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FOR IMMEDIATE
RELEASE
Gentiva® Reports 2005 Second Quarter and Six-Month Results
Melville, N.Y., August 2, 2005 -- Gentiva Health Services, Inc. (NASDAQ: GTIV), the nation's largest provider of comprehensive home health services, today reported net income of $8.7 million, or $0.35 per diluted share, for the second quarter ended July 3, 2005, compared to $6.0 million, or $0.22 per diluted share, for the second quarter ended June 27, 2004.
Results for the 2005 second quarter included a $4.2 million income tax benefit due to a favorable resolution of tax audit issues relating to fiscal 1997 through 2000. Second quarter results for 2004 included a pre-tax gain of approximately $0.9 million from the sale of an investment in a Canadian homecare company. Excluding the impact of these nonrecurring items, Net Income – As Adjusted for the second quarter of 2005 was $4.5 million, or $0.18 per diluted share, compared with $5.4 million, or $0.20 per diluted share, for the second quarter of 2004. See the supplemental information for a reconciliation of “Net Income – As Reported” and “Net Income – As Adjusted.”
Second quarter 2005 net revenues were $220.1 million versus second quarter 2004 net revenues of $208.2 million. Gentiva's Medicare revenues for the second quarter of 2005 were $65.3 million, a 21.3% increase from the $53.8 million reported in the prior year period. The increase was due primarily to growth in admissions from greater referral opportunities and improved capacity, and the contribution of Gentiva's specialty programs, as well as the impact of the Heritage Home Care Services acquisition, which closed on May 1, 2005.
Medicaid and Local Government revenues were $37.8 million for the second quarter of 2005, a 3.1% decline from the $39.0 million reported in the second quarter of last year.
Commercial Insurance and Other revenues for the second quarter of 2005 were $117.1 million, up 1.4% from the $115.4 million reported in the same period a year earlier. Excluding revenues from CIGNA, Commercial Insurance and Other revenues for the second quarter rose 8.5%, driven by services provided to other managed care customers. Revenues derived from CIGNA declined 3.7% due primarily to lower revenues from capitated plans partially offset by a revenue increase from CIGNA fee-for-service plans.
For the six months ended July 3, 2005, net income was $12.8 million, or $0.51 per diluted share, compared with $15.2 million, or $0.56 per diluted share, for the six months ended June 27, 2004. Net revenues for the first six months of 2005 were $427.2 million versus first half 2004 net revenues of $422.2 million.
Results for the 2005 and 2004 six-month periods included the special items referred to above, and for the six-month period of 2004, included the favorable settlement of the Company's 1997 Medicare cost reports, net of a revenue adjustment to reflect an industrywide repayment of certain Medicare reimbursements. The Medicare special items contributed $8.0 million to first half 2004 net revenues and income before income taxes.
Excluding the impact of special items, Net Income – As Adjusted for the first half of 2005 versus the same period of 2004 was $0.34 versus $0.36 per diluted share, respectively. First half 2005 net revenues, excluding the special items and revenues from CIGNA, increased $23.3 million, or 8.3%. Revenues from CIGNA, which declined 7.8% in the first half of 2005, represented 28% of Gentiva's total net revenues for this period versus 31% in the first half of 2004.
During the second quarter of 2005, Gentiva repurchased 283,800 shares of its common stock at an aggregate cost of $4.7 million and closed the Heritage acquisition at a cost of $11.5 million, excluding transaction costs of $0.5 million and working capital funding in excess of $3.5 million. As of July 3, 2005, Gentiva reported cash items and short-term investments of $83.4 million versus $103.6 million as of April 3, 2005, the end of the 2005 first quarter.
“We've taken actions beginning in the second quarter that should improve our performance for the remainder of the year,” said Gentiva Chairman and CEO Ron Malone. “In the Home Healthcare segment, we generated strong second quarter Medicare growth and continued our focus on capacity improvement, including training of newly hired clinicians and staff. We successfully completed the Heritage Home Care acquisition and concentrated on investing in our branch operations to generate greater returns.
“Our CareCentrix segment contributed to positive revenue growth in the Commercial Insurance and Other category,” he added, “even as we adjusted resources to match changing volume. Expanding managed care relationships contributed to the increase in non-CIGNA revenues. Though revenues from our CIGNA relationship were not at the levels of the prior year, they were up sequentially between the first and second quarters of 2005 due to increased PPO and Open Access business.” See the following tables for additional segment information.
Gentiva also affirmed its financial outlook for fiscal 2005, with net revenues in a range of $870 million to $890 million, and net income in a range of $0.75 to $0.83 per diluted share.
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 second quarter and first half 2005 results during its conference call and live web cast to be held Wednesday, August 3, 2005, at 10:00 a.m. Eastern Time. To participate in the call from the United States or Canada , dial: (651) 291-0900. 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 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 more 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) 2nd Quarter Six Months
2005 2004 2005 2004
Statements of Income
Net revenues $220,135 $208,248 $427,242 $422,153
Cost of services sold 138,628 129,910 265,857 260,553
Gross profit 81,507 78,338 161,385 161,600
Selling, general and
administrative expenses (72,658) (67,809) (144,417) (134,178)
Depreciation and amortization (1,911) (1,904) (3,647) (3,749)
Operating income 6,938 8,625 13,321 23,673
Gain on sale of Canadian
investment - 946 - 946
Interest income, net 414 208 877 290
Income before income taxes 7,352 9,779 14,198 24,909
Income tax benefit (expense) 1,298 (3,814) (1,423) (9,714)
Net income $8,650 $5,965 $12,775 $15,195
Earnings per Share
Net income:
Basic $0.37 $0.24 $0.55 $0.60
Diluted $0.35 $0.22 $0.51 $0.56
Average shares outstanding:
Basic 23,271 25,068 23,358 25,305
Diluted 24,935 26,818 24,981 26,967
Condensed Balance Sheets
ASSETS July 3, 2005 Jan 2, 2005
Cash, cash equivalents and
restricted cash $36,645 $31,924
Short-term investments 46,750 81,100
Net receivables 142,424 132,002
Deferred tax assets 23,134 23,861
Prepaid expenses and other current
assets 7,882 6,057
Total current assets 256,835 274,944
Fixed assets, net 19,951 19,687
Deferred tax assets, net 18,723 21,233
Goodwill 10,613 1,325
Other assets 18,518 14,909
Total assets $324,640 $332,098
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $25,462 $25,896
Payroll and related taxes 10,413 9,356
Medicare liabilities 8,545 9,949
Cost of claims incurred but not
reported 25,881 27,361
Obligations under insurance
programs 32,506 34,660
Other accrued expenses 26,707 31,117
Total current liabilities 129,514 138,339
Other liabilities 18,945 21,819
Shareholders' equity 176,181 171,940
Total liabilities and
shareholders' equity $324,640 $332,098
Common shares outstanding 23,264 23,722
Six Months
Condensed Statements of Cash Flows 2005 2004
OPERATING ACTIVITIES:
Net income $12,775 $15,195
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities
Depreciation and amortization 3,647 3,749
Provision for doubtful accounts 3,154 3,414
Gain on sale of Canadian investment - (946)
Reversal of tax audit reserves (4,200) -
Deferred income taxes 3,237 7,433
Changes in assets and liabilities:
Accounts receivable (13,576) (4,194)
Prepaid expenses and other current
assets (1,677) (1,616)
Current liabilities (13,564) (7,479)
Other, net 33 169
Net cash (used in) provided by
operating activities (10,171) 15,725
INVESTING ACTIVITIES:
Purchase of fixed assets (3,294) (5,493)
Proceeds from sale of assets - 4,123
Acquisition of businesses (12,040) -
Purchases of short-term investments
available-for-sale (106,900) (25,000)
Maturities of short-term investments
available-for-sale 131,250 5,000
Purchases of short-term investments - (10,000)
Maturities of short-term investments 10,000 10,000
Net cash provided by (used in)
investing activities 19,016 (21,370)
FINANCING ACTIVITIES:
Proceeds from issuance of common
stock 3,791 1,579
Changes in book overdrafts 4,586 (2,557)
Repurchases of common stock (12,325) (14,702)
Repayment of capital lease obligations (176) (162)
Net cash used in financing activities (4,124) (15,842)
Net change in cash, cash equivalents
and restricted cash 4,721 (21,487)
Cash, cash equivalents and
restricted cash at beginning of
period 31,924 97,438
Cash, cash equivalents and
restricted cash at end of period $36,645 $75,951
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.
2nd Quarter Six Months
2005 2004 2005 2004
Supplemental Information
Net Revenues by Major Payer
Source:
Medicare (1) $65,290 $53,839 $127,051 $116,441
Medicaid and local government 37,785 38,978 74,429 78,145
Commercial insurance and other 117,060 115,431 225,762 227,567
Total net revenues $220,135 $208,248 $427,242 $422,153
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 $8,650 $5,965 $12,775 $15,195
Income tax (benefit) expense -
As Reported (3) (1,298) 3,814 1,423 9,714
Income before income taxes - As
Reported 7,352 9,779 14,198 24,909
Less: Gain on sale of Canadian
investment (4) - (946) - (946)
Less: Medicare cost report
settlement (1) - - - (9,003)
Add: Revenue adjustment for
estimated Medicare repayment (1) - - - 1,000
Income before income taxes - As
Adjusted 7,352 8,833 14,198 15,960
Less: income tax expense - At
normalized rate (3) (2,902) (3,445) (5,623) (6,224)
Net income - As Adjusted $4,450 $5,388 $8,575 $9,736
Diluted Earnings per Share
Net income - As Reported $0.35 $0.22 $0.51 $0.56
Net income - As Adjusted $0.18 $0.20 $0.34 $0.36
Segment Information
Net revenues
Home Healthcare Services $137,667 $127,801 $270,750 $265,006
CareCentrix 87,069 85,492 166,003 167,615
Intersegment revenues (4,601) (5,045) (9,511) (10,468)
Total net revenues $220,135 $208,248 $427,242 $422,153
Operating contribution
Home Healthcare Services $12,111 $13,901 $23,717 $35,152
CareCentrix 7,165 8,515 14,007 14,929
Total operating contribution 19,276 22,416 37,724 50,081
Corporate expenses (10,427) (11,887) (20,756) (22,659)
Gain on sale of Canadian
investment - 946 - 946
Depreciation and amortization (1,911) (1,904) (3,647) (3,749)
Interest income, net 414 208 877 290
Income before income taxes $7,352 $9,779 $14,198 $24,909
Notes:
(1) Medicare revenues for the first six months 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
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 second quarter and first six 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 six 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 second quarter and first six months of fiscal year 2005, the
Company's income tax benefit (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 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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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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