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MedCath Corporation Reports Second Quarter Earnings and Provides Update to Internal Assessment
Date:5/21/2009

CHARLOTTE, N.C., May 21 /PRNewswire-FirstCall/ -- MedCath Corporation (Nasdaq: MDTH), a healthcare provider focused on high acuity healthcare services, predominately the diagnosis and treatment of cardiovascular disease, today announced its operating results for its second quarter of fiscal 2009, which ended March 31, 2009.

Highlights

  • Net revenue up 3.0% compared with second quarter of fiscal 2008; same facility hospital net revenue up 4.0%
  • Adjusted EBITDA of $20.8 million
  • Operating cash flow from continuing operations of $17.6 million
  • EPS from continuing operations of $0.28; or $0.31, excluding pre-opening expenses and share-based compensation expense

Second Quarter 2009 Results

MedCath's reported net revenue increased 3.0% to $158.9 million in the second quarter of fiscal 2009 from $154.2 million in the second quarter of fiscal 2008. Income from operations decreased to $11.7 million from $14.4 million in the second quarter of fiscal 2008 and Adjusted EBITDA decreased 8.9% to $20.8 million from $22.8 million in the same period of the prior year. MedCath's income from continuing operations was $5.4 million, or $0.28 per diluted share, in the second quarter of fiscal 2009 compared to $5.5 million, or $0.28 per diluted share, in the second quarter of fiscal 2008.

Adjusted EBITDA in this release does not include share-based compensation or pre-opening expenses, but these items are included as a component of income from continuing operations. Share-based compensation expense totaled $0.8 million in the second quarter of fiscal 2009, or $0.03 per diluted share, compared with a $0.2 million expense, or $.01 per diluted share, in the second quarter of fiscal 2008. Pre-opening expenses totaled $0.4 million in the second quarter of fiscal 2009, compared with $0.2 million in the second quarter of fiscal 2008.

As shown below, EPS for the quarter, adjusted for share-based compensation expense and pre-opening expenses totaled $0.31 for the quarter:

        EPS from continuing operations                   $0.28
        Adjustments (net of tax effect)
          Pre-opening expenses                           $0.01
          Share-based compensation expense               $0.03

        EPS, adjusted for above items(1)                 $0.31

        (1) does not add due to rounding

"We experienced improved operating momentum this quarter in comparison to the first quarter as Adjusted EBITDA and Adjusted EBITDA margin grew meaningfully and cash flow from operations remained strong," said Ed French, MedCath's President and Chief Executive Officer. "In addition to earnings momentum, we're continuing to execute on our growth strategy and anticipate opening the expansion of our Louisiana Medical Center and Heart Hospital next week."

Operating Statistics, Cash Flow and Capital Expenditures

Same facility hospital admissions in the second quarter of fiscal 2009 were 7,052, down 10.2% compared with the second quarter of fiscal 2008. Adjusted admissions totaled 10,556, down 2.4% compared with the second quarter of fiscal 2008. Same facility hospital outpatient visits totaled 8,004 in the second quarter of fiscal 2009, up 17.9% in comparison with the second quarter of fiscal 2008.

MedCath's commercial admissions equaled 22.6% of total admissions and were unchanged from the year earlier period. Self-pay admissions equaled 1.9% of total admissions in the second quarter of fiscal 2009, in comparison to 2.4% of total admissions in the second quarter of fiscal 2008. Total uncompensated care, which includes charity care plus bad debt expense, equaled 8.3% of hospital division net patient revenue before the deduction for charity care in the second quarter of fiscal 2009 compared to 10.6% in the second quarter of fiscal 2008 and 8.5% in the first quarter of fiscal 2009.

Net cash provided by operating activities of continuing operations for the second quarter of fiscal 2009 was $17.6 million compared to $16.6 million in the second quarter of fiscal 2008. Cash paid for capital expenditures during the quarter totaled $23.8 million, which included $7.4 million related to maintenance expenditures and $16.4 million related to MedCath's construction projects.

Internal Assessment Update

On May 6, 2009, MedCath announced that it was undertaking an internal assessment, under the supervision of its Audit Committee, of certain aspects of its operations and controls. MedCath has completed its internal assessment with the assistance of its professional advisors, and determined that there was no material impact on its current and previously issued financial statements, results of operations or cash flows. In addition, MedCath is in compliance with all reporting and other requirements contained in the credit agreement related to its $75 million term loan and $85 million revolver.

Use of Non-GAAP Financial Measures

This release contains a measure of MedCath's historical financial performance that is not calculated and presented in conformity with generally accepted accounting principles ("GAAP"), 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 on disposal of property, equipment and other assets; loss on early extinguishment of debt; 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 and the results of its internal assessment Friday, May 22, 2009, 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 11062123. A live web cast will also be available on the company's web site, 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, June 5, 2009. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 11062123. 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 nine hospitals with a total of 676 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, South Dakota, and Texas. MedCath is in the process of developing its tenth hospital, which is anticipated to open in fall 2009, in Kingman, Ariz. In addition, MedCath and its subsidiary MedCath Partners 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. The preparation of MedCath's second quarter 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, 2008 filed with the Securities and Exchange Commission on December 15, 2008, as updated in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009. Copies of this form 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     Six Months Ended
                                    March 31,             March 31,
                                 2009       2008       2009       2008

      Net revenue              $158,867  $154,200  $311,970  $300,895
      Operating expenses:
        Personnel expense        52,127    49,156   102,783    99,540
        Medical supplies
         expense                 43,811    41,656    86,462    80,398
        Bad debt expense         10,618    10,332    22,011    21,617
        Other operating
         expenses                32,344    30,424    64,580    59,442
        Pre-opening expenses        380       245       587       493
        Depreciation              7,565     7,689    15,400    15,030
        Amortization                210       135       359       262
        Loss on disposal of
         property, equipment
         and other assets            91       138       164       166
          Total operating
           expenses             147,146   139,775   292,346   276,948
      Income from operations     11,721    14,425    19,624    23,947
      Other income (expenses):
        Interest expense         (1,338)   (3,864)   (4,194)   (7,796)
        Gain (loss) on
         early extinguishment
         of debt                    259         -    (6,702)        -
        Interest and other
         income, net                 73       485       173     1,646
        Equity in net earnings
         of unconsolidated
         affiliates               2,714     2,181     4,779     4,206
          Total other income
           (expense), net         1,708    (1,198)   (5,944)   (1,944)
      Income from continuing
       operations before
       minority interest and
       income taxes              13,429    13,227    13,680    22,003
      Minority interest share
       of earnings of
       consolidated subsidiaries (4,639)   (4,642)   (7,415)   (8,779)
      Income from  continuing
       operations before income
       taxes                      8,790     8,585     6,265    13,224
      Income tax expense          3,372     3,099     2,463     5,448
      Income from continuing
       operations                 5,418     5,486     3,802     7,776
      Income from discontinued
       operations, net of
       taxes                        164       199     4,026       973
      Net income                 $5,582    $5,685    $7,828    $8,749

      Earnings per share, basic
         Continuing operations    $0.28     $0.28     $0.19     $0.38
         Discontinued operations   0.01      0.01      0.21      0.05
         Earnings per share,
          basic                   $0.28     $0.29     $0.40     $0.43

      Earnings per share, diluted
         Continuing operations    $0.28     $0.28     $0.19     $0.37
         Discontinued operations   0.01      0.01      0.21      0.05
         Earnings per share,
          diluted                 $0.28     $0.29     $0.40     $0.42

      Weighted average number
       of shares, basic          19,664    19,841    19,631    20,438
      Dilutive effect of stock
       options and restricted
       stock                         26       121         -       202
      Weighted average number
       of shares, diluted        19,690    19,962    19,631    20,640



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

                                                  March 31,    September 30,
                                                    2009           2008
                                                (Unaudited)

      Current assets:
        Cash and cash equivalents                  $42,883        $93,836
        Restricted cash                              3,166          3,154
        Accounts receivable, net                    89,638         83,875
        Income tax receivable, net                   1,275          3,091
        Medical supplies                            17,661         15,479
        Deferred income tax assets                   8,643          9,769
        Prepaid expenses and other current assets   10,545          9,796
        Current assets of discontinued operations   12,531         20,776
          Total current assets                     186,342        239,776
      Property and equipment, net                  357,285        323,729
      Investments in affiliates                     12,676         15,285
      Goodwill                                      60,174         60,174
      Other intangible assets, net                   6,266          6,063
      Other assets                                   7,767          8,378
      Long-term assets of discontinued operations        -             51
          Total assets                            $630,510       $653,456

      Current liabilities:
        Accounts payable                           $41,513        $41,642
        Accrued compensation and benefits           19,596         16,872
        Other accrued liabilities                   22,265         24,054
        Current portion of long-term debt and
         obligations under capital leases           11,991         31,920
        Current liabilities of discontinued
         operations                                  9,465         10,184
          Total current liabilities                104,830        124,672
      Long-term debt                               112,038        115,628
      Obligations under capital leases               1,845          2,087
      Deferred income tax liabilities               12,170         12,352
      Other long-term obligations                    3,006          4,454
          Total liabilities                        233,889        259,193

      Minority interest in equity of consolidated
       subsidiaries                                 18,929         24,667

      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; 21,684,780 issued and
         19,730,419 outstanding at March 31, 2009;
         21,553,054 issued and 19,598,693
         outstanding at September 30, 2008            216            216
        Paid-in capital                           456,035        455,494
        Accumulated deficit                       (33,310)       (41,138)
        Accumulated other comprehensive loss         (452)          (179)
        Treasury stock, at cost;
         1,954,361 shares at March 31, 2009
         1,954,361 shares at September 30, 2008   (44,797)       (44,797)
          Total stockholders' equity              377,692        369,596
          Total liabilities and stockholders'
           equity                                $630,510       $653,456



                              MEDCATH CORPORATION
                            SELECTED OPERATING DATA
       (In thousands, except per share data and selected operating data)
                                  (Unaudited)

                                         Three months Ended March 31,
                                        2009        2008      % Change

    Statement of Operations Data:
    Net revenue                       $158,867     $154,200      3.0%
    Adjusted EBITDA (1)                $20,806      $22,845     (8.9)%
    Income from operations             $11,721      $14,425    (18.7)%
    Income from continuing operations   $5,418       $5,486     (1.2)%
    Earnings per share from continuing
     operations, basic                   $0.28        $0.28         -
    Earnings per share from continuing
     operations, diluted                 $0.28        $0.28         -


                                          Six Months Ended March 31,
                                        2009        2008      % Change

    Statement of Operations Data:
    Net revenue                       $311,970     $300,895      3.7%
    Adjusted EBITDA (1)                $37,971      $43,820    (13.3)%
    Income from operations             $19,624      $23,947    (18.1)%
    Income from continuing operations   $3,802       $7,776    (51.1)%
    Earnings per share from continuing
     operations, basic                   $0.19        $0.38    (50.0)%
    Earnings per share from continuing
     operations, diluted                 $0.19        $0.37    (48.6)%


    (1) See Supplemental Financial Disclosure--Reconciliation of GAAP
        Financial Measures to Non-GAAP Financial Measures.


                                              Three Months Ended March 31,
                                            2009         2008       % Change

    Selected Operating Data ( a ):
    Number of hospitals                        7            7
    Licensed beds ( c )                      509          449
    Staffed and available beds ( d )         462          433
    Admissions ( e )                       7,052        7,855       (10.2)%
    Adjusted admissions ( f )             10,556       10,817        (2.4)%
    Patient days ( g )                    28,075       29,039        (3.3)%
    Adjusted patient days ( h )           42,117       40,247         4.6%
    Average length of stay (days) ( i )     3.98         3.70         7.6%
    Occupancy ( j )                         67.5%        73.7%
    Inpatient catheterization
     procedures ( k )                      3,451        4,225       (18.3)%
    Inpatient surgical procedures ( l )    2,087        2,120        (1.6)%
    Hospital net revenue                $150,567     $144,778         4.0%

    Combined Operating Data ( b ):
    Number of hospitals                        9            9
    Licensed beds ( c )                      676          616
    Staffed and available beds ( d )         625          596
    Admissions ( e )                      10,000       10,539        (5.1)%
    Adjusted admissions ( f )             15,255       15,164         0.6%
    Patient days ( g )                    37,341       37,812        (1.2)%
    Adjusted patient days ( h )           56,658       54,130         4.7%
    Average length of stay (days) ( i )     3.73         3.59         3.9%
    Occupancy ( j )                         66.4%        69.7%        62.8%
    Inpatient catheterization
     procedures ( k )                     4,259        5,025        (15.2)%
    Inpatient surgical procedures ( l )   2,720        2,754         (1.2)%
    Hospital net revenue               $191,468     $186,045          2.9%


                                               Six Months Ended March 31,
                                            2009         2008       % Change

    Selected Operating Data ( a ):
    Number of hospitals                        7            7
    Licensed beds ( c )                      509          449
    Staffed and available beds ( d )         462          433
    Admissions ( e )                      13,814       15,005        (7.9)%
    Adjusted admissions ( f )             20,436       20,645        (1.0)%
    Patient days ( g )                    53,208       54,499        (2.4)%
    Adjusted patient days ( h )           79,028       75,381         4.8%
    Average length of stay (days) ( i )     3.85         3.63         6.1%
    Occupancy ( j )                         63.3%        68.8%
    Inpatient catheterization
     procedures ( k )                     7,006        8,274        (15.3)%
    Inpatient surgical procedures ( l )   4,087        4,069          0.4%
    Hospital net revenue               $294,792     $281,929          4.6%

    Combined Operating Data ( b ):
    Number of hospitals                       9            9
    Licensed beds ( c )                     676          616
    Staffed and available beds ( d )        625          596
    Admissions ( e )                     19,744       20,308         (2.8)%
    Adjusted admissions ( f )            29,880       29,326          1.9%
    Patient days ( g )                   71,479       71,537         (0.1)%
    Adjusted patient days ( h )         107,679      102,599          5.0%
    Average length of stay (days) ( i )    3.62         3.52          2.8%
    Occupancy ( j )                        62.8%        65.6%
    Inpatient catheterization
     procedures ( k )                    8,647        9,801         (11.8)%
    Inpatient surgical procedures ( l )  5,332        5,442          (2.0)%
    Hospital net revenue              $376,491     $362,751           3.8%


    (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 Adjusted EBITDA with MedCath's income
    from continuing operations as derived directly from MedCath's
    consolidated financial statements for the three and six months ended
    March 31, 2009 and 2008.

                                          Three Months         Six Months
                                         Ended March 31,     Ended March 31,
                                         2009      2008      2009      2008
                                         (in thousands)       (in thousands)

    Income from continuing operations   $5,418    $5,486    $3,802    $7,776
    Add:
      Income tax expense                 3,372     3,099     2,463     5,448
      Minority interest share of
       earnings of consolidated
       subsidiaries                      4,639     4,642     7,415     8,779
      Equity in net earnings of
       unconsolidated affiliates        (2,714)   (2,181)   (4,779)   (4,206)
      Interest and other income, net       (73)     (485)     (173)   (1,646)
      (Gain) loss on early
       extinguishment of debt             (259)        -     6,702         -
      Interest expense                   1,338     3,864     4,194     7,796
      Loss on disposal of property,
       equipment and other assets           91       138       164       166
      Amortization                         210       135       359       262
      Depreciation                       7,565     7,689    15,400    15,030
      Pre-opening expenses                 380       245       587       493
      Share-based compensation expense     839       213     1,837     3,922
    Adjusted EBITDA                    $20,806   $22,845   $37,971   $43,820


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