MedCath Corporation Reports Second Quarter Earnings

CHARLOTTE, N.C., May 10 /PRNewswire-FirstCall/ -- MedCath Corporation , a healthcare provider focused on the diagnosis and treatment of cardiovascular disease, today announced its operating results for its second fiscal quarter, which ended March 31, 2007.

Second quarter highlights: - Net revenue increased 5.0% to $192.5 million - Adjusted EBITDA rose 15.5% to $29.8 million - Adjusted admissions increased 3.0%

Second Quarter 2007 Results

MedCath's net revenue increased 5.0% to $192.5 million in the second quarter of fiscal 2007 from $183.3 million in the second quarter of fiscal 2006. Income from operations was $18.0 million in the second quarter of fiscal 2007, compared to income from operations of $6.8 million in the second quarter of fiscal 2006. Adjusted EBITDA in the second quarter of fiscal 2007 increased 15.5% to $29.8 million from $25.8 million in the second quarter of fiscal 2006. Income from continuing operations was $5.8 million, or $0.27 per diluted share, in the second quarter of fiscal 2007, compared to a loss from continuing operations of $2.4 million, or $0.13 per diluted share, in the second quarter of fiscal 2006.

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

- A $2.3 million, or a net impact of $0.04 per diluted share, increase in net revenue and Adjusted EBITDA due to the settlement of Medicare and Medicaid cost reports related to prior periods. - A $3.1 million, or a net impact of $0.10 per diluted share, reduction in net revenue and Adjusted EBITDA due to the increase in a reserve previously established for repayment of a portion of Medicare reimbursement related to hospital inpatient services provided to patients enrolled in a clinical trial conducted at one of our hospitals between 1998 and 2002 that is under investigation by the U.S. Department of Justice, and - A $660,000, or a net impact of $0.02 per diluted share, loss on early extinguishment of debt related to the prepayment of $39.9 million in term debt and the prepayment of $11.1 million of equipment debt.

In comparison, MedCath's second quarter of fiscal 2006 financial results were impacted by certain unusual items that collectively had a $745,000 unfavorable impact to net revenue and Adjusted EBITDA and a $775,000, or $0.04 per diluted share, unfavorable impact to income from continuing operations.

Share-based compensation expense totaled $2.1 million or $0.05 per diluted share in the second quarter of fiscal 2007, compared to $10.2 million or $0.33 per diluted share in the second quarter of fiscal 2006. Adjusted EBITDA disclosed above does not include this expense but the expense is included as a component of income from continuing operations.

"Our strong second quarter results reflect various strategic initiatives that are intended to improve our operating efficiency while maintaining our commitment to providing quality health care," said Ed French, MedCath's president and chief executive officer. "We believe contributions from these efforts will continue to benefit not only our existing hospitals as currently configured, but also those hospitals that we intend to expand."

Operating Statistics and Cash Flow

Hospital adjusted admissions for the second quarter of fiscal 2007 increased 3.0% from the second quarter of the previous fiscal year. Same facility hospital net revenue increased 5.9%, excluding the unusual items reported above. Net cash provided by operating activities of continuing operations for the second quarter of fiscal 2007 was $15.7 million, up from $12.3 million for the second quarter of fiscal 2006. Capital expenditures totaled $6.9 million in the second quarter of fiscal 2007 in comparison to $8.4 million in the second quarter of fiscal 2006.

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 (loss) from continuing operations before interest expense; interest and other income, net; income tax expense (benefit); depreciation; amortization; share-based compensation expense; gain (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 analysis of MedCath's historical operating results. Further, management believes that many investors in MedCath also invest in, or have knowledge of, other healthcare companies that use Adjusted EBITDA as a financial performance measure. Because Adjusted EBITDA is a non-GAAP measure, Adjusted EBITDA, as defined above, may not be comparable to other similarly titled measures of other companies. MedCath has included a supplemental schedule with the financial statements that accompany this press release that reconciles historical Adjusted EBITDA to MedCath's income (loss) from continuing operations.

Management will discuss and answer questions regarding MedCath's quarterly results today during a 10 a.m. ET conference call. In the United States, you may participate by dialing (877) 697-5351. International callers should dial (706) 634-0602. The conference ID for both domestic and international callers is "MedCath." A live 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, May 17, 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 629347. 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 primarily on the diagnosis and treatment of cardiovascular disease. MedCath focuses on serving the unique needs of patients suffering from cardiovascular disease. 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 manages the cardiovascular program at various hospitals operated by other parties. Further, MedCath provides cardiovascular care services in diagnostic and therapeutic facilities located 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. 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. A copy of this registration statement, including exhibits, is 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, 2007 2006 2007 2006 Net revenue $192,491 $183,270 $368,040 $346,883 Operating expenses: Personnel expense 61,356 65,023 118,531 117,516 Medical supplies expense 50,649 51,671 98,819 97,865 Bad debt expense 15,445 15,555 29,276 28,610 Other operating expenses 37,323 35,385 73,788 71,173 Depreciation 8,772 8,647 17,641 17,205 Amortization 127 252 379 504 Loss (gain) on disposal of property, equipment and other assets 802 (38) 859 59 Total operating expenses 174,474 176,495 339,293 332,932 Income from operations 18,017 6,775 28,747 13,951 Other income (expenses): Interest expense (5,768) (8,384) (13,226) (16,305) Loss on early extinguishment of debt (662) (364) (5,142) (1,370) Interest and other income, net 1,808 1,336 4,533 2,733 Equity in net earnings of unconsolidated affiliates 1,482 1,410 2,920 2,475 Total other expenses, net (3,140) (6,002) (10,915) (12,467) Income from continuing operations before minority interest, income taxes and discontinued operations 14,877 773 17,832 1,484 Minority interest share of earnings of consolidated subsidiaries (3,960) (4,790) (6,440) (7,608) Income (loss) from continuing operations before income taxes and discontinued operations 10,917 (4,017) 11,392 (6,124) Income tax expense (benefit) 5,106 (1,609) 5,327 (2,451) Income (loss) from continuing operations 5,811 (2,408) 6,065 (3,673) Income (loss) from discontinued operations, net of taxes 439 468 (4,711) 400 Net income (loss) $6,250 $(1,940) $1,354 $(3,273) Earnings (loss) per share, basic Continuing operations $0.28 $(0.13) $0.30 $(0.20) Discontinued operations $0.02 0.03 $(0.23) 0.02 Earnings (loss) per share, basic $0.30 $(0.10) $0.07 $(0.18) Earnings (loss) per share, diluted Continuing operations $0.27 $(0.13) $0.29 $(0.20) Discontinued operations $0.02 0.03 $(0.23) 0.02 Earnings (loss) per share, diluted $0.29 $(0.10) $0.06 $(0.18) Weighted average number of shares, basic 21,019 18,618 20,568 18,559 Dilutive effect of stock options and restricted stock 625 - 634 - Weighted average number of shares, diluted 21,644 18,618 21,202 18,559 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2007 2006 % Change 2007 2006 % Change Statement of Operations Data: Net revenue $192,491 $183,270 5.0% $368,040 $346,883 6.1% Adjusted EBITDA (1) $29,841 $25,842 15.5% $50,775 $42,342 19.9% Income from operations $18,017 $6,775 165.9% $28,747 $13,951 106.1% Income (loss) from continuing operations $5,811 $(2,408) 341.3% $6,065 $(3,673) 265.1% Earnings (loss) per share from continuing operations, basic $0.28 $(0.13) 315.4% $0.30 $(0.20) 250.0% Earnings (loss) per share from continuing operations, diluted $0.27 $(0.13) 307.7% $0.29 $(0.20) 245.0% (1) See Supplemental Financial Disclosure--Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures. Three Months Ended Six Months Ended March 31, March 31, % % 2007 2006 Change 2007 2006 Change Selected Operating Data (a): Number of hospitals 9 9 9 9 Licensed beds (b) 580 580 580 580 Staffed and available beds (c) 559 568 559 568 Admissions (d) 10,674 10,904 (2.1)% 20,404 20,809 (1.9)% Adjusted admissions (e) 14,508 14,081 3.0% 27,844 26,977 3.2% Patient days (f) 36,961 36,874 0.2% 71,050 70,156 1.3% Adjusted patient days (g) 50,011 47,748 4.7% 96,505 90,941 6.1% Average length of stay (days) (h) 3.46 3.38 2.4% 3.48 3.37 3.3% Occupancy (i) 73.5% 72.1% 69.8% 67.9% Inpatient catheterization procedures (j) 5,354 5,653 (5.3)% 10,212 10,588 (3.6)% Inpatient surgical procedures (k) 2,727 2,824 (3.4)% 5,265 5,334 (1.3)% Hospital net revenue $177,944 $168,055 5.9% $339,002 $317,469 6.8% (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) 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. (c) Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. (d) Admissions represent the number of patients admitted for inpatient treatment. (e) 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. (f) Patient days represent the total number of days of care provided to inpatients. (g) 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. (h) Average length of stay (days) represents the average number of days inpatients stay in our hospitals. (i) 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. (j) Inpatient catheterization procedures represent the number of inpatients with a procedure performed in one of the hospitals' catheterization labs during the period. (k) 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 (loss) from continuing operations as derived directly from MedCath's consolidated financial statements for the three and six months ended March 31, 2007 and 2006. Three Months Ended Six Months Ended March 31, March 31, 2007 2006 2007 2006 (in thousands) Income (loss) from continuing operations $5,811 $(2,408) $6,065 $(3,673) Add: Income tax expense (benefit) 5,106 (1,609) 5,327 (2,451) Minority interest share of earnings of consolidated subsidiaries 3,960 4,790 6,440 7,608 Equity in net earnings of unconsolidated affiliates (1,482) (1,410) (2,920) (2,475) Interest and other income, net (1,808) (1,336) (4,533) (2,733) Interest expense 5,768 8,384 13,226 16,305 Loss on early extinguishment of debt 662 364 5,142 1,370 Loss (gain) on disposal of property, equipment and other assets 802 (38) 859 59 Amortization 127 252 379 504 Depreciation 8,772 8,647 17,641 17,205 Share-based compensation expense 2,123 10,206 3,149 10,623 Adjusted EBITDA $29,841 $25,842 $50,775 $42,342

MedCath Corporation

CONTACT: O. Edwin French, President/Chief Executive Officer, or James E.Harris, Chief Financial Officer, both for MedCath Corporation,+1-704-708-6600

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