Genesis HealthCare’s (NYSE: GEN) future as a going concern is in “substantial doubt” as a result of financial and operational strains stemming from the coronavirus pandemic — pressures that were brought into stark relief in its second quarter of 2020 earnings.
The company’s portfolio of 361 facilities is dominated by skilled nursing but includes 23 assisted living facilities: 19 are leased; two are owned in joint ventures; one is owned outright and one is managed by the company. The assisted living segment generated revenues of $20.04 million in the second quarter, a 15.4% decline, year over year.
Without a reversal in current trends, as well as additional government relief, the skilled nursing giant’s future revenue earnings will not be enough to cover its financial obligations, and the possibility of a bankruptcy filing is a growing possibility.
“While we greatly appreciate the support that the [Trump] administration has provided to the skilled nursing industry throughout the pandemic, we are concerned that this round of funding does not address the acute incremental funding needs of skilled nursing providers disproportionately impacted by the virus,” CEO George Hager said Tuesday during the company’s Q2 2020 earnings call.
The Kennett Square, Pennsylvania-based operator reported $956.3 million in the second quarter, a 16.5% drop over the second quarter of 2019. The revenue decline was driven by a sharp drop in occupancy as a result of the pandemic. Total occupancy fell sequentially, from 88.2% in the first quarter to 77% at the end of Q2.
Genesis also reported a $22 million net loss in the second quarter — a 358.3% year-over-year decrease.
Like other operators in the long-term care space, Genesis has experienced increased expenses stemming from the pandemic. But those pressures have been more acute for skilled nursing providers, which suspended new move-ins in the early weeks of the pandemic in conjunction with hospitals suspending elective surgical procedures in order to dedicate resources to combating the virus.
The operator reported $145 million in additional incremental costs in the second quarter, and $152 million for the first half of 2020, Senior Housing News sister publication Skilled Nursing News reported.
Genesis was able to take advantage of several sources of relief funding including $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 the advance Medicare payments must be repaid by the end of September, and deferred payroll taxes are due at the end of the year, and in 2022.
Nearly 90% of the Covid-19 costs were labor-related, Chief Financial Officer Tom Vittorio said during the earnings call.
“These costs 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 were absolutely essential during the peak of the outbreaks we experienced in the initial hotspot Covid-19 markets,” he said.
In total, Genesis estimates it lost $67 million in revenue from the pandemic in the second quarter. It did, however, report $282 billion in cash and cash equivalents as of June 30, including the advance Medicare payments. But with Congress and the Trump administration still debating a new relief package, Genesis is looking internally to rein in expenses moving forward.
“We are reviewing our options to materially reduce expenses and increase liquidity, without negatively impacting our overall operations and the care we provide,” Vittorio said.
The earnings report sent Genesis stock plummeting Tuesday, ending trading down over 24% to $0.76 per share.