FOR IMMEDIATE RELEASE

Gentiva^® Reports 2005 Third Quarter and Nine-Month Results

Melville, N.Y., November 2, 2005 -- Gentiva Health Services, Inc. (NASDAQ: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $4.3 million, or $0.17 per diluted share, for the third quarter ended October 2, 2005, compared with net income of $4.4 million, or $0.17 per diluted share, for the third quarter ended September 26, 2004.

Results for the 2004 third quarter included a special item relating to Medicare revenue which contributed approximately $0.03 per diluted share. Excluding the impact of the special item, Net Income - As Adjusted for the third quarter of 2004 was $3.7 million, or $0.14 per diluted share. See the Supplemental Information for a reconciliation between “Net Income - As Reported” and “Net Income - As Adjusted” for both the third quarter and nine-month periods.

Third quarter 2005 net revenues were $219.6 million, an increase of 10.8% compared with third quarter 2004 net revenues of $198.1 million. Medicare revenues for the quarter rose 28.7% and were up over 31%, excluding the special Medicare item in the 2004 third quarter. Commercial Insurance and Other revenues increased 6.1%, with contributions from both CIGNA and non-CIGNA business.

Net revenues for the third quarter of 2004 included approximately $1.1 million received from a $1.4 million settlement of the Company's appeal filed with the U.S. Provider Reimbursement Review Board (PRRB) related to the reopening of its 1998 Medicare cost reports. Excluding this special item, net revenues rose $22.6 million, or 11.5%, in the third quarter of 2005 versus the corresponding period of 2004.

Third quarter 2005 Medicare revenues reached $67.3 million, driven primarily by an 18% increase in Medicare admissions and improvements in revenue per admission, particularly in Gentiva's specialty programs, as well as the impact of the Heritage Home Care Services acquisition, which closed in May 2005.

Medicaid and Local Government revenues were $37.6 million for the third quarter of 2005, approximately even with the $37.7 million reported in the third quarter of last year.

Commercial Insurance and Other revenues for the third quarter of 2005, including revenues from Gentiva's relationship with CIGNA HealthCare, were $114.6 million. Revenues derived from CIGNA increased 8.0% to $64.7 million due primarily to the addition of CIGNA members in five New England states following the July 1, 2005 amendment to the companies' national contract, as well as higher volume from CIGNA fee-for-service plans. Excluding revenues from CIGNA, Commercial Insurance and Other revenues for the third quarter rose 3.7%, driven by services provided to other managed care customers.

For the nine months ended October 2, 2005, net income was $17.0 million, or $0.68 per diluted share, compared with $19.6 million, or $0.74 per diluted share, for the nine months ended September 26, 2004. Net revenues for the first nine months of 2005 were $646.8 million, up 4.3% versus the $620.2 million reported in the prior year period.

Results for the 2005 nine-month period included a second quarter $4.2 million income tax benefit due to a favorable resolution of tax audit issues relating to fiscal 1997 through 2000. Results for the first nine months of 2004 included a pre-tax gain of approximately $0.9 million from the sale of an investment in a Canadian homecare company, as well as special items related to the favorable settlement of the Company's Medicare cost report appeals for 1997 and 1998, net of a revenue adjustment to reflect an industrywide repayment of certain Medicare reimbursements. The Medicare special items contributed $9.1 million to nine-month 2004 net revenues and income before income taxes.

Net Income - As Adjusted for the first nine months of 2005 was $12.8 million, or $0.51 per diluted share, compared with $13.4 million, or $0.50 per diluted share, for the same period of 2004. Excluding Medicare special items and revenues from CIGNA, nine-month 2005 net revenues increased $41.1 million, or 9.8%. Revenues from CIGNA, which declined 2.9% in the first nine months of 2005, represented 28.8% of Gentiva's total net revenues for this period versus 30.9% in the first nine months of 2004.

During the third quarter of 2005, Gentiva generated over $19 million of cash from operating activities, resulting in cash provided by operating activities of $9.3 million for the nine months ended October 2, 2005 . The Company reported cash items and short-term investments of $94.4 million as of October 2, 2005 versus $83.4 million as of July 3, 2005, the end of the 2005 second quarter.

In the Home Healthcare Services segment, Gentiva reported a 12.2% increase in net revenues in the third quarter of 2005 and 28.5% growth in operating contribution versus the prior year quarterly period, driven primarily by continued strong Medicare performance. While the CareCentrix segment achieved a 6.9% increase in revenues primarily from growth in fee-for-service business, its operating contribution declined by 28.9% due in part to lower margins from the TriWest Healthcare Alliance contract, which ends November 29, 2005.

Last week, CareCentrix and CIGNA HealthCare signed a three-year national contract which runs through January 31, 2009 and calls for CareCentrix to continue coordination and delivery of homecare services to CIGNA members, involving home nursing and therapy services, infusion therapy and certain specialty medical equipment, such as insulin pumps and wound suction devices. CareCentrix will be ending its coordination of respiratory therapy and certain durable medical equipment services to CIGNA HealthCare members as of January 31, 2006.

“We're pleased to report strong growth in Medicare, driven by continued expansion of our specialty programs,” said Gentiva Chairman and CEO Ron Malone. “We've begun to see results from our emphasis on capacity improvement, clinician recruitment and commercial insurance pricing. During the fourth quarter, we're continuing to drive Medicare growth and beginning to streamline CareCentrix operations to meet the demands of the new CIGNA relationship and other managed care business.”

Gentiva announced a revised 2005 financial outlook, with full-year net revenues expected to range between $865 million and $875 million (versus $870 million to $890 million in the prior outlook) and full-year diluted earnings per share, excluding special items, between $0.73 to $0.78 per share (versus the previous $0.75 to $0.83). The revision is based on reduced referral activity from the expiring TriWest contract, direct costs incurred to improve clinical capacity in the Home Healthcare Services segment, and the impact of Hurricane Wilma on Gentiva's South Florida operations.

The Company also expects to record a special item in the fourth quarter of 2005 to reflect incremental Medicare revenues in excess of $5 million relating to the settlement of the Company's appeal to the PRRB regarding the reopening of its 1999 Medicare cost reports. As a result of this special item and the second quarter $4.2 million income tax benefit relating to the resolution of tax audit issues, full-year 2005 reported earnings are expected to range between $1.02 and $1.07 per diluted share.

Gentiva also announced a preliminary outlook for fiscal 2006 that anticipates full -year net revenues of $880 million to $900 million, and net income in the range of $0.83 to $0.92 per diluted share, excluding the effect of implementing new accounting rules on equity-based compensation at the beginning of fiscal 2006 and excluding special items. Gentiva plans to offer additional commentary on tomorrow's conference call and live web cast.

Non-GAAP Financial Measures

The information provided in the following tables includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.

Conference Call and Web Cast Details

The Company will comment further on its third quarter and nine-month 2005 results during its conference call and live web cast to be held Thursday, November 3, 2005, at 10:00 a.m. Eastern Standard Time. To participate in the call from the United States or Canada, dial: (612) 332-0932. The web cast is an audio only, one-way event. Web cast listeners who wish to ask questions must participate in the conference call. To hear the web cast, log onto http://www.gentiva.com/investor/events.asp. This press release is also accessible at the same link, and a transcript of the conference call is expected to be available on the site within 48 hours after the call.

About Gentiva Health Services, Inc.
Gentiva Health Services, Inc. is the nation's largest provider of comprehensive home health services. Gentiva serves patients through more than 350 direct service delivery units within more than 250 locations in 35 states, and through CareCentrix^®, which manages home healthcare services for many major managed care organizations throughout the United States and delivers them in all 50 states through a network of move than 2,500 third-party provider locations, as well as Gentiva locations. The Company is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; social work; nutrition; disease management education; and help with daily living activities, as well as other therapies and services. Gentiva's revenues are generated from commercial insurance, federal and state government programs and individual consumers. For more information, visit Gentiva's web site, www.gentiva.com, and its investor relations section at http://www.gentiva.com/investor.

(Tables and notes follow)

    (in 000's, except per share data)      3rd Quarter         Nine Months
                                         2005      2004      2005      2004
    Statements of Income
      Net revenues                     $219,559  $198,070  $646,801  $620,223
      Cost of services sold             138,544   122,539   404,401   383,092
      Gross profit                       81,015    75,531   242,400   237,131
      Selling, general and
       administrative expenses          (72,026)  (67,227) (216,443) (201,405)
      Depreciation and amortization      (2,291)   (1,756)   (5,938)   (5,505)
      Operating income                    6,698     6,548    20,019    30,221
      Gain on sale of Canadian investment     -         -         -       946
      Interest income, net                  385       248     1,262       538
      Income before income taxes          7,083     6,796    21,281    31,705
      Income tax expense                 (2,832)   (2,397)   (4,255)  (12,111)
      Net income                         $4,251    $4,399   $17,026   $19,594

    Earnings per Share
     Net income:
      Basic                               $0.18     $0.18     $0.73     $0.78
      Diluted                             $0.17     $0.17     $0.68     $0.74

     Average shares outstanding:
      Basic                              23,329    24,422    23,349    25,011
      Diluted                            25,076    26,034    25,018    26,645

    Condensed Balance Sheets
     ASSETS                                      Oct 2, 2005      Jan 2, 2005
      Cash, cash equivalents and restricted cash   $52,234           $31,924
      Short-term investments                        42,150            81,100
      Net receivables                              142,339           132,002
      Deferred tax assets                           22,894            23,861
      Prepaid expenses and other current assets      8,013             6,057
           Total current assets                    267,630           274,944

      Fixed assets                                  20,688            19,687
      Deferred tax assets, net                      17,792            21,233
      Goodwill                                       6,865             1,325
      Other assets                                  22,896            14,909
          Total assets                            $335,871          $332,098

     LIABILITIES AND SHAREHOLDERS' EQUITY
      Accounts payable                             $23,542           $25,896
      Payroll and related taxes                     15,772             9,356
      Medicare liabilities                           6,864             9,949
      Cost of claims incurred but not reported      26,244            27,361
      Obligations under insurance programs          32,228            34,660
      Other accrued expenses                        30,306            31,117
           Total current liabilities               134,956           138,339

      Other liabilities                             19,814            21,819
      Shareholders' equity                         181,101           171,940
           Total liabilities and shareholders'
            equity                                $335,871          $332,098

      Common shares outstanding                     23,357            23,722


                                                             Nine Months
    Condensed Statements of Cash Flows                 2005              2004
     OPERATING ACTIVITIES:
     Net income                                     $17,026           $19,594
     Adjustments to reconcile net income
      to net cash provided by operating
      activities
      Depreciation and amortization                   5,938             5,505
      Provision for doubtful accounts                 4,329             4,708
      Gain on sale of Canadian investment               -                (946)
      Reversal of tax audit reserves                 (4,200)              -
      Deferred income taxes                           4,408             9,743
     Changes in assets and liabilities:
      Accounts receivable                           (14,666)              945
      Prepaid expenses and other current assets      (1,856)           (1,144)
      Current liabilities                            (1,902)          (12,102)
     Other, net                                         178               657
     Net cash provided by operating activities        9,255            26,960

     INVESTING ACTIVITIES:
     Purchase of fixed assets                        (6,043)           (7,607)
     Proceeds from sale of assets                       -               4,123
     Acquisition of business                        (12,059)              -
     Purchases of short-term investments
      available-for-sale                           (125,000)          (80,000)
     Maturities of short-term investments
      available-for-sale                            153,950            25,000
     Purchases of short-term investments
      held to maturity                                  -             (10,000)
     Maturities of short-term investments
      held to maturity                               10,000            10,000
     Net cash provided by (used in)
      investing activities                           20,848           (58,484)

     FINANCING ACTIVITIES:
     Proceeds from issuance of common stock           5,650             3,420
     Changes in book overdrafts                      (1,635)            2,300
     Repurchases of common stock                    (13,514)          (30,163)
     Repayment of capital lease obligations            (294)             (228)
     Net cash used in financing activities           (9,793)          (24,671)

     Net change in cash, cash equivalents
      and restricted cash                            20,310           (56,195)
     Cash, cash equivalents and restricted cash
      at beginning of period                         31,924            97,438
     Cash, cash equivalents and restricted cash
      at end of period                              $52,234           $41,243


    Note:  Cash, cash equivalents and restricted cash includes restricted cash
of $22.0 million and $21.8 million at the beginning and end of the 2005 and
2004 periods, respectively.



                                          3rd Quarter          Nine Months
                                         2005      2004      2005      2004
    Supplemental Information
     Net Revenues by Major Payer
      Source:
      Medicare (1)                      $67,329   $52,308  $194,381  $168,749
      Medicaid and local government      37,610    37,715   112,039   115,860
      Commercial insurance and other    114,620   108,047   340,381   335,614
           Total net revenues          $219,559  $198,070  $646,801  $620,223

    A reconciliation of net income
     between As Reported and As
     Adjusted amounts, and the
     related diluted earnings per share,
     follow (2):

      Net income - As Reported           $4,251    $4,399   $17,026   $19,594
      Income tax expense - As Reported
       (3)                                2,832     2,397     4,255    12,111
      Income before income taxes - As
       Reported                           7,083     6,796    21,281    31,705
      Less: Gain on sale of Canadian
       investment (4)                       -         -         -        (946)
      Less: Medicare cost report
       settlement (1)                       -      (1,084)      -     (10,087)
      Add: Revenue adjustment for
       estimated Medicare repayment (1)     -         -         -       1,000
      Income before income taxes - As
       Adjusted                           7,083     5,712    21,281    21,672
      Less: income tax expense - At
       normalized rate (3)               (2,832)   (2,054)   (8,455)   (8,278)
      Net income - As Adjusted           $4,251    $3,658   $12,826   $13,394


      Diluted Earnings per Share
      Net income - As Reported            $0.17     $0.17     $0.68     $0.74
      Net income - As Adjusted            $0.17     $0.14     $0.51     $0.50

    Segment Information
     Net revenues
      Home Healthcare Services         $139,128  $123,957  $409,878  $388,963
      CareCentrix                        84,569    79,085   250,572   246,700
      Intersegment revenues              (4,138)   (4,972)  (13,649)  (15,440)
     Total net revenues                $219,559  $198,070  $646,801  $620,223

     Operating contribution
      Home Healthcare Services          $13,073   $10,177   $36,790   $45,329
      CareCentrix                         6,314     8,877    20,321    23,806
     Total operating contribution        19,387    19,054    57,111    69,135
     Corporate expenses                 (10,398)  (10,750)  (31,154)  (33,409)
     Gain on sale of Canadian
      investment                            -         -         -         946
     Depreciation and amortization       (2,291)   (1,756)   (5,938)   (5,505)
     Interest income, net                   385       248     1,262       538
     Income before income taxes          $7,083    $6,796   $21,281   $31,705

Notes:

1. Medicare revenues for the third quarter and first nine months of fiscal 2004 included approximately $1.1 million and $10.1 million, respectively, received in settlement of the Company's appeal filed with the U.S. Provider Reimbursement Review Board (“PRRB”) related to the reopening of all of its 1998 and 1997 cost reports, net of a $1 million estimated repayment to Medicare recorded for the first nine months of fiscal 2004 in connection with services rendered to certain patients since the inception of the Prospective Payment Reimbursement System in October 2000. The Centers for Medicare & Medicaid Services determined that homecare providers should have received lower reimbursements for certain services rendered to beneficiaries discharged from inpatient hospitals within fourteen days immediately preceding admission to home healthcare.


2. Although “Net Income – As Adjusted” is a non-GAAP financial measure, management believes that the presentation of net income as calculated using a normalized tax rate, which excludes the nonrecurring tax benefit as described in Note 3, and excluding the PRRB settlement and the estimated Medicare repayment as described in Note 1, as well as the second quarter 2004 gain on the sale of Gentiva's investment in a Canadian homecare company as described in Note 4, is a useful adjunct to “Net Income – As Reported” under GAAP because it measures the Company's performance in a consistent manner between the results for the third quarter and first nine months of fiscal years 2005 and 2004. Management believes the favorable resolution of tax audit issues as described in Note 3 should be excluded from “Net Income – As Adjusted” as this is a nonrecurring item which relates to prior periods. In addition, the PRRB settlement in the first nine months of fiscal 2004, reduced by the Medicare estimated repayment, should be excluded from “Net Income – As Adjusted” as these items relate to reimbursement activities for the periods described in Note 1. Furthermore, the gain on the sale of the Canadian investment should be excluded from “Net Income – As Adjusted,” since this is a nonrecurring item. For these reasons, management believes that “Net Income – As Adjusted” is useful to investors. Investors should not view “Net Income – As Adjusted” as an alternative to the GAAP measure of net income.


3. For the first nine months of fiscal year 2005, the Company's income tax expense included a $4.2 million income tax benefit resulting from a favorable resolution of tax audit issues relating to fiscal 1997 through 2000. Management has excluded this nonrecurring item and has incorporated a normalized tax rate in its presentation of “Net Income – As Adjusted.”


4. Income before income taxes for the first nine months of fiscal 2004 included a gain of $946,000 from the sale of Gentiva's 19.9% interest in a Canadian homecare company to whom Gentiva sold its Canadian operations in November 2000.

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Last Updated: Monday, December 18, 2006 10:56 AM