GenesisCare Q2 EBITDA Dives 68% QoQ on US Revenue Collection Issues; Working Capital Release, Sale-and-Leasebacks Moderate Cashburn; Net Leverage Hits 13x

GenesisCare Secondary Loan Coverage from Reorg's EMEA Core Credit team

GenesisCare’s net leverage has hit 13x after jumping by three turns during the group’s second quarter, ending December 2021, as the Australia-headquartered global cancer treatment provider’s U.S. business derailed earnings and its cashburn continued despite a chunky working capital release and the receipt of further sale-and-leaseback proceeds, sources told Reorg.

The group generated $354.8 million in revenue in the quarter, which was down 1% year over year. However, EBITDA fell 68% year over year to just $17.3 million as a result of a $10.2 million loss in the U.S. business, which more than offset improvements across the group’s other divisions.

The U.S. oncology unit was hit by a $13.6 million adjustment related to weak revenue collection. GenesisCare has implemented an improvement program in October that has resulted in significant upticks in revenue collections during November and December. However, the U.S. division was negatively affected by higher medical supply costs and a less favorable business mix, which means that (even when adding back the revenue collection adjustment) the U.S. business still generated just $3.4 million EBITDA in the second quarter, down 81% year over year.

Since GenesisCare obtains payments for treatments from hospitals and insurance companies, which need to be processed first, revenue collections are typically slower at year-end because of the Christmas holidays, according to one source, who pointed out that the year-to-date EBITDA drop was not quite as steep.

GenesisCare generated $727.5 million revenues in the first half of 2022, up 3% year over year. EBITDA for the period was $62.9 million, down 39% year over year.

Now in the second year of its three-year transition plan, the U.S. business (formerly 21st Century Oncology) has underperformed expectations since its acquisition by GenesisCare in 2020, partly as a result of Covid-19, but also because of fierce competition and rising cost pressures due to inflation, as reported.

GenesisCare had acquired 21st Century Oncology a year after it emerged out of bankruptcy. At the time, investors evaluating the buyout financing raised concerns over 21st Century Oncology’s history, the fundamentals of the business and aggressive EBITDA addbacks.

The group’s U.S. operations are also highly exposed to Florida, which is a predominantly Republican state that opposed Covid restrictions such as mask mandates, which has resulted in higher infection rates, impacting the provision of treatments, the source noted. But another source said that GenesisCare had also over-estimated demand levels in the US.

The group’s second quarter LTM pro forma adjusted EBITDA dropped to $123.9 million from $165.3 million at the end of the first quarter. Based on $1.611 billion of net debt, net leverage rocketed to 13x.

GenesisCare burned through $29 million of cash during the second quarter, leaving it with $87.4 million of cash. It still had $87 million of undrawn RCF facilities at quarter end, however the group is unable to draw down the facility any further given as it is subject to a 7.5x net leverage test at each quarter-end when more than 40% is drawn.

Cash was boosted by the release of $32.1 million of working capital during the quarter. The group also received another $32.6 million from proceeds of its sale and leaseback of Australian properties and U.S. asset financing on top of the $50.7 million it already realized during the first quarter, without which its cashburn would be significantly worse, sources noted.

However, the group also spent $36.8 million on growth capex with radiotherapy machines requiring heavy upfront investment, which should translate into additional earnings down the road, sources said.

Given the challenges GenesisCare faces, management had sought shareholder support and asked sponsor KKR to provide AUD 50 million to AUD 100 million ($36 million to $72 million) of fresh equity to boost liquidity. However, there has been no further news on potential sponsor support since, one source noted.

GenesisCare is 36% owned by passive investor China Resources Holdings, 33% by management, including doctors, and 31% by KKR.

According to Reorg’s CLO Database holders of the euro term loan include;

• Spire Partners (€33.15 million of the E+475 bps facility);


• ICG plc (€25.6 million of the E+475 bps facility);


• HPS Investment (€22.5 million of the E+475 bps facility);


• BlackRock Financial Management (€21.2 million of the E+475 bps facility); and


• Sculptor Capital Management (€7 million of the E+475 bps facility).

GenesisCare's capital structure as of Dec. 31 is below:

KKR and GenesisCare declined to comment.

– Robert Schach, Beatrice Mavroleon