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MedCath Corporation Reports Fourth Quarter Earnings and Outlook for Fiscal 2008
Date:11/13/2007

CHARLOTTE, N.C., Nov. 13 /PRNewswire-FirstCall/ -- MedCath Corporation (Nasdaq: MDTH), a healthcare provider focused on high acuity healthcare services including the diagnosis and treatment of cardiovascular disease, today announced its operating results for its fourth fiscal quarter, which ended September 30, 2007.

Fourth Quarter 2007 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 of 51.0% to a minority ownership of 36.0%. Due to this change in ownership, MedCath began accounting for HMC as an equity investment in the fiscal quarter ended September 30, 2007. As such, MedCath's fourth quarter of fiscal 2007 consolidated results exclude the net revenue, income from operations and Adjusted EBITDA of HMC. In comparison, MedCath's fourth quarter of fiscal 2006 consolidated results include the consolidated financial results of HMC. As detailed below, all or a significant portion of the reduction in MedCath's primary consolidated financial measures is due to the reclassification of HMC from a consolidated subsidiary to an equity investment.

MedCath's reported net revenue decreased 10.6% to $158.6 million in the fourth quarter of fiscal 2007 from $177.4 million in the fourth quarter of fiscal 2006, which included $16.2 million attributable to HMC. Excluding this amount from prior year's results, net revenue declined 1.6%. Income from operations decreased 9.5% to $14.2 million in the fourth quarter of fiscal 2007 from $15.7 million in the fourth quarter of fiscal 2006, which included $1.9 million attributable to HMC. Excluding this am867 (10.4)%

Selected Operating Data -

Same Facility (a):

Number of hospitals 8 8

Licensed beds (c) 468 468

Staffed and available beds (d) 451 451

Admissions (e) 8,017 8,242 (2.7)%

Adjusted admissions (f) 10,772 10,569 1.9%

Patient days (g) 27,336 27,794 (1.6)%

Adjusted patient days (h) 36,907 35,905 2.8%

Average length of stay (days) (i) 3.41 3.37 1.2%

Occupancy (j) 65.9% 67.0%

Inpatients with a catheterization

procedure (k) 4,415 4,856 (9.1)%

Inpatient surgical procedures (l) 2,137 2,227 (4.0)%

Hospital net revenue $146,771 $147,445 (0.5)%

Combined Operating Data (b):

Number of hospitals 10 10

Licensed beds (c) 635 635

Staffed and available beds (d) 614 618

Admissions (e) 10,678 10,833 (1.4)%

Adjusted admissions (f) 14,828 14,319 3.6%

Patient days (g) 35,794 35,270 1.5%

Adjusted patient days (h) 49,592 46,463 6.7%

Average length of stay (days) (i) 3.35 3.26 2.8%

Occupancy (j) 63.4% 62.0%

Inpatients with a catheterization

procedure (k) 5,230 5,573 (6.2)%

Inpatient surgical procedures (l) 2,823 2,873 (1.7)%

Hospital net revenue $184,630 $178,196 3.6%

Twelve Months Ended September 30,

2007 2006 % Change

Selected Operating Data (a):

Number of hospitals 8 9

Licensed beds (c) 468 580

Staffed and available beds (d) 451 563

Admissions (e) 38,757 41,406 (6.4)%

Adjusted admissions (f) 52,714 54,186 (2.7)%

Patient days (g) 132,937 136,532 (2.6)%

Adjusted patient days (h) 180,258 178,667 0.9%

Average length of stay (days) (i) 3.43 3.30 3.9%

Occupancy (j) 80.8% 66.4%

Inpatients with a catheterization

procedure (k) 19,878 21,163 (6.1)%

Inpatient surgical procedures (l) 10,193 10,764 (5.3)%

Hospital net revenue $665,908 $648,898 2.6%

Selected Operating Data -

Same Facility (a):

Number of hospitals 8 8

Licensed beds (c) 468 468

Staffed and available beds (d) 451 451

Admissions (e) 33,277 34,099 (2.4)%

Adjusted admissions (f) 43,783 43,138 1.5%

Patient days (g) 117,065 115,574 1.3%

Adjusted patient days (h) 154,390 146,980 5.0%

Average length of stay (days) (i) 3.52 3.39 3.8%

Occupancy (j) 71.1% 70.2%

Inpatients with a catheterization

procedure (k) 19,252 20,403 (5.6)%

Inpatient surgical procedures (l) 8,751 9,523 (8.1)%

Hospital net revenue $604,896 $580,757 4.2%

Combined Operating Data (b):

Number of hospitals 10 10

Licensed beds (c) 635 635

Staffed and available beds (d) 614 618

Admissions (e) 44,249 44,858 (1.4)%

Adjusted admissions (f) 59,977 58,094 3.2%

Patient days (g) 152,070 149,321 1.8%

Adjusted patient days (h) 205,037 193,147 6.2%

Average length of stay (days) (i) 3.44 3.33 3.3%

Occupancy (j) 67.9% 66.2%

Inpatients with a catheterization

procedure (k) 22,510 23,366 (3.7)%

Inpatient surgical procedures (l) 11,653 11,715 (0.5)%

Hospital net revenue $753,887 $710,243 6.1%

(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 twelve months ended September 30, 2007 and 2006.

Three Months Twelve Months

Ended Ended

September 30, September 30,

2007 2006 2007 2006

(in thousands)

Income from continuing operations $2,532 $4,490 $17,227 $6,711

Add:

Income tax expense 1,834 3,120 12,476 4,729

Minority interest share of earnings

of consolidated subsidiaries 4,221 3,171 14,575 15,521

Equity in net earnings of

unconsolidated affiliates (1,644) (1,036) (5,739) (4,919)

Interest and other income, net (1,570) (2,029) (7,855) (7,733)

Loss on early extinguishment of

debt 4,789 - 9,931 1,370

Interest expense 4,014 7,952 22,464 31,840

Impairment of long-lived assets - 7 - 458

Loss (gain) on disposal of

property, equipment and other

assets 419 95 1,466 (142)

Amortization 126 252 631 1,008

Depreciation 7,332 8,863 33,602 34,792

Pre-opening expenses 555 - 555 -

Share-based compensation expense 489 842 4,338 13,222

Adjusted EBITDA $23,097 $25,727 $103,671 $96,857

The following table reconciles estimated Adjusted EBITDA with MedCath's estimated net income for the guidance for the fiscal year ending September 30, 2008.

Fiscal 2008 Guidance Range

(in millions)

Income from continuing operations $32.8 $34.3

Add:

Income tax benefit $21.9 $22.8

Minority interest share of earnings

of consolidated subsidiaries $20.4 $22.9

Equity in net earnings of

unconsolidated affiliates $(7.5) $(8.4)

Interest expense, net $10.9 $10.9

Depreciation and amortization $31.5 $31.5

Adjusted EBITDA $110.0 $114.0

ount from prior year's results, income from operations increased 3.2%. Adjusted EBITDA in the fourth quarter of fiscal 2007 decreased 10.2% to $23.1 million from $25.7 million in the fourth quarter of fiscal 2006, which included $3.2 million attributable to HMC. Excluding this amount from prior year's results, Adjusted EBITDA increased 2.6%. Income from continuing operations was $2.5 million, or $0.12 per diluted share, in the fourth quarter of fiscal 2007, compared to income from continuing operations of $4.5 million, or $0.23 per diluted share, in the fourth quarter of fiscal 2006. MedCath's fourth quarter of fiscal 2006 income from continuing operations would have been $4.7 million, or $0.24 per diluted share, had HMC been accounted for as an equity investment in the fourth quarter of fiscal 2006.

MedCath's fourth quarter of fiscal 2007 results contain the following unusual items. Per share amounts reflect minority interest expense, where applicable, and income taxes.

-- A $0.5 million, or net impact of $0.01 per diluted share, decrease in

net revenue and Adjusted EBITDA related to settlement of third-party

cost reports during the quarter,

-- A $4.8 million, or net impact of $0.13 per diluted share, loss on

early extinguishment of debt related to the HMC recapitalization, and

-- A $0.1 million, or net impact of $0.01 per diluted share, reduction in

income from continuing operations related to combined legal expense

associated with the HMC recapitalization and final settlement between

Arizona Heart Hospital and the United States Department of Justice.

MedCath's fourth quarter of fiscal 2006 results were impacted by certain unusual items that collectively had a $1.3 million favorable impact to net revenue, a $1.0 million favorable impact to Adjusted EBITDA and a $0.4 million, or $0.02 per diluted share, favorable impact to income from continuing operations.

Share-based compensation expense totaled $0.5 million, or $0.01 per diluted share, in the fourth quarter of fiscal 2007, compared to $0.8 million, or $0.02 per diluted share, in the fourth quarter of fiscal 2006. Pre-opening expenses totaled $0.6 million, or $0.02 per diluted share, in the fourth quarter of fiscal 2007. MedCath did not incur pre-opening expenses in the fourth quarter of fiscal 2006. Adjusted EBITDA in this release does not include share-based compensation expense or pre-opening expenses, but these expenses are included as a component of income from continuing operations.

"Our fourth quarter brings to close a very successful fiscal 2007," said O. Edwin French, MedCath's president and chief executive officer. "We were able to accomplish many of our strategic and financial objectives during the year, delivering overall solid revenue and EBITDA growth. We believe we have put in place the foundation for a successful fiscal 2008."

Operating Statistics and Cash Flow

Same facility hospital adjusted admissions, which excludes the results of Harlingen Medical Center, for the fourth quarter of fiscal 2007 increased 1.9% from the fourth quarter of the previous fiscal year. Same facility hospital net revenue decreased 0.5%. Net cash provided by operating activities of continuing operations for the fourth quarter of fiscal 2007 was $27.6 million, up from $15.6 million for the fourth quarter of fiscal 2006. Capital expenditures totaled $18.0 million in the fourth quarter of fiscal 2007 in comparison to $7.5 million in the fourth quarter of fiscal 2006.

2008 Outlook

For its fiscal year 2008, which ends September 30, 2008, MedCath estimates its primary financial measures to be in the following range:

Net revenue $685.0 million to $700.0 million

Adjusted EBITDA $110.0 million to $114.0 million

Income from continuing

operations $32.8 million to $34.3 million

Capital expenditures,

recurring operations $35.0 million to $40.0 million

The above outlook excludes the financial effect of approximately $1.0 million in pre-opening expenses anticipated to be incurred with the development of the Hualapai Medical Center, located in Kingman, Arizona. In addition, the above outlook excludes the financial effect of share-based compensation expense.

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 (gain) on disposal of property, equipment and other assets; loss on early extinguishment of debt; impairment of long-lived assets; 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 today during a 9 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 22236624. 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, November 20, 2007. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 22236624. 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 interests in and operates eleven hospitals with a total of 667 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, Ohio, South Dakota, and Texas. In addition, MedCath and its subsidiary MedCath Partners manage the cardiovascular program at various hospitals and 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 Registration Statement on Form S-3/A filed with the Securities and Exchange Commission on March 29, 2007 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. Copies of this registration statement and Form 10-Q, 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 Twelve Months Ended

September 30, September 30,

2007 2006 2007 2006

Net revenue $158,641 $177,444 $718,959 $706,374

Operating expenses:

Personnel expense 51,976 55,472 229,844 228,350

Medical supplies expense 42,907 47,684 192,036 196,046

Bad debt expense 10,005 14,395 55,162 56,845

Other operating expenses 31,145 35,008 142,584 141,498

Pre-opening expenses 555 - 555 -

Depreciation 7,332 8,863 33,602 34,792

Amortization 126 252 631 1,008

Loss (gain) on disposal of

property, equipment and other

assets 419 95 1,466 (142)

Impairment of long-lived

assets - 7 - 458

Total operating expenses 144,465 161,776 655,880 658,855

Income from operations 14,176 15,668 63,079 47,519

Other income (expenses):

Interest expense (4,014) (7,952) (22,464) (31,840)

Loss on early extinguishment

of debt (4,789) - (9,931) (1,370)

Interest and other income, net 1,570 2,029 7,855 7,733

Equity in net earnings of

unconsolidated affiliates 1,644 1,036 5,739 4,919

Total other expenses, net (5,589) (4,887) (18,801) (20,558)

Income from continuing

operations before minority

interest, income taxes and

discontinued operations 8,587 10,781 44,278 26,961

Minority interest share of

earnings of consolidated

subsidiaries (4,221) (3,171) (14,575) (15,521)

Income from continuing

operations before income taxes

and discontinued operations 4,366 7,610 29,703 11,440

Income tax expense 1,834 3,120 12,476 4,729

Income from continuing

operations 2,532 4,490 17,227 6,711

Income (loss) from discontinued

operations, net of taxes (1,624) 6,449 (5,700) 5,865

Net income (loss) $908 $10,939 $11,527 $12,576

Earnings (loss) per share, basic

Continuing operations $0.12 $0.24 $0.82 $0.36

Discontinued operations (0.08) 0.34 (0.26) 0.31

Earnings (loss) per share,

basic $0.04 $0.58 $0.56 $0.67

Earnings (loss) per share,

diluted

Continuing operations $0.12 $0.23 $0.80 $0.34

Discontinued operations (0.08) 0.32 (0.26) 0.30

Earnings (loss) per share,

diluted $0.04 $0.55 $0.54 $0.64

Weighted average number of

shares, basic 21,202 18,872 20,872 18,656

Dilutive effect of stock options

and restricted stock 579 1,037 639 899

Weighted average number of

shares, diluted 21,781 19,909 21,511 19,555

MEDCATH CORPORATION

SELECTED OPERATING DATA

(In thousands, except per share data and selected operating data)

(Unaudited)

Three Months Ended September 30,

2007 2006 % Change

Statement of Operations Data:

Net revenue $158,641 $177,444 (10.6)%

Adjusted EBITDA (1) $23,097 $25,727 (10.2)%

Income from operations $14,176 $15,668 (9.5)%

Income from continuing operations $2,532 $4,490 (43.6)%

Earnings per share from continuing

operations, basic $0.12 $0.24 (500.0)%

Earnings per share from continuing

operations, diluted $0.12 $0.23 (478.3)%

Twelve Months Ended September 30,

2007 2006 % Change

Statement of Operations Data:

Net revenue $718,959 $706,374 1.8%

Adjusted EBITDA (1) $103,671 $96,857 7.0%

Income from operations $63,079 $47,519 32.7%

Income from continuing operations $17,227 $6,711 156.7%

Earnings per share from continuing

operations, basic $0.82 $0.36 127.8%

Earnings per share from continuing

operations, diluted $0.80 $0.34 135.3%

(1) See Supplemental Financial Disclosure -- Reconciliation of GAAP

Financial Measures to Non-GAAP Financial Measures.

Three Months Ended September 30,

2007 2006 % Change

Selected Operating Data (a):

Number of hospitals 8 9

Licensed beds (c) 468 580

Staffed and available beds (d) 451 563

Admissions (e) 8,017 9,991 (19.8)%

Adjusted admissions (f) 10,772 13,356 (19.3)%

Patient days (g) 27,336 32,258 (15.3)%

Adjusted patient days (h) 36,907 43,018 (14.2)%

Average length of stay (days) (i) 3.41 3.23 5.6%

Occupancy (j) 65.9% 62.3%

Inpatients with a catheterization

procedure (k) 4,415 5,032 (12.3)%

Inpatient surgical procedures (l) 2,137 2,650 (19.4)%

Hospital net revenue $146,771 $163,
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SOURCE MedCath Corporation
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