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FOR IMMEDIATE
RELEASE
Gentiva(R) Reports Fourth Quarter and Full Year 2003 Results
MELVILLE, N.Y., Feb. 9—Gentiva Health Services,
Inc. (Nasdaq: GTIV), the nation's largest provider of home health services,
today announced its fourth quarter and year-end 2003 financial results, which
reflect revenue and earnings growth in both periods compared to the prior year,
and a strong balance sheet at year end, with cash and cash equivalents, restricted
cash and short-term investments of $110 million.
For the fourth quarter of 2003, net income was $41.8 million and diluted
earnings per share (EPS) was $1.53, including a one-time tax benefit of $1.29
per diluted share. During the fourth quarter, it was determined that the Company's
deferred tax assets should be recognized due to the Company's achieved earnings
trends and outlook. As a result, the full valuation allowance against net deferred
tax assets was reversed in the fourth quarter of 2003, resulting in an income
tax benefit in the Statement of Operations of $35.0 million and an additional
credit to Shareholders' Equity of $19.5 million.
Excluding the tax benefits associated with reversal of the valuation allowance
and assuming a normalized tax rate of 39 percent, Gentiva's fourth quarter
income from continuing operations on a pro forma basis was $4.2 million, or
$0.15 per diluted share, in the 2003 period versus $3.2 million, or $0.12 per
diluted share in the 2002 period. (See Supplemental Information for a reconciliation
between Income from Continuing Operations - As Reported and Income from Continuing
Operations - Pro Forma.)
Net revenues for the fourth quarter of 2003 of $203.9 million represented
a $12.3 million, or 6.4%, increase from the $191.6 million reported in the
fourth quarter of 2002. Revenue growth was fueled primarily by the Company's
Medicare business for which fourth quarter revenues increased by $10.1 million,
or 25.2%, over the same period a year earlier. Medicare growth was driven primarily
by a more than 17% increase in new episodes serviced, a 3.3% reimbursement
rate increase - representing $1.6 million -- that became effective for patients
on service as of October 1, 2003, and operational and clinical process enhancements.
For the fiscal year ended December 28, 2003, net revenues of $814.0 million
represented a $45.5 million, or 5.9%, increase from the $768.5 million reported
in fiscal year 2002. Net income for fiscal 2003 was $56.8 million, or $2.07
per diluted share, which included a tax benefit of $1.28 per diluted share
related to the reversal of the deferred tax valuation allowance, compared with
a loss of $49.0 million, or $1.87 per diluted share, for the corresponding
period of 2002. Fiscal 2002 results included a loss from continuing operations,
including restructuring and special charges, of $53.5 million or $2.05 per
share; income from discontinued operations of $191.6 million, or $7.32 per
share, relating to the operating results and the gain on the June 2002 sale
of the Specialty Pharmaceutical Services business; and a loss on the cumulative
effect of the accounting change relating to goodwill of $187.1 million, or
$7.14 per share.
Excluding the tax benefits discussed above and assuming a normalized tax
rate of 39 percent, pro forma income from continuing operations for fiscal
2003 was $14.2 million, or $0.52 per diluted share, compared to $6.7 million,
or $0.24 per diluted share, for fiscal 2002, excluding restructuring and special
charges.
"Gentiva had a very good quarter and a solid fiscal year, and this is another
sign of our ability to deliver steady and more predictable performance in a
dynamic health care marketplace," said Chairman and CEO Ron Malone. "We are
aligning the goals of our expanded sales force with our branch nursing operations
so that we compete even more effectively for Medicare business. At the same
time, CareCentrix(R) continues to help commercial insurers find innovative
and cost-effective solutions for delivering high quality care and superior
customer service to their members.
"We are managing Gentiva to realize the opportunities as a growing number
of payors and patients recognize home health care for its effective solutions
to spiraling costs," he added. "During fiscal 2003, we generated positive cash
flow from operating activities of $30.7 million. In addition, our balance of
cash items and short-term investments grew from $104 million at the end of
the third quarter to $110 million at year end 2003, even though we spent nearly
$5 million on share repurchases and $4 million on capital expenditures during
the fourth quarter. Our strong balance sheet -- together with technological
advances, recruitment and retention initiatives and a host of other tools --
establishes a solid foundation for pursuing our growth strategies in 2004 and
beyond."
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 fourth quarter and fiscal 2003 results
during its quarterly conference call and live web cast to be held tomorrow
morning, February 10, 2004, at 10:00 a.m. Eastern Standard Time. To participate
in the call from the United States or Canada, dial: (612) 326-1011. 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(R), 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.
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) 4th Quarter Fiscal Year
2003 2002 2003 2002
Statements of Operations
Net revenues $203,869 $191,636 $814,029 $768,501
Cost of services sold 129,458 127,925 531,987 520,901
Gross profit 74,411 63,711 282,042 247,600
Selling, general and
administrative expenses (66,002) (56,765) (252,334) (276,355)
Depreciation and amortization (1,687) (1,720) (6,851) (7,185)
Operating income (loss) 6,722 5,226 22,857 (35,940)
Interest income, net 166 93 441 834
Income (loss) before income
taxes from continuing operations 6,888 5,319 23,298 (35,106)
Income tax benefit (expense) 34,883 (2,008) 33,468 (18,437)
Income (loss) from continuing
operations 41,771 3,311 56,766 (53,543)
Discontinued operations,
net of tax - - - 191,578
Income before cumulative effect
of accounting change 41,771 3,311 56,766 138,035
Cumulative effect of accounting
change, net of tax - 2,008 - (187,068)
Net income (loss) $41,771 $5,319 $56,766 $(49,033)
Earnings per Share
Basic:
Income (loss) from continuing
operations $1.62 $0.12 $2.16 $(2.05)
Discontinued operations,
net of tax $- $- $- $7.32
Cumulative effect of accounting
change, net of tax $- $0.08 $- $(7.14)
Net income (loss) $1.62 $0.20 $2.16 $(1.87)
Average shares outstanding 25,852 26,380 26,262 26,183
Diluted:
Income (loss) from
continuing operations $1.53 $0.12 $2.07 $(2.05)
Discontinued operations,
net of tax $- $- $- $7.32
Cumulative effect of
accounting change, net of tax $- $0.07 $- $(7.14)
Net income (loss) $1.53 $0.19 $2.07 $(1.87)
Average shares outstanding 27,225 27,432 27,439 26,183
Balance Sheets
ASSETS Dec 28, 2003 Dec 29, 2002
Cash and cash equivalents $78,263 $101,241
Restricted cash 21,750 -
Short-term investments 10,000 -
Net receivables 132,998 125,078
Deferred tax assets 26,464 752
Prepaid expenses and other current assets 6,524 9,782
Total current assets 275,999 236,853
Fixed assets 15,135 13,025
Deferred tax assets, net 28,025 -
Other assets 15,929 14,553
Total assets $335,088 $264,431
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $16,079 $16,865
Payroll and related taxes 12,932 12,377
Medicare liabilities 12,736 11,880
Cost of claims incurred but not reported 28,525 27,899
Obligations under insurance programs 37,200 37,829
Other accrued expenses 32,230 25,664
Total current liabilities 139,702 132,514
Other liabilities 18,207 18,869
Shareholders' equity 177,179 113,048
Total liabilities and
shareholders' equity $335,088 $264,431
Common shares outstanding 25,598 26,385
Fiscal Year
Statements of Cash Flows 2003 2002
OPERATING ACTIVITIES:
Net income (loss) $56,766 $(49,033)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities
Loss (Income) from discontinued operations - (191,578)
Cumulative effect of accounting change - 187,068
Depreciation and amortization 6,851 7,185
Provision for doubtful accounts 7,684 4,936
Loss (gain) on sale / disposal of
businesses and fixed assets (209) 951
Stock option tender offer - 21,388
Deferred income taxes (35,035) 12,837
Changes in assets and liabilities,
net of acquisitions/divestitures
Accounts receivable (15,604) 10,281
Prepaid expenses and other current assets 3,048 7,825
Current liabilities 7,065 6,393
Change in net assets held for sale - 3,300
Other, net 137 (3,024)
Net cash provided by operating activities 30,703 18,529
INVESTING ACTIVITIES:
Purchase of fixed assets -
continuing operations (8,777) (4,116)
Purchase of fixed assets -
discontinued operations - (2,121)
Proceeds from sale of assets / business 200 206,564
Acquisition of businesses (1,300) -
Purchase of short-term investments (24,900) -
Maturities of short-term investments 14,935 -
Withdrawal from (deposits into)
restricted cash (21,750) 35,164
Net cash provided by (used in)
investing activities (41,592) 235,491
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,336 6,971
Repurchases of common stock (14,425) -
Debt issuance costs - (1,321)
Cash distribution to shareholders - (203,983)
Payments for stock option tender - (21,388)
Advance paid to Medicare program - (5,038)
Net cash (used in) financing activities (12,089) (224,759)
Net change in cash and cash equivalents (22,978) 29,261
Cash and cash equivalents at
beginning of period 101,241 71,980
Cash and cash equivalents at end of period $78,263 $101,241
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
For fiscal year 2003, in connection with the reversal of the valuation
allowance, deferred tax benefits associated with stock compensation
deductions of $19.5 million have been credited to shareholders' equity.
For fiscal year 2002, in connection with the sale of the Company's
Specialty Pharmaceutical Services business on June 13, 2002, the Company
received 5,060,976 shares of common stock of Accredo Health,
Incorporated, which were subsequently distributed to the Company's
shareholders.
4th Quarter Fiscal Year
2003 2002 2003 2002
Supplemental Information
Net Revenues:
Medicare $50,160 $40,058 $178,662 $162,293
Medicaid and Other Government 39,430 42,102 165,151 167,411
Commercial Insurance and Other 114,279 109,476 470,216 438,797
Total net revenues $203,869 $191,636 $814,029 $768,501
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 $41,771 $3,311 $56,766 $(53,543)
Add: income tax (benefit)
expense - As Reported (2) (34,883) 2,008 (33,468) 18,437
Income (loss) before income
taxes from continuing operations 6,888 5,319 23,298 (35,106)
Add: restructuring and
special charges (3) - - - 46,056
Income before income taxes and
restructuring and special
charges from continuing operations 6,888 5,319 23,298 10,950
Less: income tax expense -
At assumed 39% rate 2,686 2,074 9,086 4,271
Income from Continuing
Operations - Pro Forma $4,202 $3,245 $14,212 $6,679
Average diluted shares
outstanding - As Reported 27,225 27,432 27,439 26,183
Add: common stock equivalents (4) - - - 1,592
Average diluted shares
outstanding - Pro Forma 27,225 27,432 27,439 27,775
Diluted Earnings per Share
Income (loss) from Continuing
Operations - As Reported $1.53 $0.12 $2.07 $(2.05)
Income from Continuing
Operations - Pro Forma $0.15 $0.12 $0.52 $0.24
Notes:
(1) 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 fourth quarter and
fiscal years 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
fiscal year 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.
(2) For the fourth quarter and fiscal year 2003, the Company recorded
income tax benefits of approximately $34.9 million and $33.5 million,
respectively, due primarily to the reversal of the valuation allowance
against net deferred tax assets in the fourth quarter of fiscal 2003.
During the fiscal year 2002, income tax expense relating to continuing
operations was $18.4 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.
(3) Restructuring and special charges recorded by Gentiva during the
fiscal year 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.
(4) The computations of diluted earnings per share for the Company's
Income from Continuing Operations - Pro Forma for the fiscal year 2002
include the effect of an incremental 1,592,000 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 fiscal year 2002, these incremental
shares were excluded, since their inclusion would be antidilutive on
earnings.
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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