Kindred's consolidated revenues increase 2% to $1.30 billion in Q1 2014

May 7 2014

Kindred Healthcare, Inc. ("Kindred" or the "Company") (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2014. The Company has reclassified as discontinued for all periods presented the operations of a transitional care ("TC") hospital that was divested through the expiration of a lease. 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.

Highlights:

• Consolidated revenues, operating income and operating margin rose sequentially from last quarter on improvements in each operating segment

• Hospital division performed well despite a challenging backdrop, as strong cost controls partially mitigated the impact of a 2% decline in net revenues from volume softness, sequestration and commercial rate pressures
• RehabCare operating income increased 1% and operating margins improved to 11.4% from 11.1% in the first quarter last year despite regulatory headwinds that became effective April 1, 2013
• Nursing center division revenue growth and solid cost controls drove a 13% increase in operating income, a solid improvement in operating margins and in March, the first profitable month of operations in two years
• Investments in our Care Management division and Kindred at Home led to revenue growth over prior year of 70% and operating income growth of 30%; platform for future growth established
• Kindred repositioning strategy almost complete
  • Divestiture of 59 nursing centers leased from Ventas, Inc. ("Ventas") (NYSE:VTR) on schedule; 26 nursing centers transferred as of May 1 and all but one facility scheduled to transfer by end of Q3
  • The real estate of two previously leased nursing centers was acquired for $22 million reducing annual rents by approximately $2 million
• The refinancing of the Company's existing secured and unsecured debt on April 9 lowers borrowing costs, extends debt maturities and reduces interest rate risk
• Kindred is well positioned operationally and financially to grow in 2014 and beyond
  • Available borrowing capacity under the Company's revolving credit facility approximated $377 million after the April 9 refinancing
• Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on June 11, 2014

First Quarter Results

Continuing Operations

Consolidated revenues for the first quarter ended March 31, 2014 increased 2% to $1.30 billion compared to $1.28 billion in the same period in 2013. The Company reported income from continuing operations for the first quarter of 2014 of $16.8 million or $0.31 per diluted share compared to $10.4 million or $0.20 per diluted share in the first quarter of 2013. First quarter 2014 operating results included pretax charges of $0.7 million ($0.4 million net of income taxes) or $0.01 per diluted share related to transaction-related costs. Operating results for the first quarter of 2013 included a one-time bonus paid to employees who did not participate in the Company's incentive compensation program and transaction-related costs, which reduced income from continuing operations in aggregate by $12.6 million or $0.23 per diluted share.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, commented, "We are very pleased to report a solid start to 2014. As we expected, hospital volumes improved sequentially in the first quarter, which historically has been our seasonally strongest quarter. That said, we continued to experience the same volume and utilization challenges experienced recently by many healthcare providers and successfully managed costs to mitigate the impact."

Mr. Diaz further noted, "Our RehabCare division continues to make great progress, as evidenced by our operating income increase and margin improvement, notwithstanding Medicare reimbursement reductions. In addition, we added 45 net new skilled nursing rehabilitation sites of service during the quarter. The efforts we have made to reshape our nursing center division are continuing to pay off as we saw a significant improvement in operating margins in the first quarter. We are developing three additional transitional care centers in Indianapolis, Phoenix and Las Vegas, which will add to the momentum in this division."

"Our Care Management division continues to make operating improvements in our home health and hospice operations as we assimilate numerous acquisitions and execute on a more standardized operating model. Our recent acquisitions of Senior Home Care and Kindred Home Based Primary Care (formerly Western Reserve Senior Care) have performed well and strengthen our commitment to further expand our Care Management division. We have made significant improvements in our management, processes and technology and hope to apply those tools across a larger platform over time."

Benjamin A. Breier, President and Chief Operating Officer of the Company, commented, "Our recently announced acquisition of the Silver State Accountable Care Organization ('ACO') in Las Vegas, Nevada, is a very exciting transaction for Kindred, and the partnership marks our first ownership and direct management of an ACO anywhere in the country. We are always identifying opportunities to learn and grow, and Silver State, along with our home-based primary care physician strategy, and our care transitions programs in many of our integrated markets are all examples of our efforts to develop, test and deploy new care delivery and payment models across our platform. Our stated goal of advancing value-based care models in multiple markets over the next few years remains on track."

Commenting on the Company's strategic initiatives, Mr. Diaz commented, "We continue to make great strides in completing our efforts to reposition our business with the ongoing transfer of the 59 Ventas nursing centers. We also closed the previously announced acquisition of two leased nursing centers and terminated the lease of an unprofitable hospital."

"Our recent $2.25 billion debt refinancing reinforces our capabilities to expand our continuum of post-acute care services in our Integrated Care Markets and provides the flexibility to return capital to our shareholders through a recurring quarterly dividend. We remain committed to improving our long-term growth, profitability and financial position and enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. We also continue to evaluate various opportunities to redeploy our management capabilities, industry leading infrastructure and financial resources as we move forward with the growth phase of our strategic plan."

Earnings Guidance - Continuing Operations

The Company reaffirmed its previous earnings guidance for 2014 and expects to report income from continuing operations for 2014 between $58 million and $68 million or $1.05 to $1.25 per diluted share (based upon diluted shares of 53.2 million).

The Company also reaffirmed its operating cash flow guidance for 2014 at a range between $245 million and $275 million. Estimated routine capital expenditures for 2014 are expected to range from $100 million to $105 million and estimated costs to develop new or replacement TC hospitals, transitional care nursing centers, and inpatient rehabilitation facilities ("IRFs") will approximate $20 million to $25 million in 2014. Operating cash flows in excess of the Company's routine and development capital spending programs are expected to approximate $125 million to $145 million for 2014 and will be available to pay dividends, repay debt and fund acquisitions. Estimated dividend payments for 2014 are expected to approximate $26 million.

Mr. Breier commented, "We have a higher level of confidence in our 2014 earnings and free cash flow guidance after a solid start to the year. We look forward to continued improvements in our hospital business and continuing the solid first quarter performance from our other divisions. We also expect additional cost savings from initiatives across the enterprise, and growth over time from a broad range of internal and external development efforts. Our strategy is continually focused on being the post-acute provider and partner of choice."

The Company's earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, severance, retirement and retention costs, litigation costs, transaction-related costs, any further acquisitions or divestitures, any impairment charges, and any repurchases of common stock.

Quarterly Cash Dividend

The Company also announced that its Board of Directors has approved the payment of the regular quarterly cash dividend to its shareholders of $0.12 per common share to be paid on June 11, 2014 to shareholders of record as of the close of business on May 21, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred's Board of Directors.

SOURCE Kindred Healthcare, Inc.