MDTH Medcath Corp. (MM)

MedCath Corporation Reports Fourth Quarter Earnings CHARLOTTE, N.C., Nov. 20 /PRNewswire-FirstCall/ -- MedCath Corporation , a national provider of cardiovascular services, today announced its operating results for its fourth quarter and fiscal year ended Sept. 30, 2003. Fourth Quarter 2003 and Fiscal 2003 Results MedCath's net revenue increased 30.7% to $144.4 million in the fourth quarter of fiscal 2003 from $110.5 million in the fourth quarter of fiscal 2002. Loss from operations was $56.5 million in the fourth quarter of fiscal 2003, compared to income from operations of $7.4 million in the fourth quarter of fiscal 2002. Adjusted EBITDA decreased 22.5% to $12.8 million from $16.5 million and net loss was $62.1 million, or $3.46 per diluted share in the fourth quarter of fiscal 2003, compared to net income of $1.4 million, or $0.08 per diluted share in the fourth quarter of fiscal 2002. As disclosed in previous filings with the Securities and Exchange Commission, MedCath elected Sept. 30 as its annual goodwill impairment test date. Included in these results is a $58.9 million non-cash impairment of MedCath's goodwill expensed in the fourth quarter of fiscal 2003 in accordance with Statement of Financial Accounting Standards (SFAS) No. 142. For the fiscal year, MedCath's net revenue increased 13.7% to $543.0 million from $477.6 million in fiscal 2002. Loss from operations was $33.7 million, compared to income from operations of $55.8 million in fiscal 2002. Adjusted EBITDA decreased 27.6% to $66.9 million from $92.4 million, and net loss was $60.3 million, or $3.35 per diluted share, compared to net income of $24.4 million, or $1.34 per diluted share, in fiscal 2002. The impairment of goodwill, as discussed above, had the same impact on the fiscal year results. "Despite the net loss incurred this quarter, operationally we are pleased with the growth in patient admissions and the related increase in procedures," stated John T. Casey, MedCath's president and chief executive officer. "This volume trend was a continuation of year-over-year growth from our third quarter results. Financially, this strong volume did not produce the level of earnings that we prefer due to higher medical supplies expense, an increase in bad debt expense, the expected ramp-up expenses at our newest hospitals, and the impairment of goodwill." The $58.9 million non-cash expense recorded as a result of the company's impairment of goodwill did not affect MedCath's operations, cash flow or cash position. However, the impairment reduced net income by $58.9 million and earnings per share by $3.28 and $3.27 in the quarter and fiscal year, respectively. The majority of MedCath's goodwill was recognized as a result of the company's going-private transaction in 1998. In addition, costs related to an offering of debt securities that MedCath elected to delay and a general restructuring of MedCath's primary loan facilities lowered fourth quarter Adjusted EBITDA by $633,000 and increased fourth quarter interest expense by $425,000. These items lowered earnings per share $0.06 in the quarter. Also during the quarter ended Sept. 30, 2003, net revenue and Adjusted EBITDA were lower by $1.2 million, or $.07 per diluted share, due to an unanticipated change in the capital cost reimbursement methodology by one of the company's Medicare fiscal intermediaries that affected patient discharges from Aug. 11, 2003 through Sept. 30, 2003. As discussed in MedCath's Form 10-Q for the quarter ended June 30, 2003, we received notice on Aug. 11, 2003 that the Medicare fiscal intermediary was changing its interpretation of the capital reimbursement regulations. MedCath is in active discussions with the Centers for Medicare and Medicaid Services ("CMS") as to the appropriateness of this change in interpretation and as to its effective date. Expenses related to projects under development - pre-opening expenses - totaled $3.0 million in the fourth quarter of fiscal 2003, compared to $4.2 million in the fourth quarter of fiscal 2002. Adjusted EBITDA before pre- opening expenses, which management considers an important measure of MedCath's results of recurring operations, decreased 23.6% to $15.9 million from $20.7 million. For the fiscal year 2003, pre-opening expenses totaled $10.1 million, compared to $8.3 million in fiscal 2002. Adjusted EBITDA before pre-opening expenses decreased 23.5% to $77.0 million from $100.7 million. Operating Statistics Hospital admissions for the fourth quarter of fiscal 2003 increased 43.4% and adjusted admissions rose 44.9% from the fourth quarter of the previous fiscal year. Hospital division net revenue increased 37.6%. Same facility admissions increased 15.0%, adjusted admissions increased 12.8%, inpatient catheterization procedures increased 17.3% and inpatient surgeries increased 11.2%, all of which contributed to the increase in same facility hospital division net revenue of 12.2% during the quarter versus the prior year. For the year, hospital admissions increased 15.6% and adjusted admissions increased 18.8% from fiscal year 2002. Hospital division net revenue increased 19.3%. Same facility admissions declined 0.9%, adjusted admissions declined 0.1%, inpatient catheterization procedures increased 4.7%, and inpatient surgeries increased 6.4%. Same facility hospital division net revenue increased 4.6% in fiscal 2003 as compared to fiscal 2002. Capital Expenditures and Cash Flow Capital expenditures for the fourth quarter of fiscal 2003 were $30.9 million compared to $42.7 million for the fourth quarter of fiscal 2002. Of the $30.9 million in capital expenditures this quarter, $20.6 million related specifically to MedCath's development activities, compared to $34.7 million for the fourth quarter of fiscal 2002. Cash flow from operations for the fourth quarter of fiscal 2003 was $10.5 million, down from $19.5 million for the fourth quarter of fiscal 2002. 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 and Adjusted EBITDA before pre-opening expenses. Adjusted EBITDA represents MedCath's net income or loss before interest expense; interest income; taxes; depreciation; amortization; gain or loss on disposal of property, equipment and other assets; impairment of goodwill; other income, net; equity in net earnings of unconsolidated affiliates; and minority interest. Adjusted EBITDA before pre-opening expenses represents Adjusted EBITDA, as defined above, adjusted to exclude costs incurred during development and prior to the opening of a facility (pre-opening expenses). MedCath's management uses Adjusted EBITDA and Adjusted EBITDA before pre-opening expenses 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, and Adjusted EBITDA before pre-opening expenses, as defined above, may not be comparable to other similarly titled measures of other companies. MedCath's management provides Adjusted EBITDA before pre-opening expenses to investors to provide a financial measure of MedCath's operations that excludes the effect of hospitals under development during the reporting period. MedCath has included a supplemental schedule with the financial statements that accompany this press release that reconciles Adjusted EBITDA and Adjusted EBITDA before pre-opening expenses to MedCath's net income or loss. Management will discuss and answer questions regarding MedCath's quarterly results today during an 11 a.m. EST conference call. In the United States, you may participate by dialing (800) 227-9428. International callers should dial (785) 832-1508. 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. EST, Nov. 27, 2003. To access the replay, domestic callers should dial (800) 283-5758 and international callers should dial (402) 220-0863. 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 eleven heart hospitals with a total of 667 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota, Texas and Wisconsin. MedCath has begun developing its twelfth and thirteenth hospitals, which will be located in San Antonio, Texas; and Lafayette, Louisiana, respectively. 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. MedCath also provides consulting and management services tailored to cardiologists and cardiovascular surgeons. 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 -- Risk Factors -- to our most recent Annual Report to the Securities and Exchange Commission on Form 10-K. A copy of this annual report, including exhibits, is available on the Internet site of the Commission at http://www.sec.gov/. These risks and uncertainties include, among others, possible reductions or changes in reimbursement from government or third-party payors that would decrease our revenue, delays in completing construction or delays in or failure to receive required regulatory approvals for new hospitals, greater than anticipated losses at new hospitals during the ramp-up period, a negative finding by a regulatory organization with oversight of one of our hospitals, or material changes in the anti-kickback, physician self- referral or other fraud and abuse laws. In addition, further developments in our capital cost reimbursement dispute with CMS prior to the filing of our Form 10-K for the fiscal year ended Sept. 30, 2003 could result in a revision of the operating results reported in this release. MEDCATH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Year Ended September 30, September 30, 2003 2002 2003 2002 Net revenue $144,355 $110,473 $542,986 $477,637 Operating expenses: Personnel expense 45,473 33,460 172,318 138,067 Medical supplies expense 38,395 25,924 136,681 108,896 Bad debt expense 10,206 4,598 26,791 22,319 Other operating expenses 34,426 25,743 130,173 107,636 Pre-opening expenses 3,046 4,227 10,095 8,339 Depreciation 9,983 8,891 40,104 35,276 Amortization 285 307 1,441 2,367 Loss (gain) on disposal of property, equipment and other assets 164 (55) 258 (1,047) Impairment of goodwill 58,865 -- 58,865 -- Total operating expenses 200,843 103,095 576,726 421,853 Income (loss) from operations (56,488) 7,378 (33,740) 55,784 Other income (expenses): Interest expense (6,953) (5,833) (25,857) (23,596) Interest income 270 563 1,373 2,337 Other income, net 10 124 206 190 Equity in net earnings of unconsolidated affiliates 648 593 3,541 3,007 Total other expenses, net (6,025) (4,553) (20,737) (18,062) Income (loss) before minority interest and income taxes (62,513) 2,825 (54,477) 37,722 Minority interest share of earnings of consolidated subsidiaries (534) (1,231) (5,524) (10,451) Income (loss) before income taxes (63,047) 1,594 (60,001) 27,271 Income tax benefit (expense) 986 (198) (305) (2,920) Net income (loss) $(62,061) $1,396 $(60,306) $24,351 Earnings (Net loss) per share, basic: $(3.46) $0.08 $(3.35) $1.35 Earnings (Net loss) per share, diluted: $(3.46) $0.08 $(3.35) $1.34 Weighted average number of shares, basic 17,943 18,012 17,989 18,012 Dilutive effect of stock options -- 92 -- 105 Weighted average number of shares, diluted 17,943 18,104 17,989 18,117 MEDCATH CORPORATION Supplemental Financial Disclosure - Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures The following table reconciles Adjusted EBITDA and Adjusted EBITDA, before pre-opening expenses with MedCath's net income (loss) as derived directly from MedCath's consolidated financial statements for the three months and twelve months ended September 30, 2003 and 2002. Three Months Ended Year Ended September 30, September 30, 2003 2002 2003 2002 (in thousands) Net income (loss) $(62,061) $1,396 $(60,306) $24,351 Add: Income tax expense (benefit) (986) 198 305 2,920 Minority interest share of earnings of consolidated subsidiaries 534 1,231 5,524 10,451 Equity in net earnings of unconsolidated affiliates (648) (593) (3,541) (3,007) Other income, net (10) (124) (206) (190) Interest income (270) (563) (1,373) (2,337) Interest expense 6,953 5,833 25,857 23,596 Impairment of goodwill 58,865 -- 58,865 -- Loss (gain) on disposal of property, equipment and other assets 164 (55) 258 (1,047) Amortization 285 307 1,441 2,367 Depreciation 9,983 8,891 40,104 35,276 Adjusted EBITDA $12,809 $16,521 $66,928 $92,380 Add: Pre-opening expenses 3,046 4,227 10,095 8,339 Adjusted EBITDA, before pre-opening expenses $15,855 $20,748 $77,023 $100,719 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) Three Months Ended September 30, 2003 2002 % Change Statement of Operations Data: Net revenue $144,355 $110,473 30.7% Adjusted EBITDA (a) $12,809 $16,521 (22.5)% Adjusted EBITDA, before pre-opening expenses (a) $15,855 $20,748 (23.6)% Income (loss) from operations $(56,488) $7,378 (865.6)% Net income (loss) $(62,061) $1,396 (4545.6)% Net income (loss) per share, diluted $(3.46) $0.08 (4425.0)% (a) Supplemental Financial Disclosure - Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures. Year Ended September 30, 2003 2002 % Change Statement of Operations Data: Net revenue $542,986 $477,637 13.7% Adjusted EBITDA (a) $66,928 $92,380 (27.6)% Adjusted EBITDA, before pre-opening expenses (a) $77,023 $100,719 (23.5)% Income (loss) from operations $(33,740) $55,784 (160.5)% Net income (loss) $(60,306) $24,351 (347.7)% Net income (loss) per share, diluted $(3.35) $1.34 (350.0)% (a) Supplemental Financial Disclosure - Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures. Three Months Ended September 30, 2003 2002 % Change Selected Operating Data (consolidated): Number of hospitals 9 7 Licensed beds (a) 580 410 Staffed and available beds (b) 499 396 Admissions (c) 9,186 6,404 43.4% Adjusted admissions (d) 11,621 8,022 44.9% Patient days (e) 31,478 22,840 37.8% Average length of stay (days) (f) 3.43 3.57 (3.9)% Occupancy (g) 68.6% 62.7% Inpatient Catheterization Procedures 4,724 3,711 27.3% Inpatient Surgical Procedures 2,267 1,698 33.5% Hospital Division revenue $129,434 $94,080 37.6% Year Ended September 30, 2003 2002 % Change Selected Operating Data (consolidated): Number of hospitals 9 7 Licensed beds (a) 580 410 Staffed and available beds (b) 493 404 Admissions (c) 32,998 28,535 15.6% Adjusted admissions (d) 41,213 34,699 18.8% Patient days (e) 117,615 106,118 10.8% Average length of stay (days) (f) 3.56 3.72 (4.3)% Occupancy (g) 65.4% 72.0% Inpatient Catheterization Procedures 17,537 15,839 10.7% Inpatient Surgical Procedures 8,750 7,288 20.1% Hospital Division revenue $476,971 $399,872 19.3% Three Months Ended September 30, 2003 2002 % Change Selected Operating Data (same facility): Number of hospitals 7 7 Licensed beds (a) 410 410 Staffed and available beds (b) 410 396 Admissions (c) 7,363 6,404 15.0% Adjusted admissions (d) 9,050 8,022 12.8% Patient days (e) 25,901 22,840 13.4% Average length of stay (days) (f) 3.52 3.57 (1.4)% Occupancy (g) 68.7% 62.7% Inpatient Catheterization Procedures 4,354 3,711 17.3% Inpatient Surgical Procedures 1,889 1,698 11.2% Hospital Division revenue $105,596 $94,080 12.2% MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) Year Ended September 30, 2003 2002 % Change Selected Operating Data (same facility): Number of hospitals 7 7 Licensed beds (a) 410 410 Staffed and available beds (b) 404 404 Admissions (c) 28,277 28,535 (0.9)% Adjusted admissions (d) 34,656 34,699 (0.1)% Patient days (e) 101,962 106,118 (3.9)% Average length of stay (days) (f) 3.61 3.72 (3.0)% Occupancy (g) 69.1% 72.0% Inpatient Catheterization Procedures 16,585 15,839 4.7% Inpatient Surgical Procedures 7,753 7,288 6.4% Hospital Division revenue $418,140 $399,872 4.6% (a) 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. (b) Staffed and available beds represent the weighted average number of beds that are readily available for patient use during the period. (c) Admissions represent the number of patients admitted for inpatient treatment (d) 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 mulitplying the quotient by admissions. (e) Patient days represent the total number of days of care provided to inpatients. (f) Average length of stay (days) represents the average number of days inpatients stay in our hospital. (g) 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. DATASOURCE: MedCath Corporation CONTACT: John T. Casey, President and 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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