Kindred Talks Life After Skilled Nursing on Earnings Call

Kindred Healthcare, Inc. (NYSE: KND) tackled life after skilled nursing on its second-quarter earnings call, the first after it finalized a $700 million deal to sell off its SNF assets in late June.

“This transaction is an important step in the ongoing strategic transformation of Kindred,” president and CEO Benjamin Breier said, identifying the company’s new major objectives as growing its home health, hospice, and hospital rehabilitation business lines.

“We have delivered, and will continue to deliver, on these strategic priorities,” Breier said.

The deal to divest from SNFs represents a remarkable shift for the company in a short period of time: Just three years ago, Breier said, inpatient skilled nursing and long-term acute care (LTAC) accounted for about 70% of the Louisville, Ky.-based provider’s earnings.

As of this earnings report, which saw SNF revenues shifted into a discontinued category, home health care alone represents 50% Kindred’s earnings.

Excluding SNF revenues took about $1 billion away from the overall total, CFO Stephen Farber said on the call, but noted that the company isn’t completely leaving the SNF space. Historically, when Kindred has sold SNF assets, the company has retained about half of the existing rehabilitation contracts with the new operators, a trend that Farber indicated would continue as Kindred sells off its 89 SNFs.

Most of the discussion around SNFs concerned the irregular cash flows surrounding the deal: Under the agreement, Kindred will receive $700 million from buyer BM Eagle Holdings, headed by affiliates of alternative asset management firm BlueMountain, but then also shell out $700 million to Ventas (NYSE: VTR), the real estate investment trust (REIT) that owns 36 of the SNFs involved in the transaction.

While Farber emphasized that the company will come out ahead when considering retained working capital and accounts receivable, he warned that the exact timing of the deals could end up skewing Kindred’s cash flow results for the remainder of 2017 and into 2018.

In the second quarter, Kindred turned in revenues of $1.5 billion — a decline of about 5% from the same time last year, but ahead of analyst projections by $50 million. Farber blamed the revenue dip largely on the closure of 16 LTACs between then and now, which generated about $70 million in revenue during the second quarter of 2016.

After an early-morning spike, KND stock remained largely flat on Friday, ticking up $0.03 in mid-morning trading.

Written by Alex Spanko

Leave a Reply