all of these dates are in the top 10 states for Cobot, 19, nursing home infection rates and death rates.
According to current CMS data.
I'm extremely grateful for the here or what your with them resolve and sacrifice.
Of our front line care givers.
And workers fighting the pandemic.
Along with our dedicated regional and corporate staff Gore supporting your effort on the ground.
I'm also very proud of the leadership role Genesis is playing in the fight against Kogan 19 in partnership with the administration.
Public health officials.
Federal state and local level.
Our Pearson partners in the industry.
As well as the academic community.
I'd now like turn the call over to Dr. Richard talked for.
Genesis as Chief Medical Officer duct fluctuate.
Thank you George.
As we are close to five months into this pandemic I wanted to take a few moments today to provide an update on where we are with managing Corbett 19 in our facilities.
Let me begin by saying that this virus is unlike any other infectious disease, we have experienced in our careers or lifetimes not only because of the complex nature of the virus itself, but also because when we along with the rest of the health care community and had to learn about this virus in real time.
As the outbreaks began and our facilities nobody knew how to best control and treat this virus and even now months later there are still many open questions, which we end the medical community are working to answer going forward.
With that said, we have made a lot of headway in understanding how to limit or contained the spread of covert 19, if the virus should make its way into a facility.
We have learned about the critical importance of testing.
Screening people, even when they're asymptomatic and cohort in people based upon test results not upon symptoms or exposure.
Throughout this pandemic, we have had an unwavering commitment to protect our patience and residents as we have learned more about Cobra 19, we have implemented new protocols and procedures to help keep everyone as safe as possible, even as we admit new patients and residents.
First our centers have established what we call. It mission observation units, so that new patients can be admitted safely following a rigorous screening process.
Patient contacting interaction or minimized, while they are monitored for changes in condition and our tested for coal design team at several integrals during their 14 day stay on the unit.
Jeff members are trained and use a personal protective equipment pp.
And proactive clinical infection control guidelines.
All staff members are screen for temperature and other symptoms every shift work only if they passed this clinical screening process and are tested for cauldron 19 on a regular basis.
In fact, we haven't got going above and beyond state and federal requirements to test our patients residents and step frequently as it is one of the best ways to protect our patient than residents from the virus.
All Genesis locations have an infection control specialist focused on infection control procedures as well as step education.
In addition, each facility ensures that an infection control designee is present on all shifts 24 by seven.
This focus has resulted in a 94% of infection control surveys conducted in our affiliated centers achieving a zero deficiency rating on nearly 900 focus infection control surveys conducted by state and federal officials during the pandemic as of July 20 to 2020. This is.
Difficultly better the national averages.
We use a high touch cleaning checklist to ensure our patience and resident safety, we use EPA approved disinfectants there are effective against the virus and other microorganisms.
We also understand how difficult it has been for patients residents and their families to be isolated from one another.
We remain committed to keeping our patients and residents connected with their loved ones.
Some states are already allowing visitation outside with appropriate precautions for residents without symptoms.
In states, where outside visitation is not yet available or for those who cannot visit outside in approved states. We provides the ability for families and loved ones to connected via video conferencing technology, and we update families. The a regular video conference calls.
I would now like to address the issue of testing.
The current process of sending out PCR polymerase chain reaction tests to outside labs has slowed significantly as turnaround plans for tests or in some cases back up to five to seven days, one more making these tests nearly useless.
We are thankful to CMS as recent action to address the testing issues that the industry has experienced for months.
And that has made a commitment to deliver a point of care testing devices to every nursing home in the country over the coming months.
These point of care test art antigen tests, which are very different from the PCR tests that the industry has been using and also different for anti body tests.
Antigen tests also look for the virus what are less sensitive so could lead to more false negatives, but they also have the very important advantages that they are faster providing results within an hour assembling and considerably less expensive.
The ability to have easy access to instant results for our patients residents and staff will allow us and the industry to more effectively fight this virus.
As of today, you have been notified by CMS of about 34 Genesis facilities that will be receiving the next deliveries a point of care testing devices.
We expect the remainder touristy their devices in the coming weeks similar.
That said there were made possible even likely that we will still need PCR cap. In addition to antigen test, especially for symptomatic residents with initially negative antigen test results.
For screening of asymptomatic residents antigen testing Mesa pipe suffice if it is run more often to make up the lesser sensitive.
Turning back to my earlier comments about effort you continue to learn more about this virus through careful analysis.
You may be asking yourself why was Genesis hit so hard by told at 19 and other nursing home providers were not.
The truth truth is that there are over 15000 skilled nursing facilities in the U.S. and not all have had the same experience with this battle.
Genesis with his early and very hard by the initial coping 19, a surge that occurred in the hotspot mid Atlantic and northeastern states for much was known about the virus for how to contain it.
I would like to share a few details with you.
First Genesis was initially exposed to covert 19 in March at that's fine Dms haven't even issued its first started for universal face masking and that's where in short supply nationwide.
Ultimately.
Issued guidance on April 2nd.
Although genesis had already fully implemented universal masking in late March.
Despite the virus that already spreads.
Too early.
Early in the pandemic not much was known about asymptomatic carriers of the virus. It wasn't until the end of March that the CDC released or Portland, Kirkland, showing that nursing home residents can be asymptomatic, but carrying the virus in spreading it in this instance, 57% of residents who initially tested positive.
There is symptomatic.
But by the time this information was available the virus had already spread.
Right.
Third relates to cohort early on this and other there was an adequate guidance and department of health told us that patients already expose should not be moved around the building you're spreading the virus unintentionally.
So for example, if you had a positive patient and a roommate not showing symptoms.
And not get tested department of health instructed us to not movement relate.
It wasn't until the end of April that CMS issued guidance cohort positives with positives as separate expose roommate.
But by this time.
The virus had already spread.
For the final points I will bring up today.
Well there are plenty of other examples is testing.
Early in this endemic tests were scarce in some cases, we were instructed by department of Health care Presumes symptomatic patients were positive as test simply werent available.
And there certainly weren't enough test to proactively test all patients residents and step on a regular basis like we do today, we were fighting a virus with a blindfolds all.
The good news is that we know so much more now about how this virus behaves and as a result, we can utilize better infection control testing and coating practices, particularly as the necessary supplies and equipment have become more readily available.
Ultimately, we are now able to reduce the amount of virus available to create closure and infection.
Well additional study as needed and it knowledge treatment and tools to fight the virus.
Here to have significantly improved the case recovery rate and better control the spread of the virus. If it does enter the building.
Finally, nearly 90% of impacted facilities not resolve their outbreaks, particularly in areas of the country, where we saw significant community prevalent early in this endemic.
We're now seeing new outbreaks in some southern states with community outbreaks, including Florida, New Mexico and Arizona.
This hearkens back to the research studies I shared with you last quarter completed by Brown University, Harvard University, and the University of Chicago.
Showed that the two key factors that determine whether the virus enters and spreads within a nursing home.
First its location whether the surrounding community is a high density area heavily affected by covert 19.
Second the size of the facility the larger it is the more traffic in and out no matter how many restrictions are in place.
These two factors continue to corresponds to our own experience.
Before I turn the call back to George I want to thank all of our physicians nurses age surface and other sensor and the regional staff members.
I've been working around the clock to keep our patients residents and employees Dave during this difficult time.
They are true heroes, and we will forever be grateful for their commitments and compassion.
Thanks Rich.
The pandemic, obviously, it's had a material impact on our business.
Operationally and financially.
The second quarter 40, Twond we.
We estimate the negative impact of.
I've lost revenue and higher but.
Caused by the fed dynamic with $213 million.
That is before taking into account.
Proximally 228 million of federal and state financial support.
I'd like to emphasize.
At first number.
Impact of the pandemic.
Just a three month.
Ended June Thirtyth was $213 million.
We're very grateful for the federal and state, but the actual support received thus far.
What does this pandemic continue.
Well some areas we've had bought.
Additional and timely support.
Is needed to continue funding the higher cost of labor.
And the significant precautions and protocols, we have put in place.
To keep our patients.
Our resident and our for <unk> sake.
In addition to escalating costs.
Occupancy levels are down over 11%.
Although ought to be appear looked at bottom.
Hey, some recovery in new admission has been very slow thus far.
Now, let's take a minute provide perspective.
From a dramatic disparity between the pandemic impact.
On our center located in states, having high density cope with my team outbreaks in their community.
That's kept fair to ourselves in state with low to moderate outbreak.
Financially speaking the key performance drivers in this business have always been continued to be overall occupancy levels. I mean, you build ability to effectively control labor costs.
He's been a 1% change in occupancy or labor costs in this business the big deal.
All other driver quite frankly.
Well when you compare.
Demonstrates the same store occupancy in second quarter of 20 Twond.
Dropped 11%.
Sequential quarter.
And the weighted average wage rate per out.
For our nurse, which includes already LPN DNA.
Grew 49%.
Over the second quarter of 2019.
Please keep in mind, our nursing staff.
Make up 50% of Genesis this entire labor force.
Now, let's look at these same statistic.
In the five hard hit state.
A new Jersey, Massachusetts, Connecticut, that's the Bakken barrel.
Where we operate nearly 50% of our bed.
At least five state.
Occupancy in the second quarter of 2020.
<unk>, 7%.
More than twice the 8% drop in all other state.
And the state of Connecticut.
Oh docking occupancy actually decreased 43%.
Also on these five states.
Our weighted average nursing cost for out in the second quarter or what do you want to.
Increased.
45% both for the prior year quarter.
In the state of New Jersey.
The hardest hit state and our portfolio the weighted average nursing.
Labour cost per hour increased.
63%.
These are astonishing figures that highlight just tell a wider range of impact can be.
On skilled nursing facilities.
Located in markets, having high prevalence of community spreads.
Compared to those with low or moderate community Brett.
Which brings me back to the issue of outer quit and timely funding support.
Early in the bad debt.
The federal government move swiftly and decisively.
To infuse much needed support to all skilled nursing facilities across the country.
The three well the funds distributed to date.
With provider relief, but.
Allocated to all skilled nursing facilities across the U.S. on a pro rata base.
Gartland, whether or not there were heavily impacted by the virus or not.
This pro rata allocation.
I don't really based on historical revenue.
He thought.
Again.
This approach with simple.
With an effective.
But a consequence of this approach is that some providers received more.
Then they need another receive significantly less than they need.
Because of our geographic geographic density and target markets.
Early in the pandemic.
On the resulting disproportionate impact.
Our our operating costs.
Coupled with what appears to be a slower.
And more complex recovery than initially hoped for.
Got it just and many others in the industry.
Meat timely an additional government sponsored by the actual support.
Which is essential to meeting our responsibilities and obligation to patient resident employees and all other stakeholders.
On August stub.
The administration and now sub built around the distribution of the $5 billion provider relief fund allocation.
Specifically earmarked for skilled nursing facility.
While we greatly appreciate the support that the administration has provided to the skilled nursing industry throughout the bad debt.
We are concerned but this route the funding not addressed.
You acute incremental funding need of skilled nursing providers disproportionately impacted by the buyer.
We strongly believe skilled nursing providers should be afforded the same treatment as acute care hospital.
Well were granted additional federal funds.
Based on the number of cobot 19 patients take care.
We will continue to engage in a more closely with our industry advocate.
Elected officials them the administration, the thoughtfully articulate the resource needs of our industry.
Particularly those hardest hit by the end of it.
We are so appreciative.
In conclusion, I, just want to want to express.
My sincere appreciation.
We are actually humbled by the commitment and dedication of all those caregivers the genesis and around the nation.
But the well being up our frail as vulnerable 10 years ahead of the ROE.
We will never stopped by the bar patient.
Residents as our staff.
As well as the industry as a whole.
But that I like from the call over.
Oreo.
Financial Officer Bob.
Thank you George good morning.
My comments. This morning are focused on the Pandemics impact to our second quarter financial results.
Along with some updates through July.
I will also address liquidity and other capital related matters.
Getting with the topline.
Reimbursement rates grew across all payer types.
With weighted average rate growth of 11%.
This increase reflects higher patient acuity as well as Kobin specific supplemental funding provided by many state Medicaid programs.
We recognize $40 million of additional cobot 19 state funding into Q, 20, and $46 million year to date.
We have commitments for an additional $10 million of supplemental state funding and we remain optimistic that additional funding will be appropriated over the next few months.
As George noted operating occupancy of 77% in Twoq, you 20 was down 11% on a same store basis from Twoq June 19.
The occupancy low point in the quarter occurred in the month of June when occupancy was 74.2%.
Occupancy grew 60 basis points to 74.8% in July and continues to move in a positive direction, thus far in August.
These trends in occupancy correspond to the number of facilities, we placed on self imposed admission restrictions over the course of the second quarter.
At its peak in May the company had voluntarily placed over 140 of its facilities simultaneously on admission hold.
And over the course of the entire quarter 217 facilities had admission restrictions for some period of time.
By the end of June there were only 41 facility is on admission hold and there are currently just 31 facilities with these restrictions.
At the outset of the pandemic be self imposed restrictions were implemented to limit risks of potential spread of the virus by individuals.
Either testing positive for cobot 19 for those who exhibit at symptoms.
With the recent rollout of our admission observation units, we have adapted our operating model to safely admit patients while operating in a cobot 19 environment.
Our operations team members are hard at work executing on a series of census development plans designed to rebuild occupancy in the new Cobot 19 arena.
We remain hopeful occupancy will grow at an accelerated pace as we get passed the seasonally weak summer months and as hospitals in our markets continue ramping up elective surgical procedures.
Excluding state and federal support recognized during two to 20.
Estimate the net impact of lost revenue caused by the pandemic once adjusted for a commensurate reduction in variable costs resulted in reduced earnings of $67 million.
Moving now to operating expenses.
The second quarter of 2020, we incurred over $145 million of incremental operating expenses as a direct result of the pandemic.
This increase stems from higher labor costs predominantly in the nursing function and includes increased use of agency staff overtime and bonus pay as well as additional workers compensation related expenses.
Increases in non labor costs stemming from both the cost and usage of personal protective equipment.
Medical equipment testing dietary sport and enhance cleaning and and environmental sanitation costs.
Nearly 90% of the $145 million of Covance specific cost incurred in the second quarter, where labor related.
These cost levels have come down since their peak in the month of May as we systematically reduced reliance on expensive agency labor.
And thoughtfully ratchet back enhanced pay programs and practices that we're absolutely essential during the peak of the outbreaks we experienced in the initial hotspot covert 19 market.
Moving now to liquidity and related matters.
Although the pandemic had a material impact on the company's revenues and expenses in Twoq. Your 20, the timely receipt of $228 million of federal and state grants proof sufficient to offset the $213 million of covert related costs and lost revenue.
As a result, the company was in compliance with financial covenants at June Thirtyth 2020, and remains in compliance today.
Liquidity at June 32020 was $282 million.
Included in liquidity is approximately $150 million of funds received under the Medicare accelerated and advance payment program administered by CMS.
Recoupment of these advances is scheduled to begin next week.
And we'll be.
Number 2020.
We are hopeful the federal government delays the scheduled recruitment of these funds.
But to date no action has been taken.
Looking past the June quarter, the adverse effects of a depleted occupancy base and higher expenses necessary to safely operate our facilities are expected to moderate but persist.
These conditions have and will continue to result in operating losses, and the depletion of liquidity levels until such time as our occupancy and expense levels return to pre pandemic levels.
Until such time, we remain reliance on timely receipt of federal and state resources to fund operating losses and to ensure the company can continue to meet all of its financial obligations.
Because the pace of business recovery cannot be predicted.
And the continued timely receipt of adequate government financial support cannot be assured we.
We determined that such conditions raise substantial doubt about the company's ability to continue as a going concern.
Given the circumstances, we are reviewing our options to materially reduce expenses and increase liquidity without negatively impacting our overall operations and the care we provide.
We will continue to vigorously advocate for Genesis and others in the skilled nursing industry, who were disproportionately impacted by cobot 19.
By virtue of their physical location in relation to community is having high density outbreaks.
Regardless of these financial challenges, we remain squarely focused on serving our patients in residents through the current covert 19 environment and into the future.
And with that rain. Please open up the line for any questions.
Operator, I would ask if there are any questions at this time.
Yes.
As a reminder times. The question you will need to press star one on your telephone keypad.
Your first question comes from line of Frank Morgan from RBC Capital. Your line is open. Please ask your question.
No I guess I'll start with that last comment you made Tom about the.
Addressing going concern issues.
Any initial thoughts on kind of what you might proceed with obviously the this a advance payment.
Repayment they'll start saving is clearly an issue, but any initial kind of thoughts on what how your strategy may develop.
Okay.
Craig This is George I'll take that.
Well.
What's hard to measure right now the center of the recovery you know July.
On July and August Burke traditionally.
Seasonally low occupancy levels for the industry at least in our market.
So very difficult to measure the extent of the recovery.
We still do not have clarity around the 5 billion dollar recently about $5 billion allocation.
That allocation is critically important.
It has both a pro rata allocation and that as well as the value based.
Component to it.
We still are lacking detail on both a method and timing for that allocation. No also critically important Oh, we continue to do everything possible.
Prioritizing protection of our.
And the stake of our patients and staff around the cost levels. We continue to look at bringing down agency utilization premium labor cost of.
As a result sub the of the pandemic so.
It's a moving target at this point, we're continuing to focus on.
Maximizing liquidity privately expenses, you know at the lowest possible level, we can.
And continuing to advocate for the necessary support we need.
As we are principally located in the early hot but they from from the federal and state government to support our efforts.
Gotcha and there you you mentioned.
I mentioned additional divestitures that you'd completed the quarter, but.
Is there anything there from a timing standpoint, do you think you could realistically do at this point, where they are enough assets that you could shed.
In a kind of timely manner or get any kind of a whether kind of concessions there or.
[music].
The Frac, we you know it's.
Been ups of surprised you, especially in earlier part of the pandemic, we were able to execute some transactions there continues to be.
Strong interest, especially in Jordan about market Oh on the East Coast pandemic.
No accelerated.
And more significantly impacted some of those market.
The ability to execute some of those transactions Ah became more difficult.
Okay when we.
Got a little more clarity around recovery rate or sets us.
We can begin getting the transactions that we.
Actually how did the market you know completed.
And I think the very positive thing from a financial perspective is the per bed value.
In our industry.
Had them it continued to be very very strong and especially in.
Starting with our market. So we'll continue to pursue those transaction they arc liquidity enhancing transaction and that continues to meet our strategic objectives and our footprint.
Focused on the markets, where we are strongest from an operating perspective, but.
Sit here today I would say those transactions are delayed for four.
Some period until we see a recovery recovery rate talk on sub.
Got to one final one I'll hop off here.
Did you break out like how much you're you're up potentially could receive an incremental state programs.
In terms of temporary relief and then.
Yes, I noticed that that.
You'll make strong like it was a problem the insurance so much on the Medicare So any color there and I'll hop.
Yes, Frank thus far we have a $10 million of hard commitments from the states that we're operating in but we expect that we're going to see more there it's tough to quantify it until.
We have validation from the states, but we know states like New Jersey are working on something that we're hopeful for.
And other states that have provided funding up to a certain date.
We expect that they'll continue to extend.
Those additional dollars as you know the state of emergencies continue in those states, but tough tough to quantify beyond the $10 million of hard commitments, we have today, but again optimistic there.
And then Frank your last question remind me.
Yes, just the it looks like your skill mix, yeah, it'll give us like the commercial or insurance that drop but the fee for service Nazi flat just what.
Thanks, Yeah, yeah. So so when you think about the fact with a three day hospital stay being lifted and one of the strategy is there from the government, which was very wise was in cases, where we could care in place for patients traditional long term care Medicaid patient say that had skilled needs as a result of coven we could.
Keep them in our beds out of the hospitals and care for them effectively in our building so imagine that although a fair amount of our traditional skilled mix on the Medicare side, the short stay patient with depleted because of discharges and because of lack of admissions we were able to supplement that with the scaling of patients.
Required skilled care that trip traditionally would have been in a long term Medicaid status on the insurance side. However, those are typically more your traditional very short stay younger patient population of the greater than 60 fives and of course, you know those were the patients that we were discharged and not being readmit.
Good and very few of our long term care patients who are dually eligible at that stage of their life are choosing Medicare advantage plans there they are falling back on traditional indemnity.
Does that answer your question.
Yes, thank you very much.
Thanks Frank.
There are no further questions. Please continue.
There are no further questions. We are very much appreciate.
Everyone looks continued supportive Genesis obviously this is very difficult type level Genesis, but the industry.
The.
As I've said appreciate your support hope everyone stay safe and well as we see the the virus to begin to accelerate uncertain certain markets.
Tom and rich and Joanne and team Laurie.
The available for questions. After the call. Thank you again, then does stay safe.
This concludes today's conference call. Thank you for participating in the non disconnect.