Leading up to Genesis HealthCare’s first quarter earnings release and conference call, the company’s share price took off. The rise started on May 22 when it jumped by 22% on high volume, but then it added another 35% on volume that was 10 times the average. In the course of four days, the price more than doubled, from $0.63 per share to $1.37 before settling down. Subsequent to the earnings report, the price has dropped by 17% and is back below $1.00 per share. 

So, what were investors expecting from the first quarter, and more importantly, for the results in the weeks after the quarter ended? We’re not sure, because all things considered, it was a “decent” quarter, and operations and census had been on the upswing through most of the quarter until the impact of COVID-19. But that impact can’t be discounted no matter how much in aid, grant money and deferred payroll tax payments the company has taken advantage of.   

Take occupancy. Based on operating beds, census increased by 140 basis points from last year’s first quarter to 88.2%, which is reasonably impressive. But then it dropped by more than 700 basis points in April to 81.9%. The expectation is that May occupancy will fall by another 500 basis points to about 76%, and then perhaps stabilize. This would be helped by a decline in COVID-related cases, more of their facilities opening up for new admissions, and the expected increase in elective surgeries that will bring back post-acute and rehab patients.  

As of this week, about 50% of their 363 facilities still have an admissions ban, but more facilities are coming off the ban as COVID-19 is pushed out the door. A resident or staff member tested positive in about one-half of their facilities, totaling about 2,000 people. While that seems like a lot, it comes to about 2.9% of the combined staff and resident population. What is a shame is that the company was making steady progress in terms of census, costs and liquidity until the pandemic hit them between the eyes. Now, it is anyone’s guess what will happen through the rest of the year. 

Management stated that there were an extra $21 million of COVID-related costs in April, and an additional $21 million in May. They didn’t venture out to June and beyond, but we suspect the additional monthly costs will be in the double digits for the next few months, at least. This will be paid for by the combination of $180 million of relief grants, $90 million of deferred payroll tax payments (which will have to be repaid at the end of 2021 and 2022), and $158 million of advanced Medicare payments.  

There are also higher Medicaid payments in some states. While a lot of this is basically free cash, some has to be repaid, which implies profitability will need to rise next year and in 2022 to come up with the funds. And, they continue to divest facilities that are producing pre-tax losses, which will help. The company has gone from over 500 facilities to 376 at the end of the first quarter, and that number will need to get smaller so management can focus on the profitable regions and facilities. And, just maybe get the stock price above $2.00 per share again.