Kindred Healthcare Announces Fourth Quarter 2014 Results

Kindred Healthcare Announces Fourth Quarter 2014 Results

<0> Kindred Healthcare, Inc.Stephen Farber, 502-596-2525Executive Vice President, Chief Financial Officer </0>

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2014.

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.

See reconciliation of core and adjusted results to generally accepted accounting principles (“GAAP”) results for Kindred beginning on page 16 and for Gentiva on page 21.

Consolidated revenues for the fourth quarter ended December 31, 2014 increased 6% to $1.26 billion compared to $1.19 billion during the same period of 2013, primarily due to improved hospital volumes, strong performance in the Care Management division’s operations and growth from acquisitions. Kindred reported a loss from continuing operations for the fourth quarter of 2014 of $9.9 million or $0.15 per diluted share compared to a loss of $52.8 million or $1.01 per diluted share in the fourth quarter of 2013. Fourth quarter 2014 operating results included pretax charges of $40.1 million ($26.8 million net of income taxes) or $0.41 per diluted share related to pre-closing financing for the Gentiva acquisition, transaction, consulting, and severance and retirement costs. The fourth quarter of 2013 included an asset impairment charge, changes in estimate related to pending litigation, severance and retirement costs, costs associated with the closing of a transitional care hospital, transaction costs and an increase in the estimated income tax benefit associated with pending litigation, which the pretax charges totaled $87.7 million ($62.5 million net of income taxes) or $1.19 per diluted share.

During the fourth quarter of 2014, the Company announced that it entered into an agreement with Ventas, Inc. (“Ventas”) (NYSE:VTR) to transfer the operations under the leases for nine non-strategic nursing centers. Kindred has reclassified the operations of these nine nursing centers to discontinued operations for all periods presented.

Consolidated revenues for the year ended December 31, 2014 increased 5% to $5.03 billion compared to $4.78 billion in the previous year. The Company reported a loss from continuing operations of $14.0 million or $0.24 per share in 2014 compared to a loss of $44.5 million or $0.85 per share in 2013. In addition to the charges discussed in the fourth quarter results above, operating results for the year ended December 31, 2014 included pretax charges related to restructuring, litigation, debt refinancing and a customer bankruptcy that in aggregate reduced operating results by $119.4 million ($77.2 million net of income taxes) or $1.32 per diluted share. Operating results for the year ended December 31, 2013 included pretax charges of $142.6 million ($98.9 million net of income taxes) or $1.89 per diluted share.

Gentiva consolidated revenues for the fourth quarter of 2014 increased 5% to $509 million compared to $486 million during the same period in 2013. Earnings before interest, income taxes, depreciation, amortization and certain charges (“Adjusted EBITDA”) for the fourth quarter of 2014 increased to $52 million from $22 million a year ago. Gentiva consolidated revenues for the year ended December 31, 2014 increased 15% to $1.99 billion compared to $1.73 billion during the same period in 2013. Adjusted EBITDA for the year ended December 31, 2014 increased to $194 million from $135 million a year ago. The annual audit of Gentiva’s 2014 results is currently in process. See page 21 for a reconciliation of Adjusted EBITDA results for Gentiva to GAAP results.

Paul J. Diaz, Chief Executive Officer of the Company, commented, “After spending the past several years repositioning the Company through a difficult reimbursement environment, I am incredibly pleased with the strides we made in 2014 to strengthen our business and solidify Kindred’s position as a national leader in post-acute care. Looking forward, Kindred is well positioned to help shape the future of American healthcare and actively participate in the important shift to value-based payment systems and coordinated care. We began 2015 with the successful completion of the Gentiva and Centerre acquisitions, and advanced our Mission of making recovery and a return to home possible for more than a million patients per year. These acquisitions significantly improved the growth, margin and cash flow profile of the Company, and significantly expanded our capitalization and the liquidity of our stock.”

Mr. Diaz continued, “We are also very pleased with Gentiva’s strong results in the fourth quarter and for the full year of 2014, which reaffirms our confidence in the combination. We are entering the year with significant momentum and believe that Kindred is poised for continued long-term success as the nation’s largest operator of long-term acute care hospitals, inpatient rehabilitation facilities, contract rehabilitation, home health and hospice services and one of the leading sub-acute and skilled nursing providers. Today, we are pleased to announce our preliminary financial estimates for 2015 for the combined Company, which underscores our commitment to continued growth and enhanced profitability.”

Benjamin A. Breier, President of the Company, said, “Our patient-centered approach to care and the successful steps we have taken to expand each of our divisions are driving significant growth and value creation for our Company. Kindred’s momentum is further supported by our unique ability to place patients appropriately, transfer patients effectively, and deliver on our promise of quality and value. We are executing on our strategy as we grow the core business, further develop our Integrated Care Markets and care management capabilities, and strengthen our balance sheet.”

Stephen D. Farber, Executive Vice President, Chief Financial Officer, commented, “We are very excited that Kindred, Gentiva and Centerre each completed 2014 with momentum, and that our integration of these acquisitions is ahead of schedule. We remain highly confident that we will meet our synergy goal to realize $35 million of contribution to 2015 performance, and that our improved cash flow and growth profile will support a strong balance sheet and allow us to simultaneously deleverage while continuing to invest in our business and provide meaningful dividends to shareholders.”

Kindred today announced preliminary financial estimates for 2015 that includes Gentiva for eleven months and Centerre for the full year. These estimates are prior to completion of transaction accounting for the acquisitions of Gentiva and Centerre and are subject to adjustment when, as previously announced, the Company provides 2015 guidance in conjunction with first quarter 2015 results.

Kindred preliminarily estimates 2015 annual revenues of approximately $7.2 billion to $7.3 billion, core operating income (or earnings before interest, income taxes, depreciation, amortization and rent, “EBITDAR”) of approximately $1.00 billion to $1.05 billion (including $35 million of contribution from Gentiva synergies assumed to be realized in the year), and core earnings of $1.20 to $1.40 per diluted share. The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of roughly 86 million to 87 million shares. Please note that, given the mid-quarter timing of the Gentiva transaction, the estimated weighted average share count for the first quarter of 2015 approximates 84 million diluted shares.

Beginning with 2015, in addition to GAAP earnings per diluted share and core earnings per diluted share, Kindred will report adjusted core earnings per diluted share, which is calculated by excluding non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs, net of income tax benefit, from core income from continuing operations. We believe this additional performance measure may be useful for investors and analysts, especially for comparability purposes as more public companies adopt similar measures. For 2014, these non-cash expenses, on a core basis, totaled $44.4 million ($26.9 million net of income taxes) or $0.45 per diluted share, resulting in $1.51 of adjusted core earnings per diluted share. The 2015 preliminary financial estimates provided above include an estimated $73 million of such non-cash expenses ($44 million net of income taxes), or roughly $0.50 per diluted share, and on such basis Kindred preliminarily estimates $1.70 to $1.90 of adjusted core earnings per diluted share for 2015.

These preliminary financial estimates exclude transaction costs, pre-closing financing and integration costs associated with the acquisitions of Gentiva and Centerre, the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

The Company announced that its Board of Directors has approved the payment of the regular quarterly cash dividend of $0.12 per share of common stock to be paid on April 1, 2015 to shareholders of record as of the close of business on March 11, 2015.

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2014 conference call through a link on the Company’s website at . The conference call will be held on February 27 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 27 by dialing (719) 457-0820, access code: 5860683. The replay will be available through March 10.

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding the Company’s acquisitions of Gentiva and Centerre (including the benefits, results and effects of such acquisitions), all statements regarding the Company’s expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management, and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “may,” “potential,” “upside,” and other similar expressions, are forward-looking statements. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

Risks and uncertainties related to the Company’s acquisitions of Gentiva and Centerre include, but are not limited to, uncertainties as to whether the acquisitions will have the accretive effect on the Company’s earnings or cash flows that it expects, the inability to obtain, or delays in obtaining, cost savings and synergies from the acquisitions, costs and difficulties related to the integration of Gentiva’s and Centerre’s businesses and operations with the Company’s businesses and operations, unexpected costs, liabilities, charges or expenses resulting from the acquisitions, adverse effects on the Company’s stock price resulting from the acquisitions, the inability to retain key personnel, and potential adverse reactions, changes to business relationships or competitive responses resulting from the acquisitions.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price are set forth in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and year ended December 31, 2014 and 2013 before certain charges or on a core and adjusted core basis. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses EBITDAR or EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses EBITDAR or EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating results presented on a core and adjusted core basis and EBITDAR or EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in this press release.

The results for Gentiva for the three months and year ended December 31, 2014 and 2013 enclosed in this release include the non-GAAP measurement Adjusted EBITDA. Adjusted EBITDA is defined as income before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating to (i) cost savings initiatives and acquisition and integration activities, (ii) impact of closed and consolidated locations, (iii) goodwill, intangibles and other long-lived asset impairments and (iv) impact of merger related expenses. Gentiva used Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with GAAP. Because Adjusted EBITDA is not a measurement of financial performance under GAAP and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies.

Also in this press release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items. The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating cash flows and free cash flows excluding certain items should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of net cash flows provided by operating activities to operating cash flows and free cash flows excluding certain items are included in this press release.

Kindred Healthcare, Inc., a top-85 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. At December 31, 2014, on a pro forma basis to include Gentiva and Centerre, Kindred through its subsidiaries had approximately 103,000 employees providing healthcare services in 2,872 locations in 47 states, including 97 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90 nursing centers, 22 sub-acute units, 634 Kindred at Home hospice, home health and non-medical home care locations, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,913 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six 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 . You can also follow us on and .

Revenues were computed by combining the twelve months ended December 31, 2014 data for Kindred, Gentiva and Centerre.

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