LOUISVILLE, Ky. — Kindred Healthcare announced consolidated revenues for the second quarter ended June 30, 2014, increased 7 percent to $1.3 billion compared to $1.2 billion in the same period of 2013, primarily due to improved hospital volumes, a strong rebound in the Care Management division’s operations and growth from acquisitions.
Kindred (NYSE:KND) reported a loss from continuing operations for the second quarter of 2014 of $25.9 million or $0.48 per diluted share compared to income from continuing operations of $13.6 million or $0.25 per diluted share in the second quarter of 2013. Second quarter 2014 operating results included pretax charges of $70.9 million ($44.6 million net of income taxes) or $0.83 per diluted share related to debt refinancing, restructuring, litigation and transaction costs. Without these items, diluted earnings per share from continuing operations increased 26% to $0.34.
Operating results for the second quarter of 2013 included pretax charges of $1.5 million ($0.9 million net of income taxes) or $0.02 per diluted share related to debt refinancing and transaction costs..
The has classified as discontinued for all periods presented the operations of three transitional care hospitals and two nursing centers that were either closed or divested in the second quarter. All financial and statistical information reported in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.
Second Quarter Highlights:
- Consolidated revenues and core operating income both increased 7 percent from the same period last year primarily resulting from improved hospital volumes, a strong rebound in Care Management division operations, growth from acquisitions and solid cost controls throughout the company
- Strong hospital division results with 3.1 percent same-store admissions growth, 1.8 percent revenue growth per patient day and 1.3 percent growth in core operating costs per patient day
- RehabCare division achieved sequential core operating income growth and margin improvement from 11.6 percent in the first quarter of 2014 to 12.3 percent in the second quarter of 2014
- Nursing center division core operating income increased 11.3 percent primarily due to growth in revenues and operating margins were significantly improved due to ongoing repositioning and cost control initiatives
- Care Management division delivered 66 percent revenue growth and core operating income that doubled compared to the same period last year
- Recapitalization of the company completed:
- Divested 55 of 59 nursing centers leased from Ventas as of Aug. 1
- $2.25 billion refinancing of secured and unsecured debt on April 9 lowers borrowing costs, extends debt maturities and reduces interest rate risk
- Recent common stock equity offering of 9.7 million shares generated $221 million in net proceeds used to repay the company’s revolving credit facility
- Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on September 10, 2014
“We are very pleased with our operating and financial results for the second quarter of 2014, which reflects our progress delivering on our promise to provide hope, healing and recovery to the patients we serve,” said Paul J. Diaz, Kindred CEO. “More specifically, in the first half of this year, we saw continued improvement in employee engagement and reduced turnover, and improving quality measures, clinical outcomes and patient satisfaction in all of our business segments.
“We are also pleased to reaffirm our earnings guidance for the year, which reflects the change in share count from our recent equity offering, as we achieved revenue and core operating income growth of 7 percent year-over-year, respectively. We made progress on a number of internal and external growth initiatives during the quarter enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. We continue to evaluate a robust pipeline of external opportunities to deploy our financial resources, industry leading infrastructure and management capabilities as we move forward with the growth phase of our strategic plan. Overall, we remain committed to further improving our patient’s experience and the long-term growth, profitability and financial position of the company.”
Benjamin A. Breier, President and COO, said, “Same-store hospital admissions increased 3.1 percent in the second quarter representing our first quarterly admissions increase since the third quarter of 2012 and our hospital core operating margin improved to 21.7 percent in the second quarter of 2014 from 21.3 percent in the same period a year ago. Our RehabCare division also continues to make great progress, as evidenced by our sequential operating income growth and margin improvement, despite Medicare reimbursement pricing pressures.
“In addition, we have added 57 net new skilled nursing rehabilitation sites of service during the year. Our efforts to reshape our nursing center division continue to pay off as we achieved a significant improvement in operating margins in the second quarter. We are developing three additional transitional care centers in Indianapolis, Phoenix and Las Vegas, which will add to the momentum in this division.”
Breier added, “Our Care Management division continues to make improvements in our home health and hospice operations, including enhancing our team, processes and technology, and we expect to apply these capabilities across a larger platform over time. In addition, our recently announced acquisition of the Silver State Accountable Care Organization (“ACO”) in Las Vegas is a very exciting transaction for Kindred, and the partnership marks our first ownership and direct management of an ACO anywhere in the country.”
Stephen D. Farber, Executive Vice President and CFO, commented also.
“We are pleased to have completed a major recapitalization of the company with both a $2.25 billion debt refinancing in the second quarter and a 9.7Â million share equity offering in the second and third quarters,” Farber said. “The equity offering raised $221Â million in proceeds that the company has initially used to reduce its revolving credit facility, which helped to increase our available borrowing capacity under our revolver to approximately $652 million as of June 30, 2014. These transactions significantly improve our financial position, provide additional financial flexibility and reduce interest expense.
“Our current outstanding share count is 64.6 million shares and for generally accepted accounting principles purposes, on a weighted average basis, we expect our 2014 third and fourth quarters diluted shares used to compute earnings per share to approximate 63.0 million shares and on an annual basis for 2014, 58.3 million shares,” Farber said.
Earnings Guidance – Continuing Operations
Kindred affirmed its previous guidance for income from continuing operations for 2014 of between $58Â million and $68 million. The company noted its earnings guidance for 2014 continues to be based on the same assumptions initially disclosed and there has been no change in its earnings guidance. The affirmed guidance for 2014 reflects an increased share count from the recent equity offering of 9.7 million shares of common stock.
Under Kindred’s current diluted share count of 58.3 million outstanding shares following the recent equity offering, income from continuing operations for 2014 equates to $0.96 to $1.14 per diluted share. Under Kindred’s diluted share count of 53.2 million outstanding shares prior to the equity offering, the same assumptions for income from continuing operations for 2014 of $58 million to $68 million equated to $1.05 to $1.25 per diluted share.
The company revised its operating cash flow guidance range of $245 million to $275 million to a revised range of $200 million to $230 million. This update reflects growth in accounts receivable, increased cash settlements of certain previously-accrued balance sheet liabilities, and other cash flow items.
The company maintained its expectation of $100 million to $105 million for routine capital expenditures and for timing reasons reduced its anticipated 2014 cash outflows for development of new or replacement facilities by $5 million to approximately $15 million to $20 million. With these items, the company expects its 2014 operating cash flows in excess of routine and development capital spending to approximate $85 million to $105 million, which will be available to fund acquisitions, repay debt and pay dividends. Estimated dividend payments for 2014 are expected to approximate $29 million, an increase of approximately $3 million from the previous guidance due to the issuance of 9.7 million additional common shares in the Company’s recently completed equity offering.
While Kindred does not typically provide quarterly guidance, given the many new shareholders of Kindred the company notes that from a seasonal trending perspective, the third quarter is historically the slowest volumes and earnings quarter, and is typically followed by a stronger fourth quarter. For the third quarter of 2014, the company expects diluted earnings per share from continuing operations to approximate $0.05 to $0.15. This compares to diluted earnings per share from continuing operations of $0.10 for the third quarter of 2013, excluding certain disclosed items and adjusted on a pro forma basis to include the incremental 9.7 million shares from the Company’s recently completed equity offering.
Please note the Company’s earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, transaction costs, any further acquisitions or divestitures, any impairment charges, and any repurchases of common stock.
Quarterly Cash Dividend
The Company also announced that its Board of Directors has approved the payment of the regular quarterly cash dividend to its shareholders of $0.12 per common share to be paid on September 10, 2014 to shareholders of record as of the close of business on August 20, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.
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