Genesis Healthcare, Inc. Earnings Analysis: 2015 By the Numbers – CapitalCube

Genesis Healthcare, Inc. reports financial results for the year ended December 31, 2015.

We analyze the earnings along side the following peers of Genesis Healthcare, Inc. – Ensign Group, Inc. and Acadia Healthcare Company, Inc. (ENSG-US and ACHC-US) that have also reported for this period.

Highlights

• Gross margins widened from 8.89% to 10.37% compared to the same period last year, operating (EBITDA) margins now 9.68% from 6.29%.

• Earnings declined although operating margins improved from 3.37% to 5.45%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

	2011	2012	2013	2014	2015
Relevant Numbers (Annual)
Revenues	869.7	872.62	842.27	833.26	5619.22
Revenue Growth (YOY)	N/A	N/A	N/A	N/A	N/A
Earnings	-203.27	21.6	-6.18	-0.91	-424.98
Earnings Growth (YOY)	-19426.03	110.62	-128.63	85.33	-46755.13
Net Margin	-23.37	2.47	-0.73	-0.11	-7.56
EPS	-5.47	0.57	-0.28	-0.02	-4.97
Return on Equity	-114.58	24.4	-6.44	-0.97	-446.13
Return on Assets	-24.9	3.14	-0.93	-0.14	-12.61

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Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 8.89% to 10.37%, while operating margins improved from 6.29% to 9.68% over this period. For comparison, gross margins were 8.89% and EBITDA margins 6.29% in the immediate last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

GEN-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 2.99 days from 19.87 days for the same period last year.

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 3.37% to 5.45%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -0.26% to -6.28%.

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Company Profile

Genesis Healthcare, Inc. provides rehabilitation and assisted living healthcare services. The company operates though three segments: Long-term care services, Rehabilitation therapy services business, Hospice and home health businesses. The Long-term care services segment provides operations of SNFs and ALFs. The Rehabilitation therapy services business segment provides rehabilitation therapy services in US. The Hospice and home health businesses segment provides hospice care services in Arizona, California, Nevada, Idaho, Montana, and New Mexico. The company was founded on February 2, 2015 and is headquartered in Kennett Square, PA.

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