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FOR IMMEDIATE
RELEASE
Gentiva® Health Services· Third Quarter Net Revenues Rise 6% to $199.7 million; Diluted Earnings Per Share Increases 31% to $0.17
Melville, N.Y., October 30, 2003—Gentiva Health Services, Inc. (NASDAQ:
GTIV), the nation's largest provider of home health services, today announced
third quarter 2003 financial results highlighted by a 6% increase in net revenues
from the third quarter of 2002; a 31% increase in diluted earnings per share
(EPS) to $0.17, driven primarily by a lower effective tax rate as well as improved
operating results; and a strong balance sheet with quarter-end cash items of
$104.3 million.
Net revenues
for the third quarter ended September 28, 2003 were $199.7 million compared
to $188.4 million reported in the third quarter of 2002. Revenue growth
was fueled by two major payor groups that are the subject of Gentiva’s
strategic focus: Medicare, whose third quarter revenue increased 11% over the
same period a year earlier despite lower reimbursement rates that went into effect
in late 2002; and commercial insurance and other, whose revenue rose 7.5% due
primarily to the ongoing positive impact of managed care contracts signed during
the past year. As anticipated, revenue from Medicaid and other government programs
declined slightly as Gentiva continued its strategy of tapering or terminating
participation in certain low-margin Medicaid and state and county programs.
Net
income for the third quarter of 2003 was $4.5 million, or $0.17 per diluted
share, compared to net income of $3.6 million, or $0.13 per diluted share,
for
the corresponding period of 2002. Results for the third quarter of 2002 included
income from continuing operations of $2.7 million, or $0.10 per diluted share;
a loss from discontinued operations of $0.5 million, or $0.02 per diluted share;
and income from the cumulative effect of an accounting change relating to goodwill
of $1.4 million, or $0.05 per diluted share. Seasonal factors have traditionally
made the third quarter the least active of the year for Gentiva.
For the nine
months ended September 28, 2003, net revenues were $610.2 million, up 5.8%
from the $576.9 million reported in the corresponding period of 2002.
Net income for the first nine months of 2003 was $15.0 million, or $0.55 per
diluted share, compared with a loss of $54.4 million, or $2.08 per diluted
share, for the corresponding period of 2002. The nine-month 2002 results included
income
from discontinued operations of $191.6 million, or $7.34 per share, related
to both the operating results of Gentiva’s Specialty Pharmaceutical Services
(SPS) business and the gain on its June 2002 sale, net of related transaction
costs and income taxes. Excluding these discontinued operations and the cumulative
effect of the accounting change relating to goodwill of $189.1 million, or $7.24
per diluted share, in 2002, the net loss from continuing operations for the first
nine months of 2002 was $56.9 million, or $2.18 per diluted share, including
restructuring and special charges. (See Note 3 below.)
“The third quarter and first nine months of 2003 have been marked by sustained
revenue and profit growth, gross margin and balance sheet improvements, and an
ongoing focus on quality, efficiency and stability to operate effectively in
a changing health care environment,” said Chairman and CEO Ron Malone. “Our
third quarter Medicare revenue growth demonstrated an improved referral flow,
increasing ability to turn referrals into admissions, and some initial benefits
of investing in an expanded sales force. Our commercial insurance growth signals
progress toward achievement of our managed care revenue goals.”
Malone said
the Company’s strong cash position allows Gentiva to continue
to make investments in improving the performance of nursing operations, increasing
sales, developing new and expanded offerings, deploying new technologies for
enhanced patient care and greater efficiency, focusing on recruitment and retention
to strengthen the Company’s position as an employer of choice, and funding
other strategic areas. He noted, for example, that Gentiva’s more effective,
centralized recruiting and retention programs launched earlier this year had
helped to increase Gentiva’s full-time caregiver staff in the third quarter.
Gentiva
updated its revenue guidance for the 2003 fiscal year to a range of $810 to
$820 million (versus the prior range of $800 to $820 million) and its earnings
guidance to a range of $0.71 to $0.75 per diluted share (versus the prior range
of $0.69 to $0.74), which assumes an effective tax rate of under 9%.
The Company
also announced its preliminary outlook for 2004 with full year net income in
the range of $0.55 to $0.62 per diluted share. The diluted earnings
per share range assumes that the Company returns to a normalized tax rate as
a result of the reversal of the valuation allowance against net deferred tax
assets. Gentiva expects growth in full year 2004 revenues, excluding Gentiva’s
largest customer, CIGNA Health Corporation (CIGNA), to be in a range of 8% to
12%. Malone said that negotiations for the 2004 contract with CIGNA are not complete
and that each part of the contract is being examined closely by both parties.
While the Company currently expects to reach an agreement with CIGNA, the agreement
is likely to differ from the contracts of previous years and could adversely
impact Gentiva’s actual financial results for the coming year.
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 2003 results and its
2004 preliminary outlook during its quarterly conference call and live web
cast to be held this morning, October 30, 2003, at 10:00 a.m. Eastern Standard
Time. To participate in the call from the United States or Canada, dial:
(952) 556-2844. 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 will be available on the site within 24 hours after the call.
About Gentiva Health Services
Gentiva Health Services is the nation's largest home health services provider.
Gentiva serves patients through more than 350 direct service delivery units
and through CareCentrix®, which manages home health care services for
many major managed care organizations throughout the United States. The Company
is a single source for skilled nursing; physical, occupational, speech and
neuro-rehabilitation services; social work; nutrition; disease management
education and help with daily living activities, as well as other therapies
and services. The Company brings home health care services to approximately
half a million patients each year. 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.
| (in 000's, except per share data) |
3rd Quarter
|
Nine Months
|
| |
2003 |
2002 |
2003 |
2002 |
| Statement of Operations |
| Net revenues |
$199,698 |
$188,443 |
$610,160 |
$576,865 |
| Cost of services sold |
130,457 |
124,898 |
402,529 |
392,976 |
| Gross profit |
69,241 |
63,545 |
207,631 |
183,889 |
| Selling, general and administrative expenses |
(62,738) |
(57,480) |
(186,332) |
(219,590) |
| Depreciation and amortization |
(1,689) |
(1,724) |
(5,164) |
(5,465) |
| Operating income (loss) |
4,814 |
4,341 |
16,135 |
(41,166) |
| Interest income, net |
93 |
162 |
275 |
741 |
| Income (loss) before income taxes from continuing
operations |
4,907 |
4,503 |
16,410 |
(40,425) |
| Income tax expense |
360 |
1,765 |
1,415 |
16,429 |
| Income (loss) from continuing operations |
4,547 |
2,738 |
14,995 |
(56,854) |
| Discontinued operations, net of tax |
- |
(563) |
- |
191,578 |
| Income before cumulative effect of accounting change |
4,547 |
2,175 |
14,995 |
134,724 |
| Cumulative effect of accounting change, net of tax |
- |
1,392 |
- |
(189,076) |
| Net income (loss) |
$4,547 |
$3,567 |
$14,995 |
$(54,352) |
| |
| Earnings per Share |
| Basic: |
| Income (loss) from continuing operations |
$0.18 |
$0.10 |
$0.57 |
$(2.18) |
| Discontinued operations, net of tax |
- |
(0.02) |
- |
7.34 |
| Cumulative effect of accounting change, net of tax |
- |
0.06 |
- |
(7.24) |
| Net income (loss) |
$0.18 |
$0.14 |
$0.57 |
$(2.08) |
| |
| Average shares outstanding |
25,972 |
26,365 |
26,399 |
26,117 |
| |
| Diluted: |
| Income (loss) from continuing operations |
$0.17 |
$0.10 |
$0.55 |
$(2.18) |
| Discontinued operations, net of tax |
- |
(0.02) |
- |
7.34 |
| Cumulative effect of accounting change, net of tax |
- |
0.05 |
- |
(7.24) |
| Net income (loss) |
$0.17 |
$0.13 |
$0.55 |
$(2.08) |
| |
| Average shares outstanding |
27,098 |
27,483 |
27,452 |
26,117 |
| |
| Balance Sheet |
| ASSETS |
Sep 28, 2003 |
Dec 29, 2002 |
|
|
| Cash, cash equivalents and restricted cash |
$104,327 |
$101,241 |
|
|
| Net receivables |
130,307 |
125,078 |
|
|
| Prepaid expenses and other current assets |
6,924 |
10,534 |
|
|
| Total current assets |
241,558 |
236,853 |
|
|
| |
| Fixed assets, net |
12,268 |
13,025 |
|
|
| Other assets |
16,050 |
14,553 |
|
|
| Total assets |
$269,876 |
$264,431 |
|
|
| |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
| Accounts payable |
$16,080 |
$16,865 |
|
|
| Payroll and related taxes |
9,392 |
12,377 |
|
|
| Medicare liabilities |
11,823 |
11,880 |
|
|
| Cost of claims incurred but not reported |
30,577 |
27,899 |
|
|
| Obligations under insurance programs |
37,665 |
37,829 |
|
|
| Other accrued expenses |
25,627 |
25,664 |
|
|
| Total current liabilities |
131,164 |
132,514 |
|
|
| |
| Other liabilities |
18,141 |
18,869 |
|
|
| Shareholders' equity |
120,571 |
113,048 |
|
|
| Total liabilities and shareholders' equity |
$269,876 |
$264,431 |
|
|
| |
| Common shares outstanding |
25,967 |
26,385 |
|
|
| |
| |
3rd Quarter
|
Nine Months
|
| |
2003 |
2002 |
2003 |
2002 |
| Supplemental Information |
| Net Revenues: |
| Medicare |
$43,977 |
$39,541 |
$128,502 |
$122,235 |
| Medicaid and Other Government |
40,718 |
41,939 |
125,721 |
125,309 |
| Commercial Insurance and Other |
115,003 |
106,963 |
355,937 |
329,321 |
| Total net revenues |
$199,698 |
$188,443 |
$610,160 |
$576,865 |
| |
| A reconciliation of income (loss) from
continuing operations, average diluted shares outstanding and diluted
earnings per share between As Reported and Pro Forma amounts follows (1) |
| |
| Income (loss) from Continuing Operations- As Reported |
$4,547 |
$2,738 |
$14,995 |
$(56,854) |
| Add: income tax expense - As Reported (2) |
360 |
1,765 |
1,415 |
16,429 |
| Income (loss) before income taxes from continuing
operations |
4,907 |
4,503 |
16,410 |
(40,425) |
| Add: restructuring and special charges (3) |
- |
- |
- |
46,056 |
| |
| Income before income taxes and restructuring and special
charges from continuing operations |
4,907 |
4,503 |
16,410 |
5,631 |
| Less: income tax expense - At assumed 39% rate |
1,914 |
1,756 |
6,400 |
2,196 |
| Income from Continuing Operations - Pro Forma |
$2,993 |
$2,747 |
$10,010 |
$3,435 |
| |
| Average diluted shares outstanding - As Reported |
27,098 |
27,483 |
27,452 |
26,117 |
| Add: common stock equivalents (4) |
- |
- |
- |
1,242 |
| Average diluted shares outstanding - Pro Forma |
27,098 |
27,483 |
27,452 |
27,359 |
| |
| Diluted Earnings per Share |
| Income (loss) from Continuing Operations - As Reported |
$0.17 |
$0.10 |
$0.55 |
$(2.18) |
| Income from Continuing Operations - Pro Forma |
$0.11 |
$0.10 |
$0.36 |
$0.13 |
| |
Notes:
- Although Income from Continuing
Operations – Pro
Forma is a non-GAAP financial measure, management believes that
the presentation of income from continuing operations as calculated
using an effective tax rate of 39% and excluding restructuring
and special charges is a useful adjunct to Income (Loss) from
Continuing Operations – 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 2003 and 2002. In addition, Income from Continuing
Operations – Pro Forma facilitates comparison between Gentiva
and other companies. Furthermore, due to the unusual historical
relationship between income tax expense and income before income
taxes from continuing operations as described in Note 2, the
presentation of Income from Continuing Operations – Pro
Forma incorporates an effective tax rate, which may be more representative
of the Company’s normalized rate. Management also believes
that the restructuring and special charges recorded in the second
quarter of fiscal 2002 should be excluded from Income from Continuing
Operations – Pro Forma for the nine months of fiscal 2002,
as these costs represent non-recurring charges associated with
business realignment activities related to the sale of the SPS
business and other costs described in Note 3. For these reasons,
management believes that Income from Continuing Operations – Pro
Forma is useful to investors. Investors should not view Income
from Continuing Operations – Pro Forma as an alternative
to the GAAP measure of Income (Loss) from Continuing Operations.
- For the third quarter and first nine months of
2003, income tax expense approximated $0.4 million and $1.4 million,
respectively, representing effective tax rates of 7.3% and 8.6%,
respectively. The estimated income tax expense was comprised
of state income taxes. The effective tax rates were lower than
the statutory tax rate due to the reversal of a portion of the
valuation allowance relating to the realization of tax benefits
associated with a net operating loss carry forward and other
net deferred tax assets. During the first nine months of 2002,
income tax expense relating to continuing operations was $16.4
million. The estimated income tax expense includes a provision
of $26.9 million that was recorded in the first quarter of fiscal
2002 to establish a valuation allowance against certain deferred
tax assets that were recorded with the adoption of FAS No. 142
and the subsequent write-off of goodwill; the corresponding tax
benefit for the same amount was recorded in the cumulative effect
of accounting change line during the 2002 period.
- Restructuring and special charges
recorded by Gentiva during the first nine months of 2002 aggregated
$46.1
million, of which $6.3 million was recorded in cost of services
sold and $39.8 million was recorded in selling, general and administrative
expenses. These charges consisted primarily of restructuring
charges relating to severance and lease payments associated with
the realignment and consolidation of business activities of $6.8
million; cash payments and related expenses in connection with
the Company’s tender offer to purchase and cancel outstanding
stock options of $21.4 million; settlement costs of $7.7 million;
a refinement of the estimation process associated with the Company’s
actuarially determined workers’ compensation and professional
liability insurance reserves of $6.3 million; and, asset writedowns
and the write-off of deferred debt issuance costs associated
with the terminated credit facility of $3.8 million.
- The computations of diluted earnings
per share for the Company’s Income from Continuing Operations – Pro
Forma for the first nine months of 2002 include the effect of
an incremental 1,242,000 shares that would be issuable upon the
assumed exercise of stock options under the treasury stock method.
For purposes of the computation of diluted earnings (loss) per
share for the Company’s Income (Loss) from Continuing Operations – As
Reported for the first nine months of fiscal 2002, these incremental
shares were excluded, since their inclusion would be antidilutive
on earnings.
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Certain statements contained in this news release, including, without limitation,
statements containing the words "believes," "anticipates," "intends," "expects," "assumes," and
similar expressions, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based upon the Company's current plans, expectations and
projections about future events. However, such statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, general economic and business conditions;
demographic changes; changes in, or failure to comply with, existing governmental
regulations; legislative proposals for health care reform; changes in Medicare
and Medicaid reimbursement levels; effects of competition in the markets the
Company operates in; liability and other claims asserted against the Company;
ability to attract and retain qualified personnel; availability and terms of
capital; loss of significant contracts or reduction in revenues associated with
major payor sources; ability of customers to pay for services; a material shift
in utilization within capitated agreements; and changes in estimates and judgments
associated with critical accounting policies. For a detailed discussion of these
and other factors that could cause actual results to differ from those contained
in this news release, please refer to the Company's various filings with
the Securities and Exchange Commission (SEC), including the "risk factors" section
contained in the Company's annual report on Form 10-K for the year ended
December 29, 2002.
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