MDTH Medcath Corp. (MM)

CHARLOTTE, N.C., Feb. 9 /PRNewswire-FirstCall/ -- MedCath Corporation (NASDAQ:MDTH), a healthcare provider focused on the diagnosis and treatment of cardiovascular disease, today announced its operating results for its first fiscal quarter, which ended December 31, 2005. First quarter highlights: - Net revenue increased 0.2% to $185.1 million - Adjusted EBITDA of $17.6 million, which includes $2.6 million of unusual, negative items for the quarter - Adjusted admissions increased 3.5% despite an unexpected service interruption at one hospital during the quarter First Quarter 2006 Results MedCath's net revenue increased 0.2% to $185.1 million in the first quarter of fiscal 2006 from $184.8 million in the first quarter of fiscal 2005. Income from operations was $7.2 million in the first quarter of fiscal 2006, compared to $15.1 million in the first quarter of fiscal 2005. Adjusted EBITDA was $17.6 million compared to $25.2 million and the net loss from continuing operations was $(1.3) million, or $(0.07) per diluted share, in the first quarter of fiscal 2006, compared to net income from continuing operations of $2.6 million, or $0.14 per diluted share, in the first quarter of fiscal 2005. MedCath's first quarter of fiscal 2006 financial results contain the following unusual items. Per share amounts reflect minority interest, where applicable, and income taxes: - A $1.1 million, or net impact of $0.04 per share increase in other operating expense related to executive severance. - An approximate $600,000, or $0.01 per share, decrease in Adjusted EBITDA related to disruption of patient services at our Arizona Heart Hospital. In December, patient services were disrupted due to water damage after the hospital's sprinkler system discharged to extinguish a small fire. - A combined $900,000, or $0.03 per share, decrease in Adjusted EBITDA due to a reduction in net revenue from a contractual adjustment related to an estimated settlement of a prior year state cost report at one of our hospitals, and an increase in other operating expense related to the renovation and repair costs at one of our newer hospitals necessary to correct a construction defect. In addition to these events that impacted our Adjusted EBITDA for the first quarter of fiscal 2006, we also had the following items unfavorably impact our results: - A $417,000, or $0.01 per share, increase in personnel expense related to the expensing of stock options as required under FASB Statement No. 123R that MedCath adopted effective October 1, 2005. - A $716,000, or $0.02 per share, increase in interest expense related to the write-off of deferred loan fees associated with the prepayment of $58 million of bank debt. "As we have discussed in the past, we have several hospitals that are currently facing operating challenges that are specific to their markets," said John T. Casey, MedCath's chairman and chief executive officer. "Over the past several months, the executive management team, led by Ed French, our interim COO, has been working closely to put in place strategic initiatives to improve the operating performance of these hospitals. We believe we are seeing these efforts pay off as operations are improving. We are optimistic that these efforts will continue to be successful." Operating Statistics and Cash Flow Hospital admissions for the first quarter of fiscal 2006 increased 3.7% and adjusted admissions rose 3.5% from the first quarter of the previous fiscal year. Hospital division net revenue increased 0.2%. Inpatient catheterization procedures decreased (2.0)% and inpatient surgical procedures increased 8.9%. Cash flow from continuing operations totaled $12.1 million in the first quarter of fiscal 2006, in comparison to $17.1 million in the first quarter of fiscal 2005. 2006 Outlook For its fiscal year 2006, which ends September 30, 2006, MedCath estimates its primary financial measures to be in the following range: Net revenue $780.0 million to $800.0 million Adjusted EBITDA $ 93.0 million to $ 97.0 million Net income $ 7.5 million to $ 8.5 million Capital expenditures, recurring operations $ 35.0 million to $ 40.0 million The above guidance excludes the financial impact of the unusual items incurred during the first quarter of fiscal 2006, which are outlined as part of this earnings release and does not include any estimate of non-cash personnel expenses related to the expensing of stock options in future periods. Use of Non-GAAP Financial Measures This release contains measures of MedCath's historical financial performance that are not calculated and presented in conformity with generally accepted accounting principles ("GAAP"), including Adjusted EBITDA. Adjusted EBITDA represents MedCath's income from continuing operations before interest expense; interest and other income, net; taxes; depreciation; amortization; non-cash personnel expense related to the expensing of stock options; gain or loss on disposal of property, equipment and other assets; equity in net earnings of unconsolidated affiliates; and minority interest. MedCath's management uses Adjusted EBITDA to measure the performance of the company's various operating entities, to compare actual results to historical and budgeted results, and to make capital allocation decisions. Management provides Adjusted EBITDA to investors to assist them in performing their analysis of MedCath's historical operating results. Further, management believes that many investors in MedCath also invest in, or have knowledge of, other healthcare companies that use Adjusted EBITDA as a financial performance measure. Because Adjusted EBITDA is a non-GAAP measure, Adjusted EBITDA, as defined above, may not be comparable to other similarly titled measures of other companies. MedCath has included a supplemental schedule with the financial statements that accompany this press release that reconciles historical Adjusted EBITDA to MedCath's income (loss) from continuing operations. Management will discuss and answer questions regarding MedCath's quarterly results today during a 2 p.m. ET conference call. In the United States, you may participate by dialing (877) 697-5351. International callers should dial (706) 634-0602. The conference ID for both domestic and international callers is "MedCath." A live webcast will also be available on the company's web site, http://www.medcath.com/. This information will be available on the web site on or immediately following the conference call for 30 days. A recorded replay of the call will be available until 11:59 p.m. ET, February 16, 2006. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 4771398. This press release and the financial information included therewith will be accessible on the web, by going to http://www.medcath.com/, "Investor Relations," then clicking on "News." MedCath Corporation, headquartered in Charlotte, N.C., develops, owns and operates hospitals in partnership with physicians, most of whom are cardiologists and cardiovascular surgeons. While each of its hospitals is licensed as a general acute care hospital, MedCath focuses on serving the unique needs of patients suffering from cardiovascular disease. Together with its physician partners who own equity interests in them, MedCath owns and operates 12 hospitals with a total of 727 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota and Texas. In addition to its hospitals, MedCath provides cardiovascular care services in diagnostic and therapeutic facilities located in various states and through mobile cardiac catheterization laboratories. Parts of this announcement contain forward-looking statements that involve risks and uncertainties. Although management believes that these forward- looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic, regulatory and competitive uncertainties and contingencies that are difficult or impossible to predict accurately and are beyond our control. Actual results could differ materially from those projected in these forward-looking statements. We do not assume any obligation to update these statements in a news release or otherwise should material facts or circumstances change in ways that would affect their accuracy. These various risks and uncertainties are described in detail in Exhibit 99.1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 14, 2005. A copy of this report, including exhibits, is available on the Internet site of the Commission at http://www.sec.gov/. These risks and uncertainties include, among others, the impact of legislation proposed to extend provisions of the Medicare Prescription Drug Improvement Act of 2003 and other healthcare reform initiatives, possible reductions or changes in reimbursements from government or third party payors that would decrease our revenue, a negative finding by a regulatory organization with oversight of one of our hospitals, and changes in medical or other technology and reimbursement rates for new technologies. MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended December 31, 2005 2004 % Change Statement of Operations Data: Net revenue $185,121 $184,760 0.2% Adjusted EBITDA (1) $17,613 $25,177 (30.0)% Income from operations $7,184 $15,148 (52.6)% Income (loss) from continuing operations $(1,333) $2,592 (151.4)% Earnings (loss) per share from continuing operations, basic $(0.07) $0.14 (150.0)% Earnings (loss) per share from continuing operations, diluted $(0.07) $0.14 (150.0)% (1) See Supplemental Financial Disclosure--Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures. Three Months Ended December 31, 2005 2004 % Change Selected Operating Data (a): Number of hospitals 11 11 Licensed beds (b) 672 672 Staffed and available beds (c) 667 631 Admissions (d) 11,285 10,883 3.7% Adjusted admissions (e) 14,785 14,282 3.5% Patient days (f) 37,978 37,158 2.2% Adjusted patient days (g) 49,590 48,393 2.5% Average length of stay (days) (h) 3.37 3.41 (1.2)% Occupancy (i) 61.9% 64.0% Inpatient catheterization procedures 5,692 5,808 (2.0)% Inpatient surgical procedures 3,023 2,775 8.9% Hospital division revenue $171,604 $171,229 0.2% (a) Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in our consolidated financial statements. (b) Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use. (c) Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. (d) Admissions represent the number of patients admitted for inpatient treatment. (e) Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions. (f) Patient days represent the total number of days of care provided to inpatients. (g) Adjusted patient days is a general measure of combined inpatient and outpatient days. We computed adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days. (h) Average length of stay (days) represents the average number of days inpatients stay in our hospitals. (i) We computed occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the number of staffed and available beds. MEDCATH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended December 31, 2005 2004 Net revenue $185,121 $184,760 Operating expenses: Personnel expense 60,475 57,213 Medical supplies expense 51,959 52,486 Bad debt expense 14,438 11,484 Other operating expenses 41,053 38,400 Depreciation 9,641 9,736 Amortization 252 290 Loss on disposal of property, equipment and other assets 119 3 Total operating expenses 177,937 169,612 Income from operations 7,184 15,148 Other income (expenses): Interest expense (9,068) (7,998) Interest and other income, net 1,417 395 Equity in net earnings of unconsolidated affiliates 1,065 769 Total other expenses, net (6,586) (6,834) Income from continuing operations before minority interest, income taxes and discontinued operations 598 8,314 Minority interest share of earnings of consolidated subsidiaries (2,818) (3,999) Income (loss) from continuing operations before income taxes and discontinued operations (2,220) 4,315 Income tax expense (benefit) (887) 1,723 Income (loss) from continuing operations (1,333) 2,592 Income from discontinued operations, net of taxes - 1,948 Net income (loss) $(1,333) $4,540 Earnings (loss) per share, basic Continuing operations $(0.07) $0.14 Discontinued operations - 0.11 Earnings (loss) per share, basic $(0.07) $0.25 Earnings (loss) per share, diluted Continuing operations $(0.07) $0.14 Discontinued operations - 0.10 Earnings (loss) per share, diluted $(0.07) $0.24 Weighted average number of shares, basic 18,501 18,045 Dilutive effect of stock options - 932 Weighted average number of shares, diluted 18,501 18,977 MEDCATH CORPORATION SUPPLEMENTAL FINANCIAL DISCLOSURE - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES (Unaudited) The following table reconciles Adjusted EBITDA with MedCath's income (loss) from continuing operations as derived directly from MedCath's consolidated financial statements for the three months ended December 31, 2005 and 2004. Three Months Ended December 31, 2005 2004 (in thousands) Income (loss) from continuing operations $(1,333) $2,592 Add: Income tax expense (benefit) (887) 1,723 Minority interest share of earnings of consolidated subsidiaries 2,818 3,999 Equity in net earnings of unconsolidated affiliates (1,065) (769) Interest and other income, net (1,417) (395) Interest expense 9,068 7,998 Loss on disposal of property, equipment and other assets 119 3 Amortization 252 290 Depreciation 9,641 9,736 Share-based compensation expense 417 - Adjusted EBITDA $17,613 $25,177 The following table reconciles estimated Adjusted EBITDA with MedCath's estimated net income for the guidance for the fiscal year ending September 30, 2006. Fiscal 2006 Guidance Range (in millions) Net income $7.5 $8.5 Add: Income tax expense (benefit) 5.0 5.6 Minority interest share of earnings of consolidated subsidiaries 13.0 15.4 Total other expenses, net 26.0 26.0 Amortization 1.0 1.0 Depreciation 40.5 40.5 Adjusted EBITDA $93.0 $97.0 First Call Analyst: FCMN Contact: cglickman@mower.com DATASOURCE: MedCath Corporation CONTACT: John T. Casey, Chairman-Chief Executive Officer, or James E. Harris, Chief Financial Officer, of MedCath Corporation, +1-704-708-6600 Web site: http://www.medcath.com/

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