HORC Horizon Health Corp (MM)

Horizon Health Corporation (NASDAQ:HORC) today announced financial results for the quarter ended May 31, 2006. Revenues increased 41.7% to $76.2 million compared with revenues of $53.8 million for the same quarter in the previous year. Income from continuing operations increased 12.3% to $3.7 million, or $0.24 per diluted share, compared with income from continuing operations of $3.3 million, or $0.23 per diluted share, for the same quarter in the previous year. Net income increased 6.4% between the periods. Diluted shares used in computing earnings per share increased 4.7% between the periods, primarily as a result of the secondary stock offering completed in March 2005. For the nine months ended May 31, 2006, revenues increased 32.1% to $199.3 million compared with revenues of $150.8 million for the same period in the previous year. Income from continuing operations decreased 4.0% to $8.6 million, or $0.56 per diluted share, compared with income from continuing operations of $9.0 million, or $0.71 per diluted share, for the same period in the previous fiscal year. Diluted shares used in computing earnings per share increased 22.4% between the periods, primarily as a result of the secondary stock offering completed in March 2005. Mr. Ken Newman, Chairman and Chief Executive Officer of Horizon Health, said, "During the third quarter, revenues from owned behavioral health facilities increased to 63% of consolidated total revenues. The combined EBITDA margin for all our owned behavioral health facilities increased to 16.2%, representing an increase of 710 basis points over the EBITDA margin for the second quarter. Notwithstanding this margin improvement, reaching the point of sustained profitability for these facilities at levels that are satisfactory to us is taking slightly longer than anticipated. However, we consider that our owned facilities are being positioned to have significant earnings growth in fiscal 2007." With respect to its contract management business, the Company renegotiated a significant behavioral health management contract during the quarter at a much lower margin. The Company has now become concerned about the effect of pricing pressures on its behavioral health management contract business because of hospital reimbursement issues. The Company now believes it has exposure in connection with several large behavioral health management contracts in the third and fourth quarters of 2007. This relates primarily to locations adversely impacted by the third year implementation of the Medicare inpatient psychiatric prospective payment reimbursement system. More uncertainty in this area has developed than anticipated. The Company has sold six management contracts this year and expects to sell more. Nevertheless, revised estimates regarding the decline in the contract management business was the most significant factor in revising the earnings guidance for fiscal 2007. The revised guidance also recognizes the need to devote more resources to the infrastructure support for facility operations than anticipated, recent increases in audit and review fees and higher interest rates applicable to borrowings under its credit facility. All of these developments have occurred since the most recent earnings guidance was given by the Company. The Company is revising its fiscal 2006 earnings guidance to a range of $0.78 to $0.80 per diluted share. The Company is also revising its fiscal 2007 earnings guidance to a range of $1.02 to $1.06 per diluted share, representing a 32% growth in fiscal 2007 over fiscal 2006. The Company had previously issued preliminary 2007 earnings guidance at the end of its second fiscal quarter. This was issued earlier than the Company customarily provides earnings guidance for the next fiscal year because of the significant number of acquisitions made by the Company in the second quarter of 2006. Both the fiscal 2006 and 2007 guidance do not include the effects of any additional acquisitions. A listen-only simulcast and a 30-day replay of Horizon's third quarter results call will be available online on July 7, 2006, beginning at 10:00 a.m. Central Time through the Company's website at www.horizonhealth.com or at www.earnings.com. Horizon Health is an owner of behavioral healthcare facilities and a leading manager of clinical services for acute care hospitals and employers. The statements contained herein based on future expectations rather than on historical facts are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Numerous factors as outlined in the SEC Report filed by the Company could cause actual results to differ materially from those in any such forward-looking statements. There can be no assurance that statements made in this press release relating to future events will be achieved. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. -0- *T HORIZON HEALTH CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 2006 2005 2006 2005 -------- -------- -------- -------- Revenues $76,241 $53,805 $199,275 $150,803 Cost of services 57,676 40,783 154,032 113,372 Selling, general and administrative 6,599 5,946 20,433 16,944 Provision for doubtful accounts 1,933 716 3,709 2,087 Depreciation and amortization 1,488 763 3,911 2,385 -------- -------- -------- -------- Operating income 8,545 5,597 17,190 16,015 Interest expense (net of interest and other income) (2,238) (140) (2,933) (1,308) -------- -------- -------- -------- Income before income taxes, minority interest and discontinued operations 6,307 5,457 14,257 14,707 Income tax provision 2,473 2,134 5,601 5,743 Minority interest, net 101 -- 47 -- -------- -------- -------- -------- Income from continuing operations 3,733 3,323 8,609 8,964 (Loss) income from discontinued operations, net (17) 170 (34) 589 -------- -------- -------- -------- Net income $3,716 $3,493 $8,575 $9,553 ======== ======== ======== ======== Basic earnings per common share Continuing operations $0.25 $0.24 $0.57 $0.74 Discontinued operations 0.00 0.01 0.00 0.05 -------- -------- -------- -------- $0.25 $0.25 $0.57 $0.79 ======== ======== ======== ======== Diluted earnings per common share Continuing operations $0.24 $0.23 $0.56 $0.71 Discontinued operations 0.00 0.01 0.00 0.05 -------- -------- -------- -------- $0.24 $0.24 $0.56 $0.76 ======== ======== ======== ======== Weighted average shares outstanding Basic 15,006 14,195 14,954 12,158 ======== ======== ======== ======== Diluted 15,435 14,744 15,425 12,601 ======== ======== ======== ======== HORIZON HEALTH CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) May 31, August 31, 2006 2005 -------- --------- Cash $3,544 $8,098 Accounts receivable (net) 43,238 28,876 Other current assets 15,574 15,710 -------- -------- Total current assets 62,356 52,684 Property and equipment (net) 99,624 51,698 Goodwill and other intangible assets (net) 148,388 81,084 Other long-term assets 1,609 1,752 -------- -------- Total assets $311,977 $187,218 ======== ======== Current liabilities $31,815 $33,194 Other liabilities 3,435 4,002 Long-term debt 113,023 -- Deferred taxes 5,949 3,036 -------- -------- Total liabilities 154,222 40,232 Minority interest 3,912 3,865 Stockholders' equity 153,843 143,121 -------- -------- Total liabilities and stockholders' equity $311,977 $187,218 ======== ======== RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA AND EBITDAR (Unaudited) (In thousands) Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 2006 2005 2006 2005 -------- -------- -------- -------- Income from continuing operations $3,733 $3,323 $8,609 $8,964 Minority interest (net) 101 -- 47 -- Provision for income taxes 2,473 2,134 5,601 5,743 Interest expense (net of interest and other income) 2,238 140 2,933 1,308 Depreciation and amortization 1,488 763 3,911 2,385 -------- -------- -------- -------- EBITDA 10,033 6,360 21,101 18,400 Rents 1,076 777 2,328 2,382 -------- -------- -------- -------- EBITDAR $11,109 $7,137 $23,429 $20,782 ======== ======== ======== ======== HORIZON HEALTH SUMMARY STATISTICAL DATA Quarter Quarter Quarter Ended Ended Ended May 31, Feb. 28, Nov. 30, 2006 (1) 2006 (2) 2005 -------- -------- -------- Owned/Leased Freestanding Behavioral Health Hospitals: Net revenues (in thousands) $48,055 $34,722 $28,039 Number of facilities at period end 15 14 5 Licensed Beds 1,549 1,496 833 Weighted average available beds 1,376 958 700 Patient days 96,454 64,203 45,114 Admissions 5,844 4,099 3,437 Average length of stay 16.5 15.7 13.1 Revenue per patient day $498 $541 $622 Occupancy based on weighted 76.2% 74.5% 70.8% average available beds EBITDA Margin (5) 16.2% 9.1% 10.1% EBITDAR Margin (5) 17.5% 10.6% 11.5% Same Facility Results: Net revenues (in thousands) $15,313 $8,638 $8,682 Number of facilities in same facility results 3 2 2 Licensed beds 427 275 275 Available beds 365 249 249 Patient days 24,724 17,374 16,870 Admissions 1,621 816 848 Average length of stay 15.3 21.3 19.9 Revenue per patient day $619 $497 $515 Occupancy based on weighted 73.6% 77.5% 74.5% average available beds EBITDA Margin (5) 22.4% 22.0% 22.8% EBITDAR Margin (5) 24.4% 22.5% 23.4% EAP Covered lives (in thousands) 4,472 4,326 4,163 Number of contract locations (6): Contract locations in operation 114 115 119 Contract locations signed & unopened 6 8 11 -------- -------- -------- Total contract locations 120 123 130 ======== ======== ======== Fiscal Years Ended August 31, ------------------ 2005 (3) 2004 (4) -------- -------- Owned/Leased Freestanding Behavioral Health Hospitals: Net revenues (in thousands) $60,578 $10,069 Number of facilities at period end 5 2 Licensed Beds 833 267 Weighted average available beds 363 177 Patient days 100,396 19,639 Admissions 6,745 1,041 Average length of stay 14.9 18.9 Revenue per patient day $603 $513 Occupancy based on weighted 75.8% 72.5% average available beds EBITDA Margin (5) 14.5% 19.4% EBITDAR Margin (5) 16.3% 20.4% Same Facility Results: Net revenues (in thousands) $35,347 -- Number of facilities in same facility results 2 -- Licensed beds 267 -- Available beds 241 -- Patient days 70,282 -- Admissions 3,231 -- Average length of stay 21.8 -- Revenue per patient day $503 -- Occupancy based on weighted 79.9% -- average available beds EBITDA Margin (5) 19.7% -- EBITDAR Margin (5) 20.6% -- EAP Covered lives (in thousands) 4,244 3,569 Number of contract locations (6): Contract locations in operation 123 132 Contract locations signed & unopened 12 8 -------- -------- Total contract locations 135 140 ======== ======== (1) In the quarter ended May 31, 2006, the Company operated the Focus Healthcare of Delaware facility for two months. All other facilities were operated for the full quarter. (2) In the quarter ended February 28, 2006, the Company operated Copper Hills Youth Center for two months, Kingwood Pines Hospital for 1 1/2 months and six Lighthouse/Focus facilities for one month. All other facilities were operated for the full quarter. (3) In fiscal year 2005, the Company operated Michiana Behavioral Health Center and Poplar Springs Hospital for the full year, Laurelwood Hospital for eight months, Friends Hospital for two months, and River Park Hospital for one month. (4) In fiscal year 2004, the Company operated Michiana Behavioral Health Center for five months and Poplar Springs Hospital for three months. (5) The calculation of EBITDA and EBITDAR for the Company's Hospital Services Division does not include an allocation for corporate overhead expenses. (6) Includes only the Company's behavioral health and physical rehabilitation management contracts. *T