MDTH Medcath Corp. (MM)

CHARLOTTE, N.C., Nov. 13 /PRNewswire-FirstCall/ -- MedCath Corporation (NASDAQ:MDTH), a healthcare provider focused on high acuity healthcare services including the diagnosis and treatment of cardiovascular disease, today announced its operating results for its fourth fiscal quarter, which ended September 30, 2007. Fourth Quarter 2007 Results During its fourth quarter of fiscal 2007, MedCath completed the recapitalization of Harlingen Medical Center ("HMC"). As part of the recapitalization, MedCath's ownership in HMC was reduced from a majority ownership of 51.0% to a minority ownership of 36.0%. Due to this change in ownership, MedCath began accounting for HMC as an equity investment in the fiscal quarter ended September 30, 2007. As such, MedCath's fourth quarter of fiscal 2007 consolidated results exclude the net revenue, income from operations and Adjusted EBITDA of HMC. In comparison, MedCath's fourth quarter of fiscal 2006 consolidated results include the consolidated financial results of HMC. As detailed below, all or a significant portion of the reduction in MedCath's primary consolidated financial measures is due to the reclassification of HMC from a consolidated subsidiary to an equity investment. MedCath's reported net revenue decreased 10.6% to $158.6 million in the fourth quarter of fiscal 2007 from $177.4 million in the fourth quarter of fiscal 2006, which included $16.2 million attributable to HMC. Excluding this amount from prior year's results, net revenue declined 1.6%. Income from operations decreased 9.5% to $14.2 million in the fourth quarter of fiscal 2007 from $15.7 million in the fourth quarter of fiscal 2006, which included $1.9 million attributable to HMC. Excluding this amount from prior year's results, income from operations increased 3.2%. Adjusted EBITDA in the fourth quarter of fiscal 2007 decreased 10.2% to $23.1 million from $25.7 million in the fourth quarter of fiscal 2006, which included $3.2 million attributable to HMC. Excluding this amount from prior year's results, Adjusted EBITDA increased 2.6%. Income from continuing operations was $2.5 million, or $0.12 per diluted share, in the fourth quarter of fiscal 2007, compared to income from continuing operations of $4.5 million, or $0.23 per diluted share, in the fourth quarter of fiscal 2006. MedCath's fourth quarter of fiscal 2006 income from continuing operations would have been $4.7 million, or $0.24 per diluted share, had HMC been accounted for as an equity investment in the fourth quarter of fiscal 2006. MedCath's fourth quarter of fiscal 2007 results contain the following unusual items. Per share amounts reflect minority interest expense, where applicable, and income taxes. -- A $0.5 million, or net impact of $0.01 per diluted share, decrease in net revenue and Adjusted EBITDA related to settlement of third-party cost reports during the quarter, -- A $4.8 million, or net impact of $0.13 per diluted share, loss on early extinguishment of debt related to the HMC recapitalization, and -- A $0.1 million, or net impact of $0.01 per diluted share, reduction in income from continuing operations related to combined legal expense associated with the HMC recapitalization and final settlement between Arizona Heart Hospital and the United States Department of Justice. MedCath's fourth quarter of fiscal 2006 results were impacted by certain unusual items that collectively had a $1.3 million favorable impact to net revenue, a $1.0 million favorable impact to Adjusted EBITDA and a $0.4 million, or $0.02 per diluted share, favorable impact to income from continuing operations. Share-based compensation expense totaled $0.5 million, or $0.01 per diluted share, in the fourth quarter of fiscal 2007, compared to $0.8 million, or $0.02 per diluted share, in the fourth quarter of fiscal 2006. Pre-opening expenses totaled $0.6 million, or $0.02 per diluted share, in the fourth quarter of fiscal 2007. MedCath did not incur pre-opening expenses in the fourth quarter of fiscal 2006. Adjusted EBITDA in this release does not include share-based compensation expense or pre-opening expenses, but these expenses are included as a component of income from continuing operations. "Our fourth quarter brings to close a very successful fiscal 2007," said O. Edwin French, MedCath's president and chief executive officer. "We were able to accomplish many of our strategic and financial objectives during the year, delivering overall solid revenue and EBITDA growth. We believe we have put in place the foundation for a successful fiscal 2008." Operating Statistics and Cash Flow Same facility hospital adjusted admissions, which excludes the results of Harlingen Medical Center, for the fourth quarter of fiscal 2007 increased 1.9% from the fourth quarter of the previous fiscal year. Same facility hospital net revenue decreased 0.5%. Net cash provided by operating activities of continuing operations for the fourth quarter of fiscal 2007 was $27.6 million, up from $15.6 million for the fourth quarter of fiscal 2006. Capital expenditures totaled $18.0 million in the fourth quarter of fiscal 2007 in comparison to $7.5 million in the fourth quarter of fiscal 2006. 2008 Outlook For its fiscal year 2008, which ends September 30, 2008, MedCath estimates its primary financial measures to be in the following range: Net revenue $685.0 million to $700.0 million Adjusted EBITDA $110.0 million to $114.0 million Income from continuing operations $32.8 million to $34.3 million Capital expenditures, recurring operations $35.0 million to $40.0 million The above outlook excludes the financial effect of approximately $1.0 million in pre-opening expenses anticipated to be incurred with the development of the Hualapai Medical Center, located in Kingman, Arizona. In addition, the above outlook excludes the financial effect of share-based compensation expense. 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; income tax expense; depreciation; amortization; share-based compensation expense; pre-opening expenses; loss (gain) on disposal of property, equipment and other assets; loss on early extinguishment of debt; impairment of long-lived assets; equity in net earnings of unconsolidated affiliates; and minority interest share of earnings of consolidated subsidiaries. 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 analyses 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 accompanies this press release that reconciles historical Adjusted EBITDA to MedCath's income from continuing operations. Management will discuss and answer questions regarding MedCath's quarterly results today during a 9 a.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 22236624. A live web cast 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, November 20, 2007. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 22236624. 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., is a healthcare provider focused on high acuity services with the diagnosis and treatment of cardiovascular disease being a primary service offering. MedCath owns interests in and operates eleven hospitals with a total of 667 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota, and Texas. In addition, MedCath and its subsidiary MedCath Partners manage the cardiovascular program at various hospitals and provide services in diagnostic and therapeutic facilities in various states. 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 including, but not limited to, enactment of changes in federal law that would limit physician hospital ownership. 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 "Risk Factors" in MedCath's Registration Statement on Form S-3/A filed with the Securities and Exchange Commission on March 29, 2007 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. Copies of this registration statement and Form 10-Q, including exhibits, are available on the internet site of the Securities and Exchange Commission at http://www.sec.gov/. MEDCATH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended September 30, September 30, 2007 2006 2007 2006 Net revenue $158,641 $177,444 $718,959 $706,374 Operating expenses: Personnel expense 51,976 55,472 229,844 228,350 Medical supplies expense 42,907 47,684 192,036 196,046 Bad debt expense 10,005 14,395 55,162 56,845 Other operating expenses 31,145 35,008 142,584 141,498 Pre-opening expenses 555 - 555 - Depreciation 7,332 8,863 33,602 34,792 Amortization 126 252 631 1,008 Loss (gain) on disposal of property, equipment and other assets 419 95 1,466 (142) Impairment of long-lived assets - 7 - 458 Total operating expenses 144,465 161,776 655,880 658,855 Income from operations 14,176 15,668 63,079 47,519 Other income (expenses): Interest expense (4,014) (7,952) (22,464) (31,840) Loss on early extinguishment of debt (4,789) - (9,931) (1,370) Interest and other income, net 1,570 2,029 7,855 7,733 Equity in net earnings of unconsolidated affiliates 1,644 1,036 5,739 4,919 Total other expenses, net (5,589) (4,887) (18,801) (20,558) Income from continuing operations before minority interest, income taxes and discontinued operations 8,587 10,781 44,278 26,961 Minority interest share of earnings of consolidated subsidiaries (4,221) (3,171) (14,575) (15,521) Income from continuing operations before income taxes and discontinued operations 4,366 7,610 29,703 11,440 Income tax expense 1,834 3,120 12,476 4,729 Income from continuing operations 2,532 4,490 17,227 6,711 Income (loss) from discontinued operations, net of taxes (1,624) 6,449 (5,700) 5,865 Net income (loss) $908 $10,939 $11,527 $12,576 Earnings (loss) per share, basic Continuing operations $0.12 $0.24 $0.82 $0.36 Discontinued operations (0.08) 0.34 (0.26) 0.31 Earnings (loss) per share, basic $0.04 $0.58 $0.56 $0.67 Earnings (loss) per share, diluted Continuing operations $0.12 $0.23 $0.80 $0.34 Discontinued operations (0.08) 0.32 (0.26) 0.30 Earnings (loss) per share, diluted $0.04 $0.55 $0.54 $0.64 Weighted average number of shares, basic 21,202 18,872 20,872 18,656 Dilutive effect of stock options and restricted stock 579 1,037 639 899 Weighted average number of shares, diluted 21,781 19,909 21,511 19,555 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended September 30, 2007 2006 % Change Statement of Operations Data: Net revenue $158,641 $177,444 (10.6)% Adjusted EBITDA (1) $23,097 $25,727 (10.2)% Income from operations $14,176 $15,668 (9.5)% Income from continuing operations $2,532 $4,490 (43.6)% Earnings per share from continuing operations, basic $0.12 $0.24 (500.0)% Earnings per share from continuing operations, diluted $0.12 $0.23 (478.3)% Twelve Months Ended September 30, 2007 2006 % Change Statement of Operations Data: Net revenue $718,959 $706,374 1.8% Adjusted EBITDA (1) $103,671 $96,857 7.0% Income from operations $63,079 $47,519 32.7% Income from continuing operations $17,227 $6,711 156.7% Earnings per share from continuing operations, basic $0.82 $0.36 127.8% Earnings per share from continuing operations, diluted $0.80 $0.34 135.3% (1) See Supplemental Financial Disclosure -- Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures. Three Months Ended September 30, 2007 2006 % Change Selected Operating Data (a): Number of hospitals 8 9 Licensed beds (c) 468 580 Staffed and available beds (d) 451 563 Admissions (e) 8,017 9,991 (19.8)% Adjusted admissions (f) 10,772 13,356 (19.3)% Patient days (g) 27,336 32,258 (15.3)% Adjusted patient days (h) 36,907 43,018 (14.2)% Average length of stay (days) (i) 3.41 3.23 5.6% Occupancy (j) 65.9% 62.3% Inpatients with a catheterization procedure (k) 4,415 5,032 (12.3)% Inpatient surgical procedures (l) 2,137 2,650 (19.4)% Hospital net revenue $146,771 $163,867 (10.4)% Selected Operating Data - Same Facility (a): Number of hospitals 8 8 Licensed beds (c) 468 468 Staffed and available beds (d) 451 451 Admissions (e) 8,017 8,242 (2.7)% Adjusted admissions (f) 10,772 10,569 1.9% Patient days (g) 27,336 27,794 (1.6)% Adjusted patient days (h) 36,907 35,905 2.8% Average length of stay (days) (i) 3.41 3.37 1.2% Occupancy (j) 65.9% 67.0% Inpatients with a catheterization procedure (k) 4,415 4,856 (9.1)% Inpatient surgical procedures (l) 2,137 2,227 (4.0)% Hospital net revenue $146,771 $147,445 (0.5)% Combined Operating Data (b): Number of hospitals 10 10 Licensed beds (c) 635 635 Staffed and available beds (d) 614 618 Admissions (e) 10,678 10,833 (1.4)% Adjusted admissions (f) 14,828 14,319 3.6% Patient days (g) 35,794 35,270 1.5% Adjusted patient days (h) 49,592 46,463 6.7% Average length of stay (days) (i) 3.35 3.26 2.8% Occupancy (j) 63.4% 62.0% Inpatients with a catheterization procedure (k) 5,230 5,573 (6.2)% Inpatient surgical procedures (l) 2,823 2,873 (1.7)% Hospital net revenue $184,630 $178,196 3.6% Twelve Months Ended September 30, 2007 2006 % Change Selected Operating Data (a): Number of hospitals 8 9 Licensed beds (c) 468 580 Staffed and available beds (d) 451 563 Admissions (e) 38,757 41,406 (6.4)% Adjusted admissions (f) 52,714 54,186 (2.7)% Patient days (g) 132,937 136,532 (2.6)% Adjusted patient days (h) 180,258 178,667 0.9% Average length of stay (days) (i) 3.43 3.30 3.9% Occupancy (j) 80.8% 66.4% Inpatients with a catheterization procedure (k) 19,878 21,163 (6.1)% Inpatient surgical procedures (l) 10,193 10,764 (5.3)% Hospital net revenue $665,908 $648,898 2.6% Selected Operating Data - Same Facility (a): Number of hospitals 8 8 Licensed beds (c) 468 468 Staffed and available beds (d) 451 451 Admissions (e) 33,277 34,099 (2.4)% Adjusted admissions (f) 43,783 43,138 1.5% Patient days (g) 117,065 115,574 1.3% Adjusted patient days (h) 154,390 146,980 5.0% Average length of stay (days) (i) 3.52 3.39 3.8% Occupancy (j) 71.1% 70.2% Inpatients with a catheterization procedure (k) 19,252 20,403 (5.6)% Inpatient surgical procedures (l) 8,751 9,523 (8.1)% Hospital net revenue $604,896 $580,757 4.2% Combined Operating Data (b): Number of hospitals 10 10 Licensed beds (c) 635 635 Staffed and available beds (d) 614 618 Admissions (e) 44,249 44,858 (1.4)% Adjusted admissions (f) 59,977 58,094 3.2% Patient days (g) 152,070 149,321 1.8% Adjusted patient days (h) 205,037 193,147 6.2% Average length of stay (days) (i) 3.44 3.33 3.3% Occupancy (j) 67.9% 66.2% Inpatients with a catheterization procedure (k) 22,510 23,366 (3.7)% Inpatient surgical procedures (l) 11,653 11,715 (0.5)% Hospital net revenue $753,887 $710,243 6.1% (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. Same facility for all periods presented excludes Harlingen Medical Center. (b) Combined operating data includes hospitals in operation as of the end of the period reported in continuing operations including hospitals which are accounted for using the equity method in our consolidated financial statements. (c) 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. (d) Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. (e) Admissions represent the number of patients admitted for inpatient treatment. (f) 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. (g) Patient days represent the total number of days of care provided to inpatients. (h) Adjusted patient days is a general measure of combined inpatient and outpatient volume. We computed adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days. (i) Average length of stay (days) represents the average number of days inpatients stay in our hospitals. (j) 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. (k) Inpatients with a catheterization procedure represent the number of inpatients with a procedure performed in one of the hospitals' catheterization labs during the period. (l) Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period. MEDCATH CORPORATION SUPPLEMENTAL FINANCIAL DISCLOSURE - RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (Unaudited) The following table reconciles Adjusted EBITDA with MedCath's income from continuing operations as derived directly from MedCath's consolidated financial statements for the three and twelve months ended September 30, 2007 and 2006. Three Months Twelve Months Ended Ended September 30, September 30, 2007 2006 2007 2006 (in thousands) Income from continuing operations $2,532 $4,490 $17,227 $6,711 Add: Income tax expense 1,834 3,120 12,476 4,729 Minority interest share of earnings of consolidated subsidiaries 4,221 3,171 14,575 15,521 Equity in net earnings of unconsolidated affiliates (1,644) (1,036) (5,739) (4,919) Interest and other income, net (1,570) (2,029) (7,855) (7,733) Loss on early extinguishment of debt 4,789 - 9,931 1,370 Interest expense 4,014 7,952 22,464 31,840 Impairment of long-lived assets - 7 - 458 Loss (gain) on disposal of property, equipment and other assets 419 95 1,466 (142) Amortization 126 252 631 1,008 Depreciation 7,332 8,863 33,602 34,792 Pre-opening expenses 555 - 555 - Share-based compensation expense 489 842 4,338 13,222 Adjusted EBITDA $23,097 $25,727 $103,671 $96,857 The following table reconciles estimated Adjusted EBITDA with MedCath's estimated net income for the guidance for the fiscal year ending September 30, 2008. Fiscal 2008 Guidance Range (in millions) Income from continuing operations $32.8 $34.3 Add: Income tax benefit $21.9 $22.8 Minority interest share of earnings of consolidated subsidiaries $20.4 $22.9 Equity in net earnings of unconsolidated affiliates $(7.5) $(8.4) Interest expense, net $10.9 $10.9 Depreciation and amortization $31.5 $31.5 Adjusted EBITDA $110.0 $114.0 DATASOURCE: MedCath Corporation CONTACT: O. Edwin French, President-Chief Executive Officer, +1-704-708-6600; or James E. Harris, Chief Financial Officer, +1-704-708-6600, both of MedCath Corporation Web site: http://www.medcath.com/

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