MedCath Corporation Reports Third Fiscal Quarter Earnings

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Aug 09, 2011, 05:00 ET

CHARLOTTE, N.C., Aug. 9, 2011 /PRNewswire/ -- MedCath Corporation (Nasdaq: MDTH), a healthcare provider focused on high acuity healthcare services, today announced operating results for its third fiscal quarter ended June 30, 2011. The results for MedCath’s third fiscal quarter include Heart Hospital of New Mexico and Arkansas Heart Hospital, which were sold on August 1, 2011.

Third Fiscal Quarter Highlights

Net revenue of $91.8 million, down 1.4% compared to the third quarter of fiscal 2010.
Total admissions and adjusted admissions of 4,779 and 7,249, down 1.2% and 0.7%, respectively, compared to the third quarter of fiscal 2010.
Loss from continuing operations of ($3.1) million and Adjusted EBITDA of $4.6 million, down 41.0% compared to third quarter of fiscal 2010.
Diluted loss per share from continuing operations of ($0.15) and Adjusted EPS of ($0.03).
Total cash of $113.7 million as of the end of the third quarter of fiscal 2011 after repayment of $30.2 million in third party debt outstanding.

Third Quarter of Fiscal 2011 Results Compared to Third Quarter of Fiscal 2010 Results

MedCath's reported net revenue decreased 1.4% to $91.8 million in the third quarter of fiscal 2011 compared to $93.1 million in the third quarter of fiscal 2010. Net income was $12.3 million in the third quarter of fiscal 2011 compared to a net loss of $(12.8) million in the third quarter of fiscal 2010. MedCath's loss from continuing operations was $(3.1) million, or $(0.15) per diluted share, in the third quarter of fiscal 2011 compared to $(14.8) million, or $(0.74) per diluted share, in the third quarter of fiscal 2010.

MedCath's third quarter of fiscal 2011 financial results included the following items:

$0.8 million, or ($0.02) per diluted share, in long-lived asset impairment expense in the Corporate division related to undeveloped land located adjacent to one of MedCath’s hospitals;
$2.7 million, or ($0.09) per diluted share, of professional fees and other expenses incurred in connection with MedCath's strategic options process announced on March 1, 2010; and
$0.4 million, or ($0.01) per diluted share, in share-based compensation expense.
MedCath's third quarter of fiscal 2010 financial results included the following items:
$22.8 million, or ($0.69) per diluted share, in impairment expense;
$0.6 million, or ($0.02) per diluted share, in share-based compensation expense; and
$1.4 million, or ($0.06) per diluted share, of professional fees and other expenses incurred in connection with MedCath's strategic options process announced on March 1, 2010.

Adjusted EBITDA was $4.6 million in the third quarter of fiscal 2011 compared to $7.8 million in the same period of the prior year. MedCath's Adjusted EPS for the third quarter of fiscal 2011 was $(0.03) compared with $0.03 in the third quarter of fiscal 2010.

Commenting on the quarter, O. Edwin French, MedCath President and Chief Executive Officer, stated, "During our third fiscal quarter, we continued to make progress regarding our strategic options process, completing the sale of our MedCath Partners division and announcing two hospital transactions that closed August 1. Operationally, our results this quarter were impacted by a 9.8% reduction in open heart procedures, contributing to a decline in net revenue and Adjusted EBITDA, and lower financial results at one hospital that was sold during our fourth quarter of fiscal 2011.”

Operating Statistics and Debt Repayment

MedCath's financial results for the third fiscal quarter ended June 30, 2011, reflect a 1.2% decrease in total admissions and a 0.7% decrease in adjusted admissions compared to the third quarter of fiscal 2010. Hospital outpatient cases, including emergency department visits, totaled 15,493 in the third quarter of fiscal 2011, up 8.6% compared to the third quarter of fiscal 2010.

Total uncompensated care, which includes charity care plus bad debt expense, equaled 13.6% of hospital division net patient revenue before the deduction for charity care in the third quarter of fiscal 2011 compared to 13.1% in the third quarter of fiscal 2010.

We received $29.8 million in cash from the sale of assets during the third quarter of fiscal 2011, which was used, together with cash on hand, to repay $30.2 million in third party debt outstanding.

Update on Strategic Options Process

On August 1, 2011, MedCath announced the completion of separate transactions related to the sale of its equity interest in Arkansas Heart Hospital and the sale of substantially all the assets of Heart Hospital of New Mexico. These transactions represented the eighth and ninth transactions since MedCath announced its strategic options process in March 2010. MedCath anticipates that final net proceeds from these two transactions, after liquidation of retained assets and prior to payment of any contingent or unknown liabilities, to be approximately $122.0 million. Following these transactions, MedCath owns interest and operates four hospitals, three of which it owns a majority interest and one in which it owns a minority interest.

Use of Non-GAAP Financial Measures

Included in this press release and the supplemental financial information furnished herewith are certain financial measures that are not calculated and presented in conformity with generally accepted accounting principles ("non-GAAP measures"), such as adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") and adjusted diluted earnings per share from continuing operations ("Adjusted EPS"). The supplemental financial information furnished herewith provides a quantitative reconciliation of Adjusted EBITDA and Adjusted EPS based on the following calculations as and for the periods identified below.

Adjusted EBITDA for the third fiscal quarter of 2011 represents MedCath's loss from continuing operations, net of taxes attributable to MedCath's common stockholders; income tax benefit, net income attributable to noncontrolling interests; equity in net earnings of unconsolidated affiliates; interest and other income; interest expense; loss on disposal of property, equipment and other assets; impairment on long-lived assets; depreciation; share-based compensation expense, and professional fees associated with MedCath's exploration of strategic options. Adjusted EPS for the third fiscal quarter of fiscal 2011 represents MedCath's diluted loss per share from continuing operations adjusted for professional fees associated with MedCath's consideration of strategic options; impairment on long-lived assets and share-based compensation expense.

Adjusted EBITDA for the first nine months of fiscal 2011 represents MedCath's loss from continuing operations, net of taxes attributable to MedCath's common stockholders; income tax benefit, net income attributable to noncontrolling interests; equity in net earnings of unconsolidated affiliates; interest and other income; gain on sale of unconsolidated affiliates; interest expense; (gain) loss on disposal of property, equipment and other assets; impairment on long-lived assets; depreciation; share-based compensation expense; professional fees associated with MedCath's exploration of strategic options, and sales tax refunds. Adjusted EPS for the first nine months of fiscal 2011 represents MedCath's diluted loss per share from continuing operations adjusted for gain on sale of unconsolidated affiliates; professional fees associated with MedCath's consideration of strategic options; sales tax refunds; impairment on long-lived assets and share-based compensation expense.

Adjusted EBITDA for the third fiscal quarter of 2010 represents MedCath's loss from continuing operations, net of taxes attributable to MedCath's common stockholders, income tax benefit; net income attributable to noncontrolling interests; equity in earnings of unconsolidated affiliates; interest and other income, net; interest expense; loss on disposal of property, equipment and other assets; depreciation; share-based compensation expense, impairment on long-lived assets, and professional fees associated with MedCath's exploration of strategic options. Adjusted EPS for the third fiscal quarter of fiscal 2010 represents MedCath's diluted loss per share from continuing operations adjusted for share-based compensation expense; impairment loss on long-lived assets, and professional fees associated with MedCath's exploration of strategic options.

Adjusted EBITDA for the first nine months of fiscal quarter of 2010 represents MedCath's loss from continuing operations, net of taxes attributable to MedCath's common stockholders, income tax benefit; net income attributable to non-controlling interests; equity in earnings of unconsolidated affiliates; interest and other income, net; loss on note receivable; interest expense; (gain) loss on disposal of property, equipment and other assets; impairment of long-lived assets; depreciation; per-opening expenses; share-based compensation expense, and professional fees associated with MedCath's exploration of strategic options. Adjusted EPS for the third fiscal quarter of fiscal 2010 represents MedCath's diluted loss per share from continuing operations adjusted for professional fees associated with MedCath's exploration of strategic options; impairment on long-lived assets; loss on note receivable; share-based compensation expense, and pre-opening expenses.

MedCath's management uses Adjusted EBITDA to measure the performance of MedCath's various operating entities, to compare actual results to historical and budgeted results and to make capital allocation decisions. Management provides Adjusted EBITDA and Adjusted EPS 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 and/or Adjusted EPS as a financial performance measure. Because Adjusted EBITDA and Adjusted EPS are non-GAAP measures, Adjusted EBITDA and Adjusted EPS, 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 attributable to MedCath's common stockholders and Adjusted EPS to diluted EPS from continuing operations.

This press release and the financial information included therewith will be accessible on the web, by going to 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 four hospitals with a total of 366 licensed beds, located in Arizona, California, Louisiana, and Texas.

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, the implementation of healthcare reform legislation and future enactment of changes in federal law that would further 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. The preparation of MedCath's third quarter of fiscal 2011 operating results required management to make estimates and assumptions that affect reported amounts of revenues and expenses. There is a reasonable possibility that actual results may vary significantly from those estimates.

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, 2010 filed with the Securities and Exchange Commission on December 14, 2010, as amended. Copies of our filings with the Securities and Exchange Commission, including exhibits, are available at www.sec.gov to review.

MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


			Three Months Ended June 30,		Nine Months Ended June 30,
			2011	2010	2011	2010

Net revenue			$ 91,839	$ 93,139	$ 273,617	$ 271,625
Operating expenses:
	Personnel expense		31,514	31,090	96,490	93,950
	Medical supplies expense		24,219	23,559	66,573	68,938
	Bad debt expense		10,767	10,782	30,483	28,196
	Other operating expenses		23,919	21,915	69,476	64,005
	Pre-opening expenses		-	-	-	866
	Depreciation		3,745	5,389	12,092	15,773
	Impairment of long-lived assets		810	22,813	20,358	37,513
	(Gain) loss on disposal of property, equipment and other assets		(212)	12	(141)	43
		Total operating expenses	94,762	115,560	295,331	309,284
Loss from operations			(2,923)	(22,421)	(21,714)	(37,659)
Other income (expenses):
	Interest expense		(556)	(1,050)	(2,605)	(3,046)
	Interest and other income		76	56	615	141
	Gain on sale of unconsolidated affiliates		-	-	15,391	-
	Loss on note receivable		-	-	-	(1,507)
	Equity in net earnings of unconsolidated affiliates		303	1,391	1,679	3,984
		Total other income (expense), net	(177)	397	15,080	(428)
Loss from continuing operations before income taxes			(3,100)	(22,024)	(6,634)	(38,087)
Income tax benefit			(1,862)	(8,818)	(5,370)	(15,840)
Loss from continuing operations			(1,238)	(13,206)	(1,264)	(22,247)
Income from discontinued operations, net of taxes			15,260	2,745	53,475	1,283
Net (loss) income			14,022	(10,461)	52,211	(20,964)
Less: Net income attributable to noncontrolling interests			(1,691)	(2,355)	(16,336)	(5,718)
Net income (loss) attributable to MedCath Corporation			$ 12,331	$ (12,816)	$ 35,875	$ (26,682)

Amounts attributable to MedCath Corporation common stockholders:
	Loss from continuing operations, net of taxes		$ (3,088)	$ (14,823)	$ (8,754)	$ (27,298)
	Income from discontinued operations, net of taxes		15,419	2,007	44,629	616
	Net income (loss)		$ 12,331	$ (12,816)	$ 35,875	$ (26,682)

Earnings (loss) per share, basic
	Loss from continuing operations attributable to MedCath Corporation common stockholders		$ (0.15)	$ (0.74)	$ (0.43)	$ (1.38)
	Income from discontinued operations attributable to MedCath Corporation common stockholders		0.76	0.10	2.21	0.03
	Earnings (loss) per share, basic		$ 0.61	$ (0.64)	$ 1.78	$ (1.35)

Earnings (loss) per share, diluted
	Loss from continuing operations attributable to MedCath Corporation common stockholders		$ (0.15)	$ (0.74)	$ (0.43)	$ (1.38)
	Income from discontinued operations attributable to MedCath Corporation common stockholders		0.76	0.10	2.21	0.03
	Earnings (loss) per share, diluted		$ 0.61	$ (0.64)	$ 1.78	$ (1.35)

Weighted average number of shares, basic			20,245	19,829	20,132	19,823
Dilutive effect of stock options and restricted stock			7	-	6	-
Weighted average number of shares, diluted			20,252	19,829	20,138	19,823

MEDCATH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


			June 30,	September 30,
			2011	2010
			(Unaudited)

Current assets:
	Cash and cash equivalents		$ 113,669	$ 32,892
	Accounts receivable, net		44,423	42,141
	Income tax receivable		-	6,188
	Medical supplies		10,338	10,540
	Deferred income tax assets		8,678	13,247
	Prepaid expenses and other current assets		12,259	13,339
	Current assets of discontinued operations		45,495	49,963
		Total current assets	234,862	168,310
Property and equipment, net			143,815	174,287
Other assets			22,416	15,983
Non-current assets of discontinued operations			3,083	135,958
		Total assets	$ 404,176	$ 494,538

Current liabilities:
	Accounts payable		$ 17,088	$ 15,550
	Income tax payable		7,158	-
	Accrued compensation and benefits		12,662	15,951
	Other accrued liabilities		16,126	16,155
	Current portion of long-term debt and obligations
	under capital leases		2,339	16,566
	Current liabilities of discontinued operations		13,533	36,291
		Total current liabilities	68,906	100,513
Long-term debt			-	52,500
Obligations under capital leases			4,295	5,999
Other long-term obligations			3,062	5,053
Long-term liabilities of discontinued operations			-	36,469
		Total liabilities	76,263	200,534

Commitments and contingencies

Redeemable noncontrolling interest			8,280	11,534

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;
	22,270,012 issued and 20,315,651 outstanding at June 30, 2011;
	22,423,666 issued and 20,469,305 outstanding at September 30, 2010		216	216
	Paid-in capital		458,729	457,725
	Accumulated deficit		(103,916)	(139,791)
	Accumulated other comprehensive loss		-	(444)
	Treasury stock, at cost;
	1,954,361 shares at June 30, 2011 and September 30, 2010		(44,797)	(44,797)
		Total MedCath Corporation stockholders' equity	310,232	272,909
	Noncontrolling interest		9,401	9,561
Total equity			319,633	282,470
		Total liabilities and equity	$ 404,176	$ 494,538

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,
	2011	2010	% Change	2011	2010	% Change

Statement of Operations Data:
Net revenue	$ 91,839	$ 93,139	(1.4)%	$ 273,617	$ 271,625	0.7%
Adjusted EBITDA (1)	$ 4,589	$ 7,783	(41.0)%	$ 19,558	$ 20,352	(3.9)%
Loss from operations	$ (2,923)	$ (22,421)	(87.0)%	$ (21,714)	$ (37,659)	(42.3)%
Loss from continuing operations, net of taxes	$ (3,088)	$ (14,823)	(79.2)%	$ (8,754)	$ (27,298)	(67.9)%
Loss per share from continuing operations, basic	$ (0.15)	$ (0.74)	(79.3)%	$ (0.43)	$ (1.38)	(68.4)%
Loss per share from continuing operations, diluted	$ (0.15)	$ (0.74)	(79.3)%	$ (0.43)	$ (1.38)	(68.4)%

(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,
	2011	2010	% Change	2011	2010	% Change

Selected Operating Data (a):
Number of hospitals	5	5		5	5
Licensed beds (c)	421	421		421	421
Staffed and available beds (d)	380	380		380	380
Admissions (e)	4,779	4,835	(1.2)%	14,115	14,244	(0.9)%
Adjusted admissions (f)	7,249	7,300	(0.7)%	21,308	21,051	1.2%
Patient days (g)	17,672	18,223	(3.0)%	52,741	53,588	(1.6)%
Adjusted patient days (h)	26,939	27,546	(2.2)%	80,088	79,461	0.8%
Average length of stay (days) (i)	3.70	3.77	(1.9)%	3.74	3.76	(0.5)%
Occupancy (j)	51.1%	52.7%		50.8%	51.7%
Inpatient catheterization procedures (k)	2,002	2,048	(2.2)%	5,731	6,073	(5.6)%
Inpatient surgical procedures (l)	1,125	1,216	(7.5)%	3,343	3,474	(3.8)%
Hospital net revenue	$ 91,766	$ 93,030	(1.4)%	$ 273,379	$ 271,293	0.8%

Combined Operating Data (b):
Number of hospitals	6	6		6	6
Licensed beds (c)	533	533		533	533
Staffed and available beds (d)	489	489		489	489
Admissions (e)	6,353	6,543	(2.9)%	19,260	19,685	(2.2)%
Adjusted admissions (f)	10,366	10,520	(1.5)%	30,953	31,154	(0.6)%
Patient days (g)	22,556	23,416	(3.7)%	68,769	70,125	(1.9)%
Adjusted patient days (h)	36,612	37,336	(1.9)%	110,136	110,168	(0.0)%
Average length of stay (days) (i)	3.55	3.58	(0.8)%	3.57	3.56	0.3%
Occupancy (j)	50.7%	52.6%		51.5%	52.5%
Inpatient catheterization procedures (k)	2,134	2,217	(3.7)%	6,232	6,673	(6.6)%
Inpatient surgical procedures (l)	1,527	1,640	(6.9)%	4,580	4,640	(1.3)%
Hospital net revenue	$ 117,525	$ 118,618	(0.9)%	$ 352,849	$ 346,598	1.8%

(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.
(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 the loss from continuing operations, net of taxes attributable to MedCath Corporation's common stockholders as derived directly from MedCath Corporation's consolidated financial statements to Adjusted EBITDA for the three and nine months ended June 30, 2011 and 2010.

	Three Months Ended June 30,		Nine Months Ended June 30,
	2011	2010	2011	2010
	(in thousands)		(in thousands)

Loss from continuing operations, net of taxes	$ (3,088)	$ (14,823)	$ (8,754)	$ (27,298)
Add:
Income tax benefit	(1,862)	(8,818)	(5,370)	(15,840)
Net income attributable to noncontrolling interests	1,850	1,617	7,490	5,051
Equity in net earnings of unconsolidated affiliates	(303)	(1,391)	(1,679)	(3,984)
Interest and other income	(76)	(56)	(615)	(141)
Loss on note receivable	-	-	-	1,507
Gain on sale of unconsolidated affiliates	-	-	(15,391)	-
Interest expense	556	1,050	2,605	3,046
(Gain) loss on disposal of property, equipment and other assets	(212)	12	(141)	43
Impairment of long-lived assets	810	22,813	20,358	37,513
Depreciation	3,745	5,389	12,092	15,773
Pre-opening expenses	-	-	-	866
Share-based compensation expense	428	554	3,282	2,380
Professional fees for strategic options process	2,741	1,436	7,768	1,436
Sales tax refunds, net	-	-	(2,087)	-
Adjusted EBITDA	$ 4,589	$ 7,783	$ 19,558	$ 20,352


The following table reconciles MedCath Corporation's diluted (loss) earnings per share from continuing operations, net of taxes attributable to MedCath Corporation's common stockholders as derived directly from MedCath's consolidated financial statements to Adjusted diluted earnings per share from continuing operations (inclusive of the effect of dilutive shares) for the three and nine months ended June 30, 2011 and 2010.

	Three Months Ended June 30,		Nine Months Ended June 30,
	2011	2010	2011	2010

Diluted (loss) earnings per share	$ (0.15)	$ (0.74)	$ (0.43)	$ (1.38)
Add:
Gain on sale of unconsolidated affiliates	-	-	(0.47)	-
Professional fees for strategic options process	0.09	0.06	0.23	0.04
Sales tax refunds	-	-	(0.06)	-
Impairment of long-lived assets	0.02	0.69	0.62	1.15
Loss on note receivable	-	-	-	0.05
Share-based compensation expense	0.01	0.02	0.10	0.07
Pre-opening expense	-	-	-	0.03
Adjusted diluted (loss) earnings per share	$ (0.03)	$ 0.03	$ (0.01)	$ (0.04)

SOURCE MedCath Corporation

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