SSY Sunlink Health Systems

SunLink Health Systems, Inc. (NYSE MKT: SSY) today announced a loss from continuing operations of $890,000 or a loss of $0.10 per fully diluted share for its third fiscal quarter ended March 31, 2017 compared to a loss from continuing operations of $1,392,000, or a loss of $0.15 per fully diluted share, for the quarter ended March 31, 2016. Net earnings for the quarter ended March 31, 2017 were a net loss of $1,025,000 or a loss of $0.11 per fully diluted share compared to a net loss of $1,835,000 or a loss of $0.19 per fully diluted share for the quarter ended March 31, 2016.

Consolidated net revenues from continuing operations for the quarters ended March 31, 2017 and 2016 were $13,699,000 and $16,205,000, respectively, a decrease of 15% in the current fiscal year’s third quarter compared to the comparable quarter of the prior fiscal year. Healthcare Facilities Segment net revenues of $5,229,000 for the quarter ended March 31, 2017 decreased $2,315,000 in the current fiscal year’s quarter primarily as a result of the closure of one hospital in June 2016. The Specialty Pharmacy Segment revenues of $8,198,000 in the quarter ended March 31, 2017 decreased $311,000, or 4%, over the comparable quarter of the prior fiscal year due primarily to lower durable medical equipment and retail pharmacy revenues, partially offset by increased institutional pharmacy revenues.

SunLink had an operating loss for the quarter ended March 31, 2017 of $771,000, compared to an operating loss for the quarter ended March 31, 2016 of $1,187,000. The decreased operating loss in the quarter ended March 31, 2017 compared to the same quarter last year was due primarily to the closure of an unprofitable hospital in the prior fiscal year.

The loss from discontinued operations was $135,000 ($0.01 per fully diluted share) for the quarter ended March 31, 2017 compared to a loss from discontinued operations of $443,000 (a loss of $0.05 per fully diluted share) for the quarter ended March 31, 2016. The loss from discontinued operations for the current year results primarily from a negative settlement of a prior year’s Medicare cost report at a previously sold hospital and insurance expense for retained liabilities at sold hospitals.

For the nine months ended March 31, 2017, SunLink reported earnings from continuing operations of $809,000 or $0.09 per fully diluted share, compared to a loss from continuing operations of $11,091,000 or a loss of $1.17 per fully diluted share, for the comparable period of the prior fiscal year. For the nine months ended March 31, 2017, SunLink reported net earnings of $5,096,000, or $0.54 per fully diluted share compared to a net loss of $12,849,000, or a loss of $1.36 per fully diluted share for the nine months ended March 31, 2016. Earnings from discontinued operations were $4,287,000 ($0.45 per fully diluted share) for the nine months ended March 31, 2017 compared to a loss from discontinued operations of $1,758,000 (a loss of $0.19 per fully diluted share) for the nine months ended March 31, 2016. The loss from continuing operations for the nine months ended March 31, 2016 included a non-cash charge of $7,101,000 to fully reserve the company’s deferred income tax assets. The earnings from discontinued operations for the first nine months of the current fiscal year resulted from a pre-tax gain of $7,270,000 on the August 2016 sale of a hospital.

Consolidated net revenues from continuing operations for the nine months ended March 31, 2017 and 2016 were $41,000,000 and $49,373,000, respectively, a decrease of 17% in the current fiscal year. Healthcare Facilities Segment net revenues in the nine months ended March 31, 2017 of $16,289,000 decreased $7,860,000 in the current fiscal year’s nine months primarily from the closure of one hospital in June 2016. The Specialty Pharmacy Segment revenues of $23,946,000 in the nine months ended March 31, 2017 decreased $698,000, or 3%, over the comparable nine months of the prior fiscal year due primarily to lower durable medical equipment and retail pharmacy revenues.

SunLink had an operating loss for the nine months ended March 31, 2017 of $1,696,000, compared to an operating loss for the nine months ended March 31, 2016 of $3,615,000. Positive adjustments for Medicare cost report adjustments of $385,000 this year compared to negative adjustments of $662,000 last year contributed to the reduction of the operating loss for the current year nine months results compared to the same period last year.

SunLink Health Systems, Inc. is the parent company of subsidiaries that own and operate healthcare businesses in the Southeast. Each of the Company’s healthcare businesses is operated locally with a strategy of linking patients’ needs with dedicated physicians and healthcare professionals. For additional information on SunLink Health Systems, Inc., please visit the Company’s website.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the company’s business strategy. These forward-looking statements are subject to certain risks, uncertainties and other factors, which could cause actual results, performance and achievements to differ materially from those anticipated. Certain of those risks, uncertainties and other factors are disclosed in more detail in the company’s Annual Report on Form 10-K for the year ended June 30, 2016 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

Adjusted earnings before income taxes, interest, depreciation and amortization

Earnings before income taxes, interest, depreciation and amortization (“EBITDA”) represent the sum of income before income taxes, interest, depreciation and amortization. We understand that certain industry analysts and investors generally consider EBITDA to be one measure of the liquidity of the company, and it is presented to assist analysts and investors in analyzing the ability of the company to generate cash, service debt and to satisfy capital requirements. We believe increased EBITDA is an indicator of improved ability to service existing debt and to satisfy capital requirements. EBITDA, however, is not a measure of financial performance under accounting principles generally accepted in the United States of America and should not be considered an alternative to net income as a measure of operating performance or to cash liquidity. Because EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States of America and is thus susceptible to varying calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other corporations. Net cash used in operations for the nine months ended March 31, 2017 and 2016, respectively, is shown below. Healthcare Facilities Adjusted EBITDA and Specialty Pharmacy Adjusted EBITDA is the EBITDA for those facilities without any allocation of corporate overhead, impairment charges and gains on sale of businesses.

    Nine Months Ended March 31,   2017           2016    

Healthcare Facilities Adjusted EBITDA

$ 940,000 $ (1,589,000 ) Specialty Pharmacy Adjusted EBITDA 299,000 882,000 Corporate overhead costs (1,559,000 ) (1,552,000 ) Taxes and interest expense (271,000 ) (7,488,000 )

Other non-cash expenses and net change in operating assets and liabilities

  (4,408,000 )   9,456,000   Net cash used in operations $ (4,999,000 ) $ (291,000 )                                     SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES FISCAL 2017 THIRD QUARTER RESULTS Amounts in 000's, except per share and volume amounts

CONSOLIDATED STATEMENTS OF EARNINGS

 

  Three Months Ended March 31, 2017 Nine Months Ended March 31,   2017     2016 2017   2016   % of Net % of Net % of Net % of Net Amount Revenues Amount Revenues Amount Revenues Amount Revenues Operating revenues (net of contractual allowances) $ 13,883 101.3 % $ 16,418 101.3 % $ 41,321 100.8 % $ 50,834 103.0 % Less provision for bad debts of Healthcare Facilities Segment   184     1.3 %   213   1.3 %   321   0.8 %   1,461   3.0 % Net Revenues 13,699 100.0 % 16,205 100.0 % 41,000 100.0 % 49,373 100.0 % Costs and Expenses: Cost of goods sold 5,523 40.3 % 5,614 34.6 % 15,592 38.0 % 15,582 31.6 % Salaries, wages and benefits 5,872 42.9 % 7,675 47.4 % 17,476 42.6 % 23,918 48.4 % Provision for bad debts of Specialty Pharmacy Segment 126 0.9 % 69 0.4 % 342 0.8 % 429 0.9 % Supplies 455 3.3 % 647 4.0 % 1,373 3.3 % 2,486 5.0 % Purchased services 692 5.1 % 761 4.7 % 2,113 5.2 % 2,510 5.1 % Other operating expenses 1,194 8.7 % 1,958 12.1 % 4,015 9.8 % 6,125 12.4 % Rents and leases 142 1.0 % 191 1.2 % 409 1.0 % 582 1.2 % Depreciation and amortization   466     3.4 %   477   2.9 %   1,376   3.4 %   1,356   2.7 % Operating Loss (771 ) -5.6 % (1,187 ) -7.3 % (1,696 ) -4.1 % (3,615 ) -7.3 %   Interest Expense - net (129 ) -0.9 % (211 ) -1.3 % (507 ) -1.2 % (637 ) -1.3 % Loss on extinguishment of debt, net - 0.0 % - 0.0 % (243 ) -0.6 % - 0.0 % Gain on sale of assets   2     0.0 %   5   0.0 %   3,019   7.4 %   12   0.0 %  

Earnings (Loss) from Continuing Operations before Income Taxes

(898 ) -6.6 % (1,393 ) -8.6 % 573 1.4 % (4,240 ) -8.6 % Income Tax Expense (Benefit)   (8 )   -0.1 %   (1 ) 0.0 %   (236 ) -0.6 %   6,851   13.9 % Earnings (Loss) from Continuing Operations (890 ) -6.5 % (1,392 ) -8.6 % 809 2.0 % (11,091 ) -22.5 % Earnings (Loss) from Discontinued Operations, net of tax   (135 )   -1.0 %   (443 ) -2.7 %   4,287   10.5 %   (1,758 ) -3.6 % Net Earnings (Loss) $ (1,025 )   -7.5 % $ (1,835 ) -11.3 % $ 5,096   12.4 % $ (12,849 ) -26.0 %

Earnings (Loss) Per Share from Continuing Operations:

Basic $ (0.10 ) $ (0.15 ) $ 0.09   $ (1.17 ) Diluted $ (0.10 ) $ (0.15 ) $ 0.09   $ (1.17 ) Earnings (Loss) Per Share from Discontinued Operations: Basic $ (0.01 ) $ (0.05 ) $ 0.46   $ (0.19 ) Diluted $ (0.01 ) $ (0.05 ) $ 0.45   $ (0.19 ) Net Earnings (Loss) Per Share: Basic $ (0.11 ) $ (0.19 ) $ 0.54   $ (1.36 ) Diluted $ (0.11 ) $ (0.19 ) $ 0.54   $ (1.36 ) Weighted Average Common Shares Outstanding: Basic   9,334     9,443     9,408     9,443   Diluted   9,334     9,443     9,429     9,443     HEALTHCARE FACILITIES VOLUME STATISTICS   Admissions 154 156 400 679 Nursing Home Patient Days 13,428 14,099 41,989 43,091   SUMMARY BALANCE SHEETS March 31, June 30,   2017     2017   ASSETS Cash and Cash Equivalents $ 11,237 $ 3,261 Accounts Receivable - net 6,300 6,166 Other Current Assets 5,955 8,465 Property Plant and Equipment, net 10,683 12,994 Long-term Assets   3,958     13,219   $ 38,133   $ 44,105   LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities $ 6,640 $ 20,051 Long-term Debt and Other Noncurrent Liabilities 7,489 4,565 Shareholders' Equity   24,004     19,489   $ 38,133   $ 44,105  

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SunLink Health Systems, Inc.Robert M. Thornton, Jr., 770-933-7004Chief Executive Officer