MDTH Medcath Corp. (MM)

- EPS from continuing operations totaled $0.27; EPS of $0.33, excluding certain items CHARLOTTE, N.C., Aug. 6 /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 third fiscal quarter, which ended June 30, 2008. Third 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 to a minority ownership. Due to this change in ownership, MedCath began accounting for HMC as an equity investment in the quarter ended September 30, 2007. Any reference to same facility results in this press release accounts for the operations of HMC as an equity investment in the third quarter of 2007. On a same facility basis, MedCath's net revenue decreased 1.7% to $157.1 million in the third quarter of fiscal 2008 from $159.8 million in the third quarter of fiscal 2007. Same facility income from operations decreased 33.8% to $14.1 million from $21.3 million in the third quarter of fiscal 2007 and Adjusted EBITDA, excluding certain items, decreased 18.4% to $24.0 million from $29.4 million in the same period of the prior year. MedCath's same facility income from continuing operations was $5.3 million, or $0.27 per diluted share, in the third quarter of fiscal 2008 compared to $10.1 million, or $0.46 per diluted share, in the third quarter of fiscal 2007. Sequentially, net revenue and Adjusted EBITDA, excluding certain items, for the third quarter of fiscal 2008 were the same as net revenue and Adjusted EBITDA, excluding certain items, for the second quarter of fiscal 2008. Income from continuing operations before income taxes, excluding share-based compensation expense, increased 11.5% sequentially. MedCath's operating results for the quarter ended June 30, 2008 include $0.3 million, or $0.01 per diluted share, in legal expense associated with a non-patient care claim. In comparison, MedCath's operating results for the quarter ended June 30, 2007 include a charge of $0.4 million, or $0.01 per diluted share, related to the settlement of third-party cost reports. Share- based compensation expense totaled $1.5 million in the third quarter of fiscal 2008, or $0.05 per diluted share, compared to $0.7 million, or $0.02 per diluted share, in the third quarter of fiscal 2007. Pre-opening expenses totaled $0.2 million in the third quarter of fiscal 2008. MedCath did not incur pre-opening expenses in the third quarter of fiscal 2007. Adjusted EBITDA, excluding certain items, in this release does not include any of the above named items, but these items are included as a component of income from continuing operations. MedCath's hospitals provide care to certain patients who meet specific financial poverty guidelines at discounted rates, which we refer to as charity care discounts. As such, the amount of these discounts for services does not appear in our net revenue. For the quarter, charity care discounts reduced our net revenue $4.3 million in comparison to $1.2 million in the prior year. Total bad debt expense plus charity care discounts showed sequential improvement to 9.3% of same facility hospital net revenue excluding charity care discounts, compared to 10.5% in the second quarter of fiscal 2008 and 7.8% in the third quarter of fiscal 2007. On a same facility basis, gross self pay revenue was $13.1 million in the third quarter of fiscal 2008 as compared to $11.4 million in the third quarter of fiscal 2007 and $10.7 million in the second quarter of fiscal 2008. "Despite the challenges we experienced this quarter related to lower than planned volumes due to medical group disruptions in two markets and the continued migration of certain stent procedures from an inpatient service setting to outpatient, we remain confident in our growth potential due to our strategy to diversify our operations to other high acuity services through expansion of our small hospitals," said O. Edwin French, MedCath's President and Chief Executive Officer. "In that regard, we recently announced a significant expansion of our Bakersfield Heart Hospital and we have now completed the 60 bed expansion and licensing of our TexSAn Heart Hospital ahead of schedule." Operating Statistics, Cash Flow and Capital Expenditures Same facility hospital adjusted admissions for the third quarter of fiscal 2008 increased 1.0% from the third quarter of the prior fiscal year. Same facility hospital net revenue decreased $3.0 million, or 2.0%. Net cash provided by operating activities of continuing operations for the third quarter of fiscal 2008 was $20.6 million, down from $21.3 million for the third quarter of fiscal 2007, and up 37.3% sequentially. "Despite a challenging operating quarter, we achieved sequential improvement in cash flow from continuing operations due to the strength of our collection activity," said Jeff Hinton, MedCath's Chief Financial Officer. "Our DSO was 54 days at June 30th, down 4 days sequentially and in line with the prior year." Hinton continued, "We have a strong balance sheet that provides us with significant flexibility and we're actively engaged in pursuing alternatives to use this in our shareholders' best interest." Cash capital expenditures, including $9.5 million in expenditures related to MedCath's growth initiatives, totaled $11.1 million in the third quarter of fiscal 2008 in comparison to $8.8 million in the third 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; 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 Thursday, August 7, 2008, 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 57162590. 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, August 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 57162590. 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 an interest in and operates nine hospitals with a total of 676 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, South Dakota, and Texas. MedCath is in the process of developing its tenth hospital, which is anticipated to open in fall 2009, in Kingman, Ariz. 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 Nine Months Ended June 30, June 30, 2008 2007 2008 2007 Net revenue $157,086 $178,492 $463,034 $515,518 Operating expenses: Personnel expense 51,019 54,383 151,522 162,301 Medical supplies expense 44,065 46,593 126,791 137,847 Bad debt expense 10,235 14,585 31,852 42,347 Other operating expenses 29,676 34,561 89,240 101,919 Pre-opening expenses 149 - 643 - Depreciation 7,517 8,038 22,591 24,488 Amortization 149 126 411 505 Loss on disposal of property, equipment and other assets 225 175 391 1,028 Total operating expenses 143,035 158,461 423,441 470,435 Income from operations 14,051 20,031 39,593 45,083 Other income (expenses): Interest expense (3,862) (5,125) (11,658) (18,152) Loss on early extinguishment of debt - - - (5,142) Interest and other income, net 285 1,749 1,942 6,274 Equity in net earnings of unconsolidated affiliates 2,636 1,175 6,842 4,095 Total other expenses, net (941) (2,201) (2,874) (12,925) Income from continuing operations before minority interest and income taxes 13,110 17,830 36,719 32,158 Minority interest share of earnings of consolidated subsidiaries (4,293) (4,006) (13,859) (9,481) Income from continuing operations before income taxes 8,817 13,824 22,860 22,677 Income tax expense 3,469 5,396 8,917 9,882 Income from continuing operations 5,348 8,428 13,943 12,795 Income (loss) from discontinued operations, net of taxes 6,424 837 6,578 (2,176) Net income $11,772 $9,265 $20,521 $10,619 Earnings (loss) per share, basic Continuing operations $0.27 $0.40 $0.68 $0.62 Discontinued operations 0.33 0.04 0.32 (0.11) Earnings (loss) per share, basic $0.60 $0.44 $1.00 $0.51 Earnings (loss) per share, diluted Continuing operations $0.27 $0.38 $0.68 $0.60 Discontinued operations 0.33 0.04 0.32 (0.10) Earnings (loss) per share, diluted $0.60 $0.42 $1.00 $0.50 Weighted average number of shares, basic 19,524 21,144 20,415 20,760 Dilutive effect of stock options and restricted stock 107 682 89 650 Weighted average number of shares, diluted 19,631 21,826 20,504 21,410 MEDCATH CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, September 30, 2008 2007 (Unaudited) Current assets: Cash and cash equivalents $120,810 $140,276 Accounts receivable, net 92,823 85,943 Income tax receivable 953 - Medical supplies 15,763 13,928 Deferred income tax assets 14,236 12,389 Prepaid expenses and other current assets 5,294 6,197 Current assets of discontinued operations 22,402 22,832 Total current assets 272,281 281,565 Property and equipment, net 290,929 270,663 Investments in affiliates 15,618 5,718 Goodwill 58,098 62,740 Other intangible assets, net 6,213 6,448 Other assets 6,133 6,531 Long-term assets of discontinued operations - 44,902 Total assets $649,272 $678,567 Current liabilities: Accounts payable $34,227 $30,933 Income tax payable - 10,552 Accrued compensation and benefits 17,115 18,567 Other accrued liabilities 16,676 13,421 Current portion of long-term debt and obligations under capital leases 106,822 4,089 Current liabilities of discontinued operations 18,732 24,962 Total current liabilities 193,572 102,524 Long-term debt 41,546 146,398 Obligations under capital leases 2,295 1,793 Deferred income tax liabilities 11,952 12,018 Other long-term obligations 412 460 Long-term liabilities of discontinued components - 13 Total liabilities 249,777 263,206 Minority interest in equity of consolidated subsidiaries 28,332 29,737 Stockholders' equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized; none issued - - Common stock, $0.01 par value, 50,000,000 shares authorized; 21,535,806 issued and 19,581,445 outstanding at June 30, 2008; 21,271,144 issued and 21,202,244 outstanding at September 30, 2007 215 213 Paid-in capital 457,513 447,688 Accumulated deficit (41,607) (61,821) Accumulated other comprehensive loss (161) (62) Treasury stock, at cost; 68,900 shares at September 30, 2007 1,954,361 shares at June 30, 2008 (44,797) (394) Total stockholders' equity 371,163 385,624 Total liabilities and stockholders' equity $649,272 $678,567 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, 2008 2007 % Change 2008 2007 % Change Statement of Operations Data: Net revenue $157,086 $178,492 (12.0)% $463,034 $515,518 (10.2)% Adjusted EBITDA(1) $23,632 $29,071 (18.7)% $69,092 $74,931 (7.8)% Income from operations $14,051 $20,031 (29.9)% $39,593 $45,083 (12.2)% Income from continuing operations $5,348 $8,428 (36.5)% $13,943 $12,795 9.0 % Earnings per share from continuing operations, basic $0.27 $0.40 (32.5)% $0.68 $0.62 9.7% Earnings per share from continuing operations, diluted $0.27 $0.38 (28.9)% $0.68 $0.60 13.3% (1) See Supplemental Financial Disclosure--Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures. Three Months Ended June 30, Nine Months Ended June 30, 2008 2007 % Change 2008 2007 % Change Selected Operating Data(a): Number of hospitals 7 8 7 8 Licensed beds(c) 509 533 509 533 Staffed and available beds(d) 449 516 449 516 Admissions(e) 7,384 9,455 (21.9)% 22,380 28,265 (20.8)% Adjusted admissions(f) 10,341 12,997 (20.4)% 30,979 38,708 (20.0)% Patient days(g) 27,132 31,153 (12.9)% 81,853 95,920 (14.7)% Adjusted patient days(h) 38,105 42,564 (10.5)% 113,790 130,585 (12.9)% Average length of stay (days)(i) 3.67 3.29 11.6% 3.66 3.39 8.0% Occupancy(j) 66.4% 66.3% 66.5% 68.1% Inpatient catheterization procedures(k) 3,961 4,738 (16.4)% 12,244 14,022 (12.7)% Inpatient surgical procedures(l) 2,260 2,608 (13.3)% 6,332 7,518 (15.8)% Hospital net revenue $144,676 $166,349 (13.0)% $426,300 $474,336 (10.1)% Selected Operating Data - Same Facility(a): Number of hospitals 7 7 7 7 Licensed beds(c) 509 421 509 421 Staffed and available beds(d) 449 404 449 404 Admissions(e) 7,384 7,759 (4.8)% 22,380 22,779 (1.8)% Adjusted admissions(f) 10,341 10,238 1.0% 30,979 29,767 4.1% Patient days(g) 27,132 26,397 2.8% 81,853 80,304 1.9% Adjusted patient days(h) 38,105 34,827 9.4% 113,790 105,133 8.2% Average length of stay (days)(i) 3.67 3.40 7.9% 3.66 3.53 3.7% Occupancy(j) 66.4% 71.8% 66.5% 72.8% Inpatient catheterization procedures(k) 3,961 4,530 (12.6)% 12,244 13,396 (8.6)% Inpatient surgical procedures(l) 2,260 2,126 6.3% 6,332 6,076 4.2% Hospital net revenue $144,676 $147,670 (2.0)% $426,300 $413,324 3.1% Combined Operating Data (b): Number of hospitals 9 9 9 9 Licensed beds(c) 676 588 676 588 Staffed and available beds(d) 612 571 612 571 Admissions(e) 9,879 10,381 (4.8)% 30,179 31,095 (2.9)% Adjusted admissions(f) 14,512 14,063 3.2% 43,838 41,914 4.6% Patient days(g) 34,819 34,530 0.8% 106,614 106,492 0.1% Adjusted patient days(h) 50,722 46,453 9.2% 153,697 142,561 7.8% Average length of stay (days)(i) 3.52 3.33 5.7% 3.53 3.42 3.2% Occupancy(j) 62.5% 66.5% 63.6% 68.3% Inpatient catheterization procedures(k) 4,814 5,312 (9.4)% 14,624 15,839 (7.7)% Inpatient surgical procedures(l) 2,842 2,865 (0.8)% 8,287 8,292 (0.1)% Hospital net revenue $183,446 $181,979 0.8% $545,892 $524,456 4.1% (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 nine months ended June 30, 2008 and 2007. Three Months Ended Nine Months Ended June 30, June 30, 2008 2007 2008 2007 (in thousands) (in thousands) Income from continuing operations $5,348 $8,428 $13,943 $12,795 Add: Income tax expense 3,469 5,396 8,917 9,882 Minority interest share of earnings of consolidated subsidiaries 4,293 4,006 13,859 9,481 Equity in net earnings of unconsolidated affiliates (2,636) (1,175) (6,842) (4,095) Interest and other income, net (285) (1,749) (1,942) (6,274) Loss on early extinguishment of debt - - - 5,142 Interest expense 3,862 5,125 11,658 18,152 Loss on disposal of property, equipment and other assets 225 175 391 1,028 Amortization 149 126 411 505 Depreciation 7,517 8,038 22,591 24,488 Pre-opening expenses 149 - 643 - Share-based compensation expense 1,541 701 5,463 3,827 Adjusted EBITDA $23,632 $29,071 $69,092 $74,931 The following table presents MedCath's condensed statement of operations data for the three and nine months ended June 30, 2007 on a proforma basis to reflect the reclassification of Harlingen Medical Center from a consolidated subsidiary to an equity investment. Three Months Ended June 30, Adjustments to 2007 Deconsolidate 2007 (Actual) HMC (Pro Forma) 2008 (in thousands) Net Revenue $178,492 $(18,679) $159,813 $157,086 Income from operations 20,031 1,223 21,254 14,051 Income from continuing operations before minority interest and income taxes 17,830 1,680 19,510 13,110 Income from continuing operations before income taxes 13,824 1,680 15,504 8,817 Income from continuing operations 8,428 1,680 10,108 5,348 Net income (loss) $9,265 $1,680 $10,945 $11,772 Earnings (loss) per share, basic $0.44 $0.08 $0.52 $0.60 Earnings (loss) per share, diluted $0.42 $0.08 $0.50 $0.60 Weighted average number of shares, basic 21,144 - 21,144 19,524 Dilutive effect of stock options and restricted stock 682 - 682 107 Weighted average number of shares, diluted $21,826 - $21,826 $19,631 Nine Months Ended June 30, Adjustments to 2007 Deconsolidate 2007 (Actual) HMC (Pro Forma) 2008 (in thousands) Net Revenue $515,518 $(61,012) $454,506 $463,034 Income from operations 45,083 (2,321) 42,762 39,593 Income from continuing operations before minority interest and income taxes 32,158 1,191 33,349 36,719 Income from continuing operations before income taxes 22,677 1,191 23,868 22,860 Income from continuing operations 12,795 1,191 13,986 13,943 Net income (loss) $10,619 $1,191 $11,810 $20,521 Earnings (loss) per share, basic $0.51 $0.06 $0.57 $1.00 Earnings (loss) per share, diluted $0.50 $0.06 $0.56 $1.00 Weighted average number of shares, basic 20,760 - 20,760 20,415 Dilutive effect of stock options and restricted stock 650 - 650 89 Weighted average number of shares, diluted 21,410 - 21,410 20,504 DATASOURCE: MedCath Corporation CONTACT: O. Edwin French, President and Chief Executive Officer, +1-704-708-6600, or Jeff Hinton, Chief Financial Officer, +1-704-708-6600, both of MedCath Corporation Web site: http://www.medcath.com/

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