MDTH Medcath Corp. (MM)

CHARLOTTE, N.C., Feb. 7 /PRNewswire-FirstCall/ -- MedCath Corporation (NASDAQ:MDTH), a healthcare provider focused on high acuity healthcare services, predominately the diagnosis and treatment of cardiovascular disease, today announced its operating results for its first fiscal quarter, which ended December 31, 2007. First Quarter 2008 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 quarter ended September 30, 2007. As such, MedCath's consolidated operating results for the quarter ended December 31, 2007 exclude net revenue, income from operations and Adjusted EBITDA of HMC. In comparison, MedCath's consolidated results for the comparable quarter of the previous fiscal year include the consolidated financial results of HMC. As detailed below, any 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 6.8% to $163.7 million in the first quarter of fiscal 2008 from $175.5 million in the first quarter of fiscal 2007, which included $18.4 million attributable to HMC. Excluding this amount from prior year's results, net revenue increased 4.2%. Income from operations increased 6.4% to $11.4 million in the first quarter of fiscal 2008 from $10.7 million in the first quarter of fiscal 2007, which included $0.9 million attributable to HMC. Excluding this amount from prior year's results, income from operations increased 15.6%. Adjusted EBITDA in the first quarter of fiscal 2008 increased 12.2% to $23.5 million from $20.9 million in the first quarter of fiscal 2007, which included $2.1 million attributable to HMC. Excluding this amount from prior year's results, Adjusted EBITDA increased 25.0%. Income from continuing operations was $3.3 million, or $0.15 per diluted share, in the first quarter of fiscal 2008, compared to income from continuing operations of $254,000, or $0.01 per diluted share, in the first quarter of fiscal 2007. MedCath's first quarter of fiscal 2007 income from continuing operations would have been $0.7 million, or $0.03 per diluted share, had HMC been accounted for as an equity investment in the first quarter of fiscal 2007. MedCath's operating results for the quarter ended December 31, 2007 reflect the following items that collectively negatively impacted net revenue $0.2 million, Adjusted EBITDA $0.6 million and diluted earnings per share $0.02: -- A $0.2 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, and -- A $0.4 million, or net impact of $0.01 per diluted share, decrease in Adjusted EBITDA related to senior management severance expense and higher professional fees incurred for implementation of the Company's business continuity plan during the quarter. MedCath's first quarter of fiscal 2007 results were negatively impacted by a $2.7 million reduction in net revenue and Adjusted EBITDA and a $3.7 million, or $0.18 per diluted share, reduction in income from continuing operations. Share-based compensation expense totaled $3.7 million, or $0.12 per diluted share, in the first quarter of fiscal 2008, compared to $1.0 million, or $0.03 per diluted share, in the first quarter of fiscal 2007. Pre-opening expenses totaled $0.2 million, or $0.01 per diluted share, in the first quarter of fiscal 2008. MedCath did not incur pre-opening expenses in the first quarter of fiscal 2007. 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. "We experienced a strong start to fiscal 2008, driven by strategic and operating initiatives upon which we embarked two years ago and that are the foundation for our successes in this and previous quarters," said O. Edwin French, MedCath's president and chief executive officer. "Our hospitals had strong inpatient and outpatient volumes, and our operating initiatives allowed us to expand our Adjusted EBITDA and increase our EPS during the quarter." Operating Statistics and Cash Flow Same facility hospital adjusted admissions for the first quarter of fiscal 2008 increased 6.4% from the first quarter of the previous fiscal year. Same facility hospital net revenue increased 4.6% after adjusting first quarter of 2007's revenue for a reimbursement adjustment that reduced net revenue by $2.7 million. Net cash provided by operating activities of continuing operations for the first quarter of fiscal 2008 was $0.7 million, down from $11.4 million for the first quarter of fiscal 2007. This decrease was due to the payment of a previously announced $5.8 million settlement between one of MedCath's hospitals and the United States Department of Justice and a $9.2 million increase in cash tax payments during the first quarter of fiscal 2008 in comparison to the first quarter of fiscal 2007. Capital expenditures, including $4.6 million in expenditures related to MedCath's growth initiatives, totaled $14.3 million in the first quarter of fiscal 2008 in comparison to $3.5 million in the first quarter of fiscal 2007. 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 on disposal of property, equipment and other assets; loss on early extinguishment of debt; equity in net earnings of unconsolidated affiliates; minority interest share of earnings of consolidated subsidiaries, share-based compensation, and pre-opening expenses. 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 10 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 32448859. 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, February 14, 2008. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 32448859. 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, the majority of which currently involve the diagnosis and treatment of cardiovascular disease. MedCath owns interests in and operates ten hospitals with a total of 663 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota, and Texas. In addition, MedCath and its subsidiary MedCath Partners 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 Annual Report or Form 10-K for the year ended September 30, 2007 filed with the Securities and Exchange Commission on December 14, 2007. Copies of this form 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 December 31, 2007 2006 Net revenue $163,664 $175,549 Operating expenses: Personnel expense 55,941 57,175 Medical supplies expense 43,656 48,170 Bad debt expense 12,173 13,831 Other operating expenses 32,110 36,465 Pre-opening expenses 248 - Depreciation 7,960 8,869 Amortization 127 252 Loss on disposal of property, equipment and other assets 28 57 Total operating expenses 152,243 164,819 Income from operations 11,421 10,730 Other income (expenses): Interest expense (4,032) (7,458) Loss on early extinguishment of debt - (4,480) Interest and other income, net 1,172 2,725 Equity in net earnings of unconsolidated affiliates 2,025 1,438 Total other expenses, net (835) (7,775) Income from continuing operations before minority interest and income taxes 10,586 2,955 Minority interest share of earnings of consolidated subsidiaries (4,736) (2,480) Income from continuing operations before income taxes 5,850 475 Income tax expense 2,595 221 Income from continuing operations 3,255 254 Loss from discontinued operations, net of taxes (191) (5,150) Net income (loss) $3,064 $(4,896) Earnings (loss) per share, basic Continuing operations $0.15 $0.01 Discontinued operations (0.01) (0.25) Earnings (loss) per share, basic $0.14 $(0.24) Earnings (loss) per share, diluted Continuing operations $0.15 $0.01 Discontinued operations (0.01) (0.25) Earnings (loss) per share, diluted $0.14 $(0.24) Weighted average number of shares, basic 21,028 20,121 Dilutive effect of stock options and restricted stock 263 - Weighted average number of shares, diluted 21,291 20,121 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended December 31, 2007 2006 % Change Statement of Operations Data: Net revenue $163,664 $175,549 (6.8)% Adjusted EBITDA (1) $23,493 $20,934 12.2% Income from operations $11,421 $10,730 6.4% Income from continuing operations $3,255 $254 1181.5% Earnings per share from continuing operations, basic $0.15 $0.01 1400.0% Earnings per share from continuing operations, diluted $0.15 $0.01 1400.0% (1) See Supplemental Financial Disclosure -- Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures. Three Months Ended December 31, 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) 8,055 9,730 (17.2)% Adjusted admissions (f) 10,976 13,345 (17.8)% Patient days (g) 28,584 34,089 (16.1)% Adjusted patient days (h) 39,102 46,520 (15.9)% Average length of stay (days) (i) 3.55 3.50 1.4% Occupancy (j) 68.9% 65.8% Inpatient catheterization procedures (k) 4,555 4,858 (6.2)% Inpatient surgical procedures (l) 2,099 2,516 (16.6)% Hospital net revenue $151,965 $161,058 (5.6)% 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) 8,055 7,904 1.9% Adjusted admissions (f) 10,976 10,311 6.4% Patient days (g) 28,584 28,775 (0.7)% Adjusted patient days (h) 39,102 37,711 3.7% Average length of stay (days) (i) 3.55 3.64 (2.5)% Occupancy (j) 68.9% 69.4% Inpatient catheterization procedures (k) 4,555 4,679 (2.7)% Inpatient surgical procedures (l) 2,099 2,098 0.0% Hospital net revenue $151,965 $142,604 6.6% Combined Operating Data (b): Number of hospitals 10 10 Licensed beds (c) 635 635 Staffed and available beds (d) 614 618 Admissions (e) 10,674 10,691 (0.2)% Adjusted admissions (f) 15,314 14,422 6.2% Patient days (g) 36,849 37,578 (1.9)% Adjusted patient days (h) 52,440 50,431 4.0% Average length of stay (days) (i) 3.45 3.51 (1.7)% Occupancy (j) 65.2% 66.1% Inpatient catheterization procedures (k) 5,282 5,482 (3.6)% Inpatient surgical procedures (l) 2,838 2,766 2.6% Hospital net revenue $191,520 $178,377 7.4% (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 months ended December 31, 2007 and 2006. Three Months Ended December 31, 2007 2006 (in thousands) Income from continuing operations $3,255 $254 Add: Income tax expense 2,595 221 Minority interest share of earnings of consolidated subsidiaries 4,736 2,480 Equity in net earnings of unconsolidated affiliates (2,025) (1,438) Interest and other income, net (1,172) (2,725) Loss on early extinguishment of debt - 4,480 Interest expense 4,032 7,458 Loss on disposal of property, equipment and other assets 28 57 Amortization 127 252 Depreciation 7,960 8,869 Pre-opening expenses 248 - Share-based compensation expense 3,709 1,026 Adjusted EBITDA $23,493 $20,934 The following table presents MedCath's condensed statement of operations data for the quarter ended December 31, 2006 on a pro forma basis to reflect the reclassification of Harlingen Medical Center (HMC) from a consolidated subsidiary to an equity method investment. Three Months Ended December 31, Adjustments to 2006 Deconsolidate 2006 (Actual) HMC (Pro Forma) 2007 (in thousands) Net Revenue $175,549 $(18,454) $157,095 $163,664 Income from operations 10,730 (850) 9,880 11,421 Income from continuing operations before minority interest and income taxes 2,955 761 3,716 10,586 Income from continuing operations before income taxes 475 761 1,236 5,850 Income from continuing operations 254 407 661 3,255 Net income (loss) $(4,896) $407 $(4,489) $3,064 Earnings (loss) per share, basic $(0.24) $0.02 $(0.22) $0.14 Earnings (loss) per share, diluted $(0.24) $0.02 $(0.22) $0.14 Weighted average number of shares, basic 20,121 - 20,121 21,028 Dilutive effect of stock options and restricted stock - - - 263 Weighted average number of shares, diluted 20,121 - 20,121 21,291 DATASOURCE: MedCath Corporation CONTACT: O. Edwin French, President/Chief Executive Officer, or Art Parker, Interim Chief Financial Officer, both of MedCath Corporation, +1-704-708-6600 Web site: http://www.medcath.com/

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