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Gentiva Reports Third Quarter Revenue and Profit Growth
Date:10/30/2008

Company Raises 2008 EPS Outlook and Announces 2009 Operating Preview

MELVILLE, N.Y., Oct. 30 /PRNewswire-FirstCall/ -- Gentiva Health Services, Inc. (Nasdaq: GTIV), a leading provider of comprehensive home health services, today reported third quarter results, led by 17% revenue growth and 26% operating contribution growth from its Home Health segment, as the Company continued to invest in clinical innovation, quality and productivity to enhance its industry leadership.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060323/NYTH117LOGO )

Performance highlights for the quarter ended September 28, 2008 included the following total Company results compared to the third quarter ended September 30, 2007:

-- A 12% increase in net revenues to $347.6 million.

-- Net income of $120.9 million, or $4.07 per diluted share, which included a non-recurring pre-tax gain, net of transaction costs, of $107.9 million or $3.67 per diluted share from the sale of a 69% interest in its CareCentrix unit. These results compare to net income of $8.2 million or $0.28 per diluted share in the 2007 third quarter.

-- Excluding the net gain from the CareCentrix transaction and special charges, adjusted net income was $12.6 million, up 48% as compared with $8.5 million in the year-ago period. On a diluted earnings per share basis, adjusted net income was $0.42 compared with $0.30 in the 2007 third quarter. Special charges excluded from adjusted net income represented about $0.02 per diluted share in both periods and included restructuring and integration costs, and costs and professional fees associated with merger and acquisition activities.

-- A 19% increase in earnings before interest, taxes, depreciation and amortization (EBITDA) to $30.2 million in the third quarter of 2008, excluding the non-recurring and special items described above; EBITDA as a percentage of net revenues improved to 8.7% in the third quarter of 2008 versus 8.2% in the prior-year period.

"Our Home Health segment had an outstanding third quarter, continuing a trend of solid gains," said Gentiva Chairman and CEO Ron Malone. "This performance results from continued growth and margin expansion while we invest in our specialty programs and add new tools to benefit our patients and the dedicated clinicians who serve them."

Gentiva reported these segment highlights for the quarter:

-- Home Health's 17% revenue growth to $239.3 million and 26% operating contribution growth to $38.8 million led to an operating contribution margin of 16.2%, as compared with 15.1% in the third quarter of 2007. Home Health Medicare revenue growth of more than 20% was driven by a double-digit increase in episodic patient admissions as the Company continues to benefit from both its expanding specialty programs and acquisitions completed in 2008.

-- Revenues in Gentiva's Other Related Services segment -- which includes hospice, respiratory therapy and home medical equipment, infusion therapy and consulting - rose 11% to $33.6 million versus the prior-year period. Operating contribution increased 6% to $2.9 million compared to the prior-year period.

-- During the third quarter, the Company recognized 87 days of results from its CareCentrix unit prior to completing the sale of a majority interest in that unit to Water Street Healthcare Partners on September 25, 2008. CareCentrix contributed $232.7 million in net revenues to Gentiva year to date through the closing of the transaction. Following the closing date, the Company will report its equity interest in the ongoing results of CareCentrix.

Companywide performance highlights for the nine months ended September 28, 2008 included:

-- An 11% increase in net revenues to $1.02 billion versus the prior-year period.

-- Net income of $140.6 million, or $4.80 per diluted share. Excluding the net gain from the CareCentrix transaction and special charges as described above, Gentiva's net income for the nine-month period was $32.7 million, up 30% compared with $25.2 million in the year-ago period. On a diluted earnings per share basis, adjusted net income was $1.12 compared with $0.89 in the 2007 period.

-- A 13% increase in EBITDA to $86.2 million versus $76.6 million in the prior-year period, again excluding the non-recurring net gain and certain special charges.

Gentiva ended the third quarter with cash and cash equivalents of $61.5 million and long-term debt of $261 million. During the third quarter, the Company reduced its total outstanding long-term debt by $70 million.

Full-Year 2008 and Preliminary 2009 Outlook

Gentiva adjusted its revenue outlook and raised its earnings outlook for the 2008 fiscal year to reflect the performance of its Home Health business year to date, as well as the sale of a majority interest in CareCentrix. Gentiva now anticipates that 2008 net revenues will range between $1.28 billion to $1.30 billion, as compared to prior guidance of $1.32 billion to $1.35 billion, and now expects its diluted earnings per share to be between $1.47 and $1.51, up from the $1.36 to $1.43 range provided earlier this year. Projected earnings exclude the net gain from the CareCentrix transaction and special charges as described above.

Gentiva also announced a preliminary outlook for 2009. Full-year net revenues are expected to be in a range of $1.12 billion to $1.17 billion, reflecting anticipated growth in the Company's businesses as compared with 2008, offset by the absence of revenues from CareCentrix. Diluted earnings per share are expected to be in a range between $1.62 and $1.72. Excluding the impact of the CareCentrix divestiture on the Company's 2008 results, Gentiva's 2009 outlook represents a diluted earnings per share increase of approximately 20% to 25% as compared with expected 2008 performance.

Non-GAAP Financial Measures

The information provided in this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.

Conference Call and Web Cast Details

The Company will comment further on its third quarter results during its conference call and live web cast to be held Thursday, October 30, 2008, at 10:00 a.m. Eastern Time. To participate in the call from the United States, Canada or an international location, dial (973) 935-2408 and reference call #69371096. The web cast is an audio-only, one-way event. Web cast listeners who wish to ask questions must participate in the conference call. Log onto http://investors.gentiva.com/events.cfm to hear the web cast. A replay of the call will be available on October 30, beginning at approximately 1 p.m. ET, and will remain available continuously through November 6. To listen to a replay of the call from the United States, Canada or international locations, dial (800) 642-1687 or (706) 645-9291 and enter the following PIN at the prompt: 69371096. Visit http://investors.gentiva.com/events.cfm to access the web cast archive. This press release is accessible at http://investors.gentiva.com/releases.cfm and a transcript of the conference call is expected to be available on the site within 36 hours after the call.

About Gentiva Health Services, Inc.

Gentiva Health Services, Inc. is the nation's leading provider of comprehensive home health services, delivering innovative, high quality care to patients across the United States. Gentiva is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; respiratory therapy and home medical equipment; infusion therapy services; and other therapies and services. For more information, visit Gentiva's web site, http://www.gentiva.com, and its investor relations section at http://investors.gentiva.com. GTIV-E

(tables and notes follow)

(in 000's, except per share

data) 3rd Quarter Nine Months

2008 2007 2008 2007

Statements of Income

Net revenues $347,561 $309,082 $1,017,508 $915,901

Cost of services and goods

sold 196,581 179,041 578,525 525,438

Gross profit 150,980 130,041 438,983 390,463

Selling, general and

administrative expenses (127,909) (110,299) (371,358) (330,795)

Gain on sale of business, net 107,872 - 107,872 -

Interest expense (4,191) (6,564) (15,876) (20,649)

Interest income 338 810 1,278 2,436

Income before income taxes 127,090 13,988 160,899 41,455

Income tax expense 6,218 5,797 20,280 17,473

Income before equity in net

earnings of affiliate 120,872 8,191 140,619 23,982

Equity in net earnings of

affiliate 20 - 20 -

Net income $120,892 $8,191 $140,639 $23,982

Earnings per Share

Net income:

Basic $4.21 $0.29 $4.94 $0.86

Diluted $4.07 $0.28 $4.80 $0.84

Average shares outstanding:

Basic 28,687 27,955 28,489 27,729

Diluted 29,718 28,802 29,320 28,564

Condensed Balance Sheets (A)

ASSETS Sept 28, Dec 30,

2008 2007

Cash, cash equivalents and

restricted cash (B) $61,503 $36,181

Short-term investments (C) - 31,250

Accounts receivable, net (D) 181,786 207,801

Deferred tax assets 11,279 18,859

Prepaid expenses and other

current assets 14,935 14,415

Total current assets 269,503 308,506

Long-term investments (C) 12,641 -

Note Receivable 25,000 -

Investment in affiliate 23,319 -

Fixed assets, net 63,166 59,562

Intangible assets, net 251,495 211,602

Goodwill 304,255 276,100

Other assets 23,524 26,463

Total assets $972,903 $882,233

LIABILITIES AND SHAREHOLDERS'

EQUITY

Current portion of long-term

debt $ - $2,304

Accounts payable 8,221 20,093

Payroll and related taxes 27,453 17,163

Deferred revenue 35,855 29,015

Medicare liabilities 8,075 7,985

Cost of claims incurred but

not reported - 24,321

Obligations under insurance

programs 39,830 36,816

Other accrued expenses 33,657 42,282

Total current liabilities 153,091 179,979

Long-term debt 261,000 307,696

Deferred tax liabilities, net 58,233 48,572

Other liabilities 20,444 22,557

Shareholders' equity 480,135 323,429

Total liabilities and

shareholders' equity $972,903 $882,233

Common shares outstanding 28,774 28,046

(A) The Condensed Balance Sheet as of September 28, 2008 reflects the impact of the CareCentrix transaction in various line items.

(B) Cash, cash equivalents and restricted cash included restricted cash of $22.0 million at December 30, 2007.

(C) Short-term and long-term investments at September 28, 2008 and December 30, 2007 consisted of AAA-rated auction rate securities. At September 28, 2008, long-term investments were presented net of a $0.4 million valuation allowance, the charge for which was recorded in Shareholders' Equity.

(D) Accounts receivable, net, included an allowance for doubtful accounts of $8.0 million and $9.4 million at September 28, 2008 and December 30, 2007, respectively.

(in 000's) Nine Months

Condensed Statements of Cash

Flows 2008 2007

OPERATING ACTIVITIES:

Net income $140,639 $23,982

Adjustments to reconcile net

income to net cash

provided by operating

activities:

Depreciation and amortization 16,494 14,705

Amortization of debt issuance

costs 1,474 763

Provision for doubtful

accounts 9,536 6,644

Equity-based compensation

expense 4,711 5,085

Windfall tax benefits

associated with equity-based

compensation (2,087) (788)

Gain on sale of business, net (107,872) -

Equity in net earnings of

affiliate (20) -

Deferred income taxes 11,868 15,725

Changes in assets and

liabilities, net of acquired

businesses:

Accounts receivable (28,666) (39,837)

Prepaid expenses and other

current assets (2,204) (3,847)

Current liabilities 6,387 18,268

Other, net 836 1,677

Net cash provided by operating

activities 51,096 42,377

INVESTING ACTIVITIES:

Purchase of fixed assets (19,082) (19,534)

Proceeds from sale of business 81,760 -

Acquisition of businesses, net

of cash acquired (60,634) (3,820)

Purchases of short-term

investments available-for-sale (28,000) (58,850)

Maturities of short-term

investments available-for-sale 46,250 59,775

Net cash provided by (used in)

investing activities 20,294 (22,429)

FINANCING ACTIVITIES:

Proceeds from issuance of

common stock 9,721 7,010

Windfall tax benefits

associated with equity-based

compensation 2,087 788

Borrowings under revolving

credit facility 24,000 -

Home Health Care Affiliates

debt repayments (7,420) -

Debt issuance costs (557) -

Other debt repayments (73,000) (26,000)

Repayment of capital lease

obligations (899) (936)

Net cash used in financing

activities (46,068) (19,138)

Net change in cash, cash

equivalents and restricted

cash 25,322 810

Cash, cash equivalents and

restricted cash at beginning

of period 36,181 32,910

Cash, cash equivalents and

restricted cash at end of

period $61,503 $33,720

SUPPLEMENTAL DISCLOSURES OF

CASH FLOW INFORMATION:

Interest paid $17,945 $22,258

Income taxes paid, net of

refunds $7,018 $1,648

(in 000's)

Supplemental Information 3rd Quarter Nine Months

2008 2007 2008 2007

Segment Information (1)

Net revenues

Home Health $239,344 $204,410 $693,220 $614,335

CareCentrix 75,546 75,295 232,717 214,511

Other Related Services 33,583 30,327 94,240 91,222

Intersegment revenues (912) (950) (2,669) (4,167)

Total net revenues $347,561 $309,082 $1,017,508 $915,901

Operating contribution (3)

Home Health $38,841 $30,895 $109,466 $91,984

CareCentrix (4) 5,225 6,949 18,074 21,890

Other Related Services 2,923 2,762 9,046 10,228

Total operating contribution 46,989 40,606 136,586 124,102

Corporate expenses (18,177) (15,857) (52,467) (49,729)

Gain on sale of business, net 107,872 - 107,872 -

Depreciation and amortization (5,741) (5,007) (16,494) (14,705)

Interest expense, net (3,853) (5,754) (14,598) (18,213)

Income before income taxes $127,090 $13,988 $160,899 $41,455

3rd Quarter Nine Months

2008 2007 2008 2007

Net Revenues by Major Payer

Source:

Medicare

Home Health $165,153 $137,067 $471,515 $409,151

Other 17,633 14,613 47,934 44,759

Total Medicare 182,786 151,680 519,449 453,910

Medicaid and local government 36,653 37,883 108,627 116,541

Commercial insurance and other

(5) 128,122 119,519 389,432 345,450

Total net revenues $347,561 $309,082 $1,017,508 $915,901

A reconciliation of EBITDA to

Net income - As Reported

amounts

follows: (2) 3rd Quarter Nine Months

2008 2007 2008 2007

EBITDA (3) $28,812 $24,749 $84,119 $74,373

Gain on sale of business, net 107,872 - 107,872 -

Depreciation and amortization (5,741) (5,007) (16,494) (14,705)

Interest expense, net (3,853) (5,754) (14,598) (18,213)

Income before income taxes 127,090 13,988 160,899 41,455

Income tax expense (6) (6,218) (5,797) (20,280) (17,473)

Income before equity in net

earnings of affiliate 120,872 8,191 140,619 23,982

Equity in net earnings of

affiliate 20 - 20 -

Net income - As Reported $120,892 $8,191 $140,639 $23,982

Notes:

1) The Company's senior management evaluates performance and allocates resources based on operating contributions of the reportable segments, which exclude corporate expenses, depreciation, amortization, and interest expense (net), but include revenues and all other costs directly attributable to the specific segment.

2) EBITDA, a non-GAAP financial measure, is defined as income before interest expense (net of interest income), income taxes, depreciation and amortization. Management uses EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. EBITDA should not be considered in isolation or as a substitute for net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States. Because EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and is susceptible to varying calculations, it may not be comparable to similarly titled measures in other companies.

3) Operating contribution and EBITDA for the third quarter and first nine months of 2008 included restructuring and integration costs of $1.4 million and $2.1 million, respectively. For the third quarter and first nine months of 2007, operating contribution and EBITDA included special charges of $0.6 million and $2.2 million, respectively. The special charges, which included restructuring and integration costs and costs and professional fees associated with merger and acquisition activities, were reflected as follows for segment reporting (dollars in millions):

3rd Quarter Nine Months

2008 2007 2008 2007

Home Health $0.1 $0.1 $0.3 $0.6

Other Related Services - - - 0.1

Corporate expenses 1.3 0.5 1.8 1.5

Total $1.4 $0.6 $2.1 $2.2

4) Operating contribution for CareCentrix was comprised of the following (dollars in thousands):

3rd Quarter Nine Months

2008 2007 2008 2007

Gross profit $13,669 $14,495 $42,539 $43,966

Selling, general and

administrative expenses (8,589) (7,671) (24,850) (22,444)

Add: depreciation 145 125 385 368

Operating Contribution $5,225 $6,949 $18,074 $21,890

5) Commercial Insurance and Other revenues included revenues paid on an episodic basis of $14.1 million and $38.6 million for the third quarter and first nine months of 2008, respectively, and $7.7 million and $20.2 million for the third quarter and first nine months of 2007, respectively, reflecting services rendered to Medicare beneficiaries enrolled in managed Medicare plans.

6) The Company's effective tax rate was 4.9% for the third quarter and 12.6% for the first nine months of 2008, and 41.4% and 42.1% for the third quarter and first nine months of 2007, respectively. During the 2008 periods, the Company recorded a pre-tax gain, net of transaction costs, of $107.9 million and an income tax benefit of approximately $1.2 million relating to the sale of a majority interest in its CareCentrix unit. The CareCentrix transaction generated a capital loss carryforward for federal tax purposes. Excluding the impact of the CareCentrix transaction, the Company's effective tax rate would have been 38.9% for the third quarter of 2008 and 40.6% for the first nine months of 2008.

Forward-Looking Statement

Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: economic and business conditions, including the ability to access capital markets; demographic changes; changes in, or failure to comply with, existing governmental regulations; legislative proposals for healthcare reform; changes in Medicare and Medicaid reimbursement levels, including changes to the Medicare home health Prospective Payment System effective January 1, 2008; effects of competition in the markets in which the Company operates; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; business disruption due to natural disasters or terrorist acts; ability to successfully integrate the operations of acquisitions the Company may make and achieve expected synergies and operational efficiencies within expected time-frames; effect on liquidity of the Company's debt service requirements; a material shift in utilization within capitated agreements; and changes in estimates and judgments associated with critical accounting policies and estimates. For a detailed discussion of certain of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission (SEC), including the "Risk Factors" section contained in the Company's annual report on Form 10-K for the year ended December 30, 2007.

Financial and Investor Contact: John R. Potapchuk

631-501-7035

john.potapchuk@gentiva.com

Media Contact: Jennifer Gery-Egan

Brainerd Communicators

212-986-6667

gery@braincomm.com


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SOURCE Gentiva Health Services, Inc.
Copyright©2008 PR Newswire.
All rights reserved


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