Citing significant financial strain related to the ongoing COVID-19 pandemic, nursing home giant Genesis HealthCare (NYSE: GEN) on Monday expressed serious concerns about its future — while also raising the specter of a potential bankruptcy filing.
“Without giving effect to the prospect, timing and adequacy of future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties,” the Kennett Square, Pa.-based operator announced in its second-quarter earnings release.
“The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued,” the release continued.
That conclusion came after Genesis performed an analysis of its cash flows and debt obligations amid the ongoing coronavirus crisis: The operator reported $67 million in lost revenue associated with COVID-19 during the second quarter of 2020, and $74 million for the first six months of the year total.
Census declines stemming from the suspension of elective surgeries and self-imposed admission holds were primary drivers of that lost revenue, according to the company; occupancy dropped from 88.2% from the first quarter to 77% in the second, settling at 74.8% in July.
At the same time, Genesis faced spiking operating expenses, with additional incremental costs of $145 million during the second quarter and $152 million for the first two quarters combined.
“Increases in cost primarily stemmed from higher labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, medical equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense,” the operator observed.
The operator was able to take advantage of multiple relief programs, logging $186 million in CARES Act grants, $157 million in advance Medicare payments, $90 million in deferred payroll taxes, and $56 million in state aid.
But those advance Medicare payments must be repaid between August and September, and the deferred payroll tax obligations will be due at the end of 2021 and 2022.
Genesis’s analysis of its financial outlook also did not consider future government benefits, though the operator emphasized it will continue to advocate for financial support.
While the skilled nursing heavyweight intends to explore operational changes and asset sales in order to maintain its liquidity, the Monday release made clear that the risk of serious financial consequences remains high.
“Even if the Company receives additional funding support from government sources and/or is able to execute successfully all of its these plans and initiatives, given the current challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force the Company to seek reorganization under the U.S. Bankruptcy Code,” Genesis warned.
Since the first reported outbreak at a Genesis facility on March 16, 241 of the company’s 361 nursing homes have reported one or more positive COVID-19 cases, with 77% of total cases occurring in the early community coronavirus hotspots of Connecticut, New Jersey, Massachusetts, Pennsylvania, and Maryland.
“A significant number of the Company’s facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks,” Genesis observed. “As previously noted, COVID-19 is having and will likely continue to have a material and adverse affect on the Company’s operations and supply chains, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures.”
The operator had shown signs of trouble even before the pandemic dragged on into the summer; the New York Stock Exchange in April issued a continued listing standard warning for Genesis shares after their price dropped below $1 for 30 consecutive trading days.
Genesis has until December 26 to regain compliance with that listing standard by logging a 30-day trading average of at least $1.
GEN shares closed Monday’s trading flat at exactly $1, but had already slipped almost 22% to $0.78 in after-hours activity as of about 4:45 p.m. CT.
The company will host its second-quarter conference call with analysts and investors early Tuesday morning.