Kindred Healthcare Reports Fourth Quarter 2015 Results

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter ended December 31, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “Throughout 2015, our focus at Kindred has been growing and transforming our operations and clinical capabilities to expand our national leadership in post-acute care and I am proud of our team’s significant accomplishments. We successfully completed and integrated two highly strategic transactions, Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”), which together added more than $2 billion in revenues, 40,000 employees and 500 sites of service to our platform.

Mr. Breier added, “These transactions have strengthened our ability to deliver a full continuum of post-acute care, while also contributing operating results and cost synergies that exceeded our expectations. Gentiva and Centerre also accelerated the transformation of Kindred’s financial profile, such that today the Company is more focused than ever on higher growth, lower capital intensity businesses that generate substantial free cash flows.”

Mr. Breier continued, “Solid execution in each of our businesses remains our top priority as we drive effective patient-centered care solutions and adapt to change. We are confident that Kindred’s full continuum of post-acute services, which enables us to deliver care and services where and when patients need them the most, and our innovations in care management uniquely position us to successfully transition to a value-based healthcare system. As always, I thank the many stakeholders in Kindred, and especially our 102,000 teammates, for the exceptional care they provide to more than a million patients each year.”

All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated. The acquisitions of Gentiva and Centerre have been included in the operating results presented since the respective dates of acquisition.

Fourth Quarter and Year Consolidated Highlights(1):

• Consolidated revenues for the fourth quarter increased 40.8% to $1.78 billion year-over-year and core earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 45.7% to $248 million compared to the same period in 2014. For the year, consolidated revenues increased 40.3% to $7.1 billion and core EBITDAR increased 43.3% to $980 million, each as compared to the same period last year. A significant driver of the growth in both periods was the acquisition of Gentiva and Centerre.
• Core diluted earnings per share (“EPS”) from continuing operations for the fourth quarter was $0.33 and adjusted core diluted EPS from continuing operations was $0.44 based upon 87.2 million weighted average diluted shares, an improvement compared to core diluted EPS of $0.26 and adjusted core diluted EPS of $0.38 for the same period a year ago based upon 63.2 million weighted average diluted shares. For the year, core diluted EPS from continuing operations was $1.28 and adjusted core diluted EPS from continuing operations was $1.70 based upon 86.1 million weighted average diluted shares, an improvement compared to core diluted EPS of $1.06 and adjusted core diluted EPS of $1.51 for the same period a year ago based upon 58.2 million weighted average diluted shares.
• The Company generated core operating cash flows of $54 million(2) for the fourth quarter compared to $86 million(2) for the same period a year ago, and core free cash flows were $2 million(3) for the fourth quarter compared to $58 million(3) in the same period of 2014. The decline in both measures was attributable to the timing of certain year-end payroll expenditures in the fourth quarter of 2015 and a meaningful acceleration of accounts receivable collections in the fourth quarter of 2014 in the Hospital Division after the completion of central business office consolidations. Core free cash flows for the fourth quarter of 2015 were also negatively impacted by the timing of routine capital expenditures as compared to a year ago.
  
  For the year, core operating cash flows were $318 million(2) compared to $188 million(2) for the same period a year ago, and core free cash flows were $154 million(3) compared to $83 million(3) in the same period of 2014. These results reflect the Company’s changing business mix primarily driven by the addition of Gentiva and Centerre in 2015.

• GAAP operating results:

• The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on April 1, 2016 to shareholders of record as of the close of business on March 10, 2016.

Fourth Quarter Segment Highlights(1)(4):

Kindred’s Hospital Division fourth quarter same-hospital revenues declined 3.3% over the prior year period to $594 million, with a decline in same-hospital admissions of 3.3% compared to the same period last year. Sequentially, same-hospital admissions increased 1.7% and same-hospital revenues per patient day increased 2.8% compared to the third quarter of 2015. Core EBITDAR for the fourth quarter declined to $118 million from $135 million a year ago, and increased from $97 million in the third quarter of 2015.

Kindred at Home Division fourth quarter revenues and core EBITDAR increased to $604 million and $99 million, respectively. The home health segment experienced another quarter of solid growth, with episodic admissions increasing 1.5% and revenues increasing 4.8% to $358 million, both over the prior year period on a combined basis, notwithstanding a 12.6% consolidation of home health branches during 2015 from 427 to 373 sites. Average home health revenue per branch grew 18.0% during the course of this consolidation. The hospice segment generated $178 million of revenues with stable admissions during a seasonally weak quarter. Average hospice revenue per branch increased 13.8% as the Company consolidated the hospice branch network from 193 sites at the end of 2014 to 175 sites at the end of 2015.

Kindred Rehabilitation Services Division revenues increased 4.8% to $362 million and core EBITDAR contribution increased 42.7% to $57 million for the quarter. The Kindred Hospital Rehabilitation Services segment experienced strong revenue growth of $63 million or 67.4% over the prior year period, due to the successful integration of Centerre, and achieved core EBITDAR margin improvement from 25.7% to 29.0%. The RehabCare segment (“RHB”) revenues declined to $207 million from $253 million a year ago primarily due to contract losses that occurred in the first half of 2015. Excluding one customer with 23 sites of service that RHB terminated in the fourth quarter of 2015 in connection with litigation to collect past due amounts, RHB added 32 net new sites of service over the last half of 2015.

Kindred’s Nursing Center Division revenues grew 0.6% to $273 million in the fourth quarter. Core EBITDAR was $37 million, down $2 million from a year ago. Top line growth was driven by a 3.5% improvement in revenue per patient day, including a 4.9% increase in Medicaid revenue per patient day that was partially offset by a 3.9% admission decline. Operating costs per patient day increased 4.8% in the fourth quarter, primarily a result of the admissions decline, start-up costs for January 2016 new openings and continuing Medicare length of stay contraction.

2016 Outlook

Kindred today announced its outlook for 2016. Kindred expects:

• Annual revenues of approximately $7.250 billion, with a range of $7.2 billion to $7.3 billion
• Core EBITDAR of approximately $990 million, with a range of $970 million to $1.010 billion
• Core diluted EPS from continuing operations of approximately $0.90, with a range of $0.80 to $1.00(1)
• Adjusted core diluted EPS from continuing operations of approximately $1.25, with a range of $1.15 to $1.35(1)(2)

For the first quarter of 2016, the Company expects core EBITDAR to approximate $235 million to $250 million, core diluted EPS from continuing operations to approximate $0.17 to $0.27 and adjusted core diluted EPS from continuing operations to approximate $0.26 to $0.36.

Mr. Breier commented, “Our outlook reflects what we believe will be a transition period for our Hospital Division in 2016 and 2017 due to long-term acute care (“LTAC”) criteria implementation. We anticipate that over time, our LTAC criteria mitigation efforts, robust growth in other divisions, and strong cost management across the enterprise will offset the effects of these reimbursement changes. For the enterprise, we expect stable and consistent core EBITDAR of approximately $1 billion in 2016 and at least $1 billion in 2017. Throughout this transition period we expect to continue generating roughly $300 million(3) per year in core operating cash flows, and approximately half of that amount in core free cash flows(4).

Mr. Breier concluded, “Our extensive efforts to grow and diversify Kindred enable us to work through challenges within any individual business, while continuing to advance the enterprise. We will continue to invest in strategic growth, including a particular focus on investments that help to increase our capabilities as a post-acute benefits management company, preparing us for the ongoing transition from fee-for-service to fee-for-value. The substantial cash flows we expect from our diversified service offerings will allow us to continue investing aggressively in our platform, which will drive growth, reduce our leverage, and advance our Continue the Care strategy. The growth in our Kindred at Home division and Kindred Hospital Rehabilitation Services in 2015, our recent announcements regarding expansion in four integrated markets and our strategic partnership with Inovalon (NASDAQ:INOV) to create a unique set of post-acute benefits management tools and solutions are examples of these capabilities.”

This outlook excludes transaction costs, the effect of any reimbursement changes, debt refinancing costs, severance, retirement, retention, consulting and restructuring costs, litigation and related contingency expense, integration costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

All forward-looking non-GAAP financial measures contained in this section “2016 Outlook” are provided only on a non-GAAP basis. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures. As a result, reconciliation of the forward-looking non-GAAP financial measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to address the probable significance of the unavailable information.

Cash Dividend

The Company announced that its Board of Directors has approved the payment of a cash dividend of $0.12 per share of common stock to be paid on April 1, 2016 to shareholders of record as of the close of business on March 10, 2016.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 26 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on February 26 by dialing (719) 457-0820, access code: 4866232. The replay will be available through March 7.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 for important disclosures regarding the Company’s forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-90 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion(1). At December 31, 2015, Kindred through its subsidiaries had approximately 102,000 employees providing healthcare services in 2,692 locations in 46 states, including 95 transitional care hospitals, 18 inpatient rehabilitation hospitals, 90 nursing centers, 19 sub-acute units, 604 Kindred at Home home health, hospice and non-medical home care sites of service, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,766 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for seven years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.