MDTH Medcath Corp. (MM)

MedCath Corporation Reports Fourth Quarter Earnings CHARLOTTE, N.C., Nov. 18 /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 fourth quarter, which ended September 30, 2004. Fourth quarter highlights: -- Net revenue increased 26.1% -- Adjusted EBITDA rose 73.2% -- Same facility hospital net revenue increased 12.9% -- Same facility adjusted admissions increased 11.7% Fourth Quarter 2004 Results MedCath's net revenue increased 26.1% to $182.1 million in the fourth quarter of fiscal 2004 from $144.4 million in the fourth quarter of fiscal 2003. Income from operations was $4.0 million in the fourth quarter of fiscal 2004, compared to loss from operations of $56.5 million in the fourth quarter of fiscal 2003. Adjusted EBITDA increased 73.2% to $22.2 million from $12.8 million and net loss was $6.7 million, or $0.37 per basic and diluted share, in the fourth quarter of fiscal 2004, compared to net loss of $62.1 million, or $3.46 per basic and diluted share, in the fourth quarter of fiscal 2003. MedCath's fourth quarter of fiscal 2004 financial results include the following unusual items: -- Loss on debt refinancing of $5.5 million, or $0.18 per share, related to a refinancing transaction completed in the quarter; -- Impairment expense of $7.2 million, or $0.25 per share, related to MedCath's decision to discontinue implementation of a healthcare information system; -- Correction of a construction deficiency at one hospital that reduced Adjusted EBITDA by $760,000 and earnings per share by $0.02; and -- Nonrecurring tax benefits that favorably impacted earnings per share by $0.03. In comparison, MedCath's fourth quarter of fiscal 2003 financial results were negatively impacted by the following unusual items: -- Impairment expense of $58.9 million, or $3.28 per share, related to the write-off of goodwill; -- Expenses of $1.1 million, or $0.06 per share, related to an offering of debt securities that MedCath elected to delay and a general restructuring of MedCath's primary credit facilities; and -- Reduced net revenue of $1.2 million, or $0.06 per share, related to an unanticipated change in the capital cost reimbursement methodology by one of the company's Medicare fiscal intermediaries. "During the fourth quarter, we achieved strong results from recurring operations in comparison to the prior year," said John T. Casey, MedCath's chairman, president and chief executive officer. "During fiscal 2004, we completed the aggressive hospital development program that MedCath began three years ago. We are now positioned for solid revenue and earnings growth as we focus on growing market share in these markets as well as aggressively managing costs in all of our hospitals." Operating Statistics Hospital admissions for the fourth quarter of fiscal 2004 increased 20.3% and adjusted admissions rose 23.2% from the fourth quarter of the previous fiscal year. Hospital division net revenue increased 29.6%. Same facility admissions increased 7.7%, adjusted admissions increased 11.7%, inpatient catheterization procedures increased 6.7% and inpatient surgical procedures increased 15.2%, which contributed to the increase in same facility hospital division net revenue of 12.9% during the quarter versus the prior year. Impairment The impairment expense incurred during the fourth quarter of fiscal 2004 represents costs associated with the purchase of an enterprise wide healthcare information system, which had been installed in two of MedCath's hospitals. Due to a number of functionality and integration issues experienced with this system, MedCath has determined that the system is not performing to its original specifications and thus will be replaced at the two hospitals where it has been installed and will not be installed in any additional hospitals as stated in the original license. The $7.2 million impairment expense reflects unamortized costs associated with the acquisition, development and implementation of the system. MedCath is currently engaged in efforts to recoup costs associated with the impairment from the vendor. 2005 Outlook For its fiscal year 2005, which ends September 30, 2005, MedCath estimates its primary financial measures to be in the following range: Net revenue $760.0 million to $790.0 million Adjusted EBITDA $105.0 million to $110.0 million Income from continuing operations $ 10.5 million to $ 12.0 million Capital expenditures, recurring operations $ 30.0 million to $ 35.0 million The above guidance excludes the financial results from The Heart Hospital of Milwaukee as a definitive agreement was entered into to divest the assets of The Heart Hospital of Milwaukee to a local community hospital system, as announced by MedCath on November 8, 2004. The divesture is anticipated to close prior to December 31, 2004. The Heart Hospital of Milwaukee's financial results will be classified as discontinued operations for the fiscal quarter ending December 31, 2004. Use of Non-GAAP Financial Measures This release contains measures of MedCath's historical and expected 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 loss before interest expense; interest income; taxes; depreciation; amortization; gain or loss on disposal of property, equipment and other assets; loss on debt refinancing; impairments of goodwill and long- lived assets; 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 historical and expected Adjusted EBITDA and Adjusted EBITDA before pre-opening expenses to MedCath's net loss. 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 "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, Nov. 24, 2004. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 1162718. 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 the diagnosis and treatment of cardiovascular disease. While each of its majority-owned 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 currently owns and operates thirteen hospitals with a total of 759 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota, Texas and Wisconsin. 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 under the heading - "Risk Factors" in our Registration Statement on Form S-4/A filed with the Securities and Exchange Commission on October 18, 2004. A copy of this Registration Statement, 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 the Medicare Prescription Drug Improvement Act of 2003 and other healthcare reform initiatives, possible reductions or changes in reimbursements from government or third party payers that would decrease our revenue, 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, and changes in medical or other technology and reimbursement rates for new technologies. MEDCATH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended September 30, September 30, 2004 2003 2004 2003 Net revenue $182,094 $144,355 $692,791 $542,986 Operating expenses: Personnel expense 57,631 45,473 218,140 172,318 Medical supplies expense 51,381 38,395 192,814 136,681 Bad debt expense 13,440 10,206 46,717 26,791 Other operating expenses 37,462 34,426 147,952 130,173 Pre-opening expenses -- 3,046 5,531 10,095 Depreciation 10,570 9,983 43,768 40,104 Amortization 290 285 1,160 1,441 Loss on disposal of property, equipment and other assets 114 164 93 258 Impairments of goodwill and long-lived assets 7,227 58,865 7,227 58,865 Total operating expenses 178,115 200,843 663,402 576,726 Income (loss) from operations 3,979 (56,488) 29,389 (33,740) Other income (expenses): Interest expense (7,866) (6,953) (28,953) (25,857) Interest income 229 270 835 1,373 Loss on debt refinancing (5,488) -- (5,488) -- Other income, net 26 10 43 206 Equity in net earnings of unconsolidated affiliates 916 648 3,540 3,541 Total other expenses, net (12,183) (6,025) (30,023) (20,737) Loss before minority interest and income taxes (8,204) (62,513) (634) (54,477) Minority interest share of earnings of consolidated subsidiaries (3,381) (534) (6,202) (5,524) Loss before income taxes (11,585) (63,047) (6,836) (60,001) Income tax benefit (expense) 4,874 986 3,213 (305) Net loss $(6,711) $(62,061) $(3,623) $(60,306) Loss per share, basic and diluted $(0.37) $(3.46) $(0.20) $(3.35) Weighted average number of shares, basic and diluted 18,014 17,943 17,984 17,989 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended Twelve Months Ended September 30, September 30, 2004 2003 % Change 2004 2003 % Change Statement of Operations Data: Net revenue $182,094 $144,355 26.1% $692,791 $542,986 27.6% Adjusted EBITDA (a) $ 22,180 $ 12,809 73.2% $ 81,637 $ 66,928 22.0% Adjusted EBITDA, before pre-opening expenses (a) $ 22,180 $ 15,855 39.9% $ 87,168 $ 77,023 13.2% Income (loss) from operations $ 3,979 $(56,488)(107.0)% $ 29,389 $(33,740) (187.1)% Net loss $(6,711) $(62,061) (89.2)% $ (3,623) $(60,306) (94.0)% Loss per share, basic and diluted $(0.37) $ (3.46) (89.3)% $ (0.20) $ (3.35) (94.0)% (a) See Supplemental Financial Disclosure -- Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures. Three Months Ended Twelve Months Ended September 30, September 30, 2004 2003 % Change 2004 2003 % Change Selected Operating Data (consolidated): Number of hospitals 12 9 12 9 Licensed beds (a) 704 580 704 580 Staffed and available beds (b) 604 493 604 493 Admissions (c) 11,051 9,186 20.3% 42,382 32,998 28.4% Adjusted admissions (d) 14,319 11,621 23.2% 53,947 41,213 30.9% Patient days (e) 36,963 31,478 17.4% 146,177 117,615 24.3% Adjusted patient days (f) 47,562 39,700 19.8% 185,469 146,717 26.4% Average length of stay (days) (g) 3.34 3.43 (2.6)% 3.45 3.56 (3.1)% Occupancy (h) 66.5% 69.4% 66.1% 65.4% Inpatient Catheterization Procedures 5,894 4,724 24.8% 22,010 17,537 25.5% Inpatient Surgical Procedures 2,871 2,267 26.6% 10,726 8,750 22.6% Hospital Division revenue $167,742 $129,434 29.6% $635,992 $476,971 33.3% Three Months Ended Twelve Months Ended September 30, September 30, 2004 2003 % Change 2004 2003 % Change Selected Operating Data (same facility): Number of hospitals 9 9 8 8 Licensed beds (a) 580 580 522 522 Staffed and available beds (b) 531 493 489 475 Admissions (c) 9,897 9,186 7.7% 37,705 32,328 16.6% Adjusted admissions (d) 12,977 11,621 11.7% 48,048 40,244 19.4% Patient days (e) 33,285 31,478 5.7% 131,413 115,736 13.5% Adjusted patient days (f) 43,296 39,700 9.1% 166,892 144,000 15.9% Average length of stay (days) (g) 3.36 3.43 (2.0)% 3.49 3.58 (2.5)% Occupancy (h) 68.1% 69.4% 73.4% 66.8% Inpatient Catheterization Procedures 5,040 4,724 6.7% 18,885 17,116 10.3% Inpatient Surgical Procedures 2,612 2,267 15.2% 9,396 8,512 10.4% Hospital Division revenue $146,181 $129,434 12.9% $538,513 $460,383 17.0% (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) 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. (g) Average length of stay (days) represents the average number of days inpatients stay in our hospital. (h) 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 SUPPLEMENTAL FINANCIAL DISCLOSURE - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES (Unaudited) 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, 2004 and 2003 Three Months Ended Twelve Months Ended September 30, September 30, 2004 2003 2004 2003 (in thousands) Net loss $(6,711) $(62,061) $(3,623) $(60,306) Add: Income tax (benefit) expense (4,874) (986) (3,213) 305 Minority interest share of earnings of consolidated subsidiaries 3,381 534 6,202 5,524 Equity in net earnings of unconsolidated affiliates (916) (648) (3,540) (3,541) Other income, net (26) (10) (43) (206) Interest income (229) (270) (835) (1,373) Interest expense 7,866 6,953 28,953 25,857 Loss on debt refinancing 5,488 -- 5,488 -- Impairments of goodwill and long-lived assets 7,227 58,865 7,227 58,865 Loss on disposal of property, equipment and other assets 114 164 93 258 Amortization 290 285 1,160 1,441 Depreciation 10,570 9,983 43,768 40,104 Adjusted EBITDA $22,180 $12,809 $81,637 $66,928 Add: Pre-opening expenses -- 3,046 5,531 10,095 Adjusted EBITDA, before pre-opening expenses $22,180 $15,855 $87,168 $77,023 The following table reconciles estimated Adjusted EBITDA and Adjusted EBITDA, before pre-opening expenses with MedCath's estimated Income from continuing operations for the guidance for the fiscal year ending September 30, 2005. Fiscal 2005 Guidance Range (in millions) Income from continuing operations $10.5 $12.0 Add: Income tax expense 7.0 8.0 Minority interest share of earnings of consolidated subsidiaries 11.2 12.1 Total other expenses, net 33.1 34.2 Amortization 1.2 1.2 Depreciation 42.0 42.5 Adjusted EBITDA $105.0 $110.0 Add: Pre-opening expenses -- -- Adjusted EBITDA, before pre-opening expenses $105.0 $110.0 DATASOURCE: MedCath Corporation CONTACT: John T. Casey, Chairman/President/Chief Executive Officer, or James E. Harris, Chief Financial Officer, both of MedCath, +1-704-708-6600 Web site: http://www.medcath.com/

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