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FOR IMMEDIATE
RELEASE
Gentiva® Reports First Quarter 2005 Results
Melville, N.Y., May 4, 2005 -- Gentiva Health Services, Inc. (Nasdaq: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $4.1 million, or $0.17 per diluted share, for the first quarter ended April 3, 2005, compared to $9.2 million, or $0.34 per diluted share, for the corresponding period of 2004.
Results for the fiscal 2004 first quarter included special items related to Medicare, which contributed $8.0 million to net revenues and approximately $0.18 per diluted share. Excluding the impact of the special items, Net Income - As Adjusted for the first quarter of 2004 was $4.3 million, or $0.16 per diluted share. See the supplemental information for a reconciliation between "Net Income - As Reported" and "Net Income - As Adjusted."
First quarter 2005 net revenues were $207.1 million versus $213.9 million in the comparable period of 2004, including the special items. Net of the special items, first quarter 2004 net revenues were $205.9 million.
Medicare revenues -- net of special items -- rose 13.1% from the prior year, representing Gentiva's seventh consecutive quarter of double-digit Medicare growth. The increase was primarily driven by growth in admissions, including admissions to specialty programs.
Medicaid and Local Government revenues declined 6.4% for the first quarter of 2005 as the Company continued to pursue its strategy of limiting participation in certain low-margin Medicaid and state and county programs, while increasing skilled visits in selected state programs.
Commercial Insurance and Other revenues for the first quarter of 2005 were $108.7 million, down 3.1% from the $112.1 million reported in the same period a year earlier. Revenues derived from CIGNA HealthCare declined 12.0% due primarily to lower than anticipated revenues from capitated plans. Excluding the CIGNA business, Commercial Insurance and Other revenues for the first quarter rose 9.1%, driven by CareCentrix' services to TriWest Healthcare Alliance and other managed care customers.
Gentiva also announced today that, beginning with the first quarter of 2005, the Company will report on two business segments: Home Healthcare Services and CareCentrix®. The Home Healthcare Services segment comprises financial results generated by direct home nursing and therapy services, including specialty programs, Gentiva Rehab Without Walls® and Gentiva Consulting. The CareCentrix segment comprises results from Gentiva's ancillary care benefit management and coordination of integrated homecare services for managed care organizations and health benefit plans.
As a result of this change, the Company has included 2004 segment reporting beginning with the first quarter, so that appropriate comparisons can be made with the corresponding periods of fiscal 2005. Following are first quarter 2005 and 2004 results for the two new segments:
Home Healthcare Services -- Segment net revenues for the first quarter of 2005 were $133.1 million, a 3.0% decrease from the $137.2 million reported in the same period a year earlier, which included $8.0 million of special items related to Medicare. Net of the special items, first quarter 2005 segment net revenues rose 3.0% over the prior year period. Operating contribution for the first quarter of 2005 was $11.6 million as compared to $21.3 million in the same quarter of 2004. Excluding special items, operating contribution decreased 12.4% from the $13.3 million reported for the same period of 2004. The decline was due primarily to investments in recruiting and training more than 140 new, full-time field clinicians required to meet growing capacity requirements, and in certain markets, lower than anticipated revenue per Medicare admission.
CareCentrix -- Segment net revenues for the first quarter of 2005 were $78.9 million, a 3.9% decline from the $82.1 million reported in the same period a year earlier. Operating contribution for the first quarter of 2005 was $6.8 million, up 6.7% from the $6.4 million reported in same period a year earlier. The increase was due to efficiencies from the 2004 reconfiguration of the CareCentrix home medical equipment provider network and the impact of new business, offset by lower revenues from CIGNA.
During the first quarter of 2005, Gentiva repurchased 472,500 shares of its common stock at an aggregate cost of $7.6 million. On April 14, 2005, the Company announced that its Board of Directors had authorized a new share repurchase program of up to 1.5 million shares. As of April 3, 2005, Gentiva reported cash items and short-term investments of $103.6 million versus $113.0 million as of January 2, 2005, the end of fiscal 2004.
"The fundamentals of our business remain strong, and we experienced strong referrals and double-digit increases in Medicare admissions and revenues," Gentiva Chairman and CEO Ron Malone said. "We are continuing to invest in our business while we are also evaluating the investments of prior quarters and adjusting resources as needed to improve our performance. We are keenly focused on executing plans to increase revenues, control costs and deliver on our commitments."
Gentiva's May 1, 2005 acquisition of the home health operations of Heritage Home Care Services, Inc., Utah's leading home healthcare provider, is expected to increase Gentiva's annualized revenues by more than $20 million, and will be accretive to the Company's fiscal 2005 results.
The Securities and Exchange Commission recently announced a postponement in the effective period for adopting the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, from quarterly periods to annual periods beginning on or after June 15, 2005. As a result, Gentiva has elected to implement this accounting rule in fiscal 2006 rather than the second half of 2005, which would have resulted in an expense of $0.06 to $0.08 per diluted share.
Gentiva has updated its 2005 financial outlook due to the following factors: the delay in the implementation of accounting rules on equity-based compensation until fiscal 2006; the acquisition of Heritage Home Care Services, Inc.; a conservative view toward revenues from the CIGNA relationship based on first quarter experience; and the Company's decision to make investments in the improvement of clinical capacity and branch operations.
As a result, the 2005 outlook for net income has been changed to an expected range of $0.75 to $0.83 per diluted share compared to the previous outlook of $0.72 to $0.80 per diluted share, on average shares outstanding of approximately 25 million. The net revenue outlook remains unchanged in a range between $870 million and $890 million.
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 first quarter 2005 results during its conference call and live web cast to be held Thursday, May 5, 2005, at 10:00 a.m. Eastern Time. To participate in the call from the United States or Canada, dial: (612) 332-0634. 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, 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 approximately 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 more than 2,000 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.
(in 000's, except per share data) 1st Quarter
2005 2004
Statements of Income
Net revenues $207,107 $213,905
Cost of services sold 127,229 130,643
Gross profit 79,878 83,262
Selling, general and administrative
expenses (71,759) (66,369)
Depreciation and amortization (1,736) (1,845)
Operating income 6,383 15,048
Interest income, net 463 82
Income before income taxes 6,846 15,130
Income tax expense (2,721) (5,900)
Net income $4,125 $9,230
Earnings per Share
Net income:
Basic $0.18 $0.36
Diluted $0.17 $0.34
Average shares outstanding:
Basic 23,445 25,542
Diluted 24,892 27,084
Condensed Balance Sheets
ASSETS Apr 3, 2005 Jan 2, 2005
Cash, cash equivalents and restricted cash $78,572 $31,924
Short-term investments 25,000 81,100
Net receivables 137,045 132,002
Deferred tax assets 23,329 23,861
Prepaid expenses and other current
assets 7,946 6,057
Total current assets 271,892 274,944
Fixed assets 19,182 19,687
Deferred tax assets, net 20,545 21,233
Other assets 16,520 16,234
Total assets $328,139 $332,098
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $23,385 $25,896
Payroll and related taxes 16,521 9,356
Medicare liabilities 8,589 9,949
Cost of claims incurred but not reported 25,512 27,361
Obligations under insurance programs 34,229 34,660
Other accrued expenses 28,358 31,117
Total current liabilities 136,594 138,339
Other liabilities 21,977 21,819
Shareholders' equity 169,568 171,940
Total liabilities
and shareholders' equity $328,139 $332,098
Common shares outstanding 23,343 23,722
Note: Cash, cash equivalents and restricted cash includes restricted
cash of $22.0 million at April 3, 2005 and January 2, 2005.
1st Quarter
Condensed Statements of Cash Flows 2005 2004
OPERATING ACTIVITIES:
Net income $4,125 $9,230
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 1,736 1,845
Provision for doubtful accounts 1,495 2,047
Deferred income taxes 1,220 5,172
Changes in assets and liabilities,
net of acquisitions (8,815) (8,927)
Other, net (61) (13)
Net cash (used in) provided
by operating activities (300) 9,354
INVESTING ACTIVITIES:
Purchase of fixed assets (1,230) (3,370)
Purchases of short-term investments
available-for-sale (40,400) (20,000)
Maturities of short-term investments
available-for-sale 96,500 10,000
Net cash provided by (used in)
investing activities 54,870 (13,370)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,085 1,039
Changes in book overdrafts (1,358) (825)
Repurchases of common stock (7,582) (5,830)
Repayment of capital lease obligations (67) (96)
Net cash used in financing activities (7,922) (5,712)
Net change in cash, cash equivalents
and restricted cash 46,648 (9,728)
Cash, cash equivalents and restricted
cash at beginning of period 31,924 97,438
Cash, cash equivalents and restricted
cash at end of period $78,572 $87,710
1st Quarter
2005 2004
Supplemental Information
Net Revenues by Major Payer Source:
Medicare (1) $61,762 $62,601
Medicaid and local government 36,644 39,167
Commercial insurance and other 108,701 112,137
Total net revenues $207,107 $213,905
A reconciliation of net income between
As Reported and As Adjusted amounts,
and the related diluted earnings per
share, follows (2):
Net income - As Reported $4,125 $9,230
Add: income tax expense - As Reported 2,721 5,900
Income before income taxes - As Reported 6,846 15,130
Less: Medicare cost report settlement (1) -- (9,003)
Add: Revenue adjustment for estimated
Medicare repayment (1) -- 1,000
Income before income taxes - As Adjusted 6,846 7,127
Less: income tax expense -
At normalized rate 2,721 2,780
Net income - As Adjusted $4,125 $4,347
Diluted Earnings per Share
Net income - As Reported $0.17 $0.34
Net income - As Adjusted $0.17 $0.16
Segment Information
Net revenues
Home Healthcare Services $133,083 $137,205
CareCentrix 78,934 82,123
Intersegment revenues (4,910) (5,423)
Total net revenues $207,107 $213,905
Operating contribution
Home Healthcare Services $11,606 $21,251
CareCentrix 6,842 6,414
Total operating contribution 18,448 27,665
Corporate expenses (10,329) (10,772)
Depreciation and amortization (1,736) (1,845)
Interest income, net 463 82
Income before income taxes $6,846 $15,130
Notes:
1) Medicare revenues for the first quarter of fiscal 2004 included
approximately $9.0 million 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 1997 cost reports, net
of a $1 million estimated repayment to Medicare 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,
excluding the PRRB settlement and the estimated Medicare repayment as
described in Note 1, 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 first quarters of fiscal
years 2005 and 2004. Management also believes that the PRRB
settlement in the first quarter of fiscal 2004, reduced by the
Medicare estimated repayment, should be excluded from "Net Income - As
Adjusted" as these items relate to reimbursement activities as
described in Note 1. 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.
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Forward-Looking Statement
Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" 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 Gentiva Health Services, Inc.'s ("the Company") 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 payer sources; ability of customers to pay for services; business disruption due to natural disasters or terrorist acts; 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, as amended, for the year ended January 2, 2005.# # #
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