Graymark Healthcare first-quarter consolidated net revenues increase 7% to $27.6 million

May 13 2010

Graymark Healthcare, Inc. (Nasdaq: GRMH) today announced progress on Fiscal 2010 Initiatives and financial results for the Quarter ending March 31, 2010.

Graymark Healthcare has been pioneering better techniques for ensuring that patients diagnosed with Obstructive Sleep Apnea are quickly and effectively treated in an effort to optimize clinical outcomes.  Graymark has driven improved patient compliance with CPAP care and overall disease management by integrating the diagnostic and treatment processes.  Q1 results reflect the focus on this integration with 117% overall and 31% same store growth in therapy revenues and a 42% same store higher conversion rate between diagnostic and CPAP treatment services than in the same quarter last year.  Same store recurring CPAP re-supply program sales grew by 69% as part of these efforts.

"The higher conversion rate from diagnostic to therapy services reflects our ability to better engage patients in their care and shift them from a transactional diagnostic relationship to ongoing recurring therapy and supply relationship," said Stanton Nelson, Chairman and CEO of Graymark Healthcare.  "The only way to avoid the long-term consequences of obstructive sleep apnea is for patients to consistently use their CPAP device; our comprehensive care model improves the likelihood that patients will be compliant," Nelson continued.

Other Business Highlights:  

Although January is reliably a challenging month for volume in non-emergent areas of healthcare, as insurance deductibles and out-of-pocket thresholds are re-set; the SMS business rebounded strongly by the end of the quarter.  In March the volumes of sleep studies and CPAP set-ups were up 22% and 41% respectively compared to January in the SMS business.  

The increased operating scale created through the acquisitions in the SMS business late in 2009 allowed for significant labor synergies.  Through the quarter, labor and other operating expenses were reduced by over $1.4MM in annualized expense.  The Q2 operating run rate should fully reflect these reductions; they were implemented by the end of Q1 and all separation and other implementation expenses were realized in Q1.

Similarly, the Apothecary pharmacy business showed an 8.8% increase in total sales in March compared to January.  March results also increased 2.2%  over the prior year March sales reflecting pharmacist, physician and patients' efforts to find medication protocols that are reasonably reimbursed by health plans in 2010.        

For the first quarter 2010, consolidated net revenues for Graymark were $27.6 million, an increase of 7% over 2009 Q1 revenue of $25.5 million.  This included a net revenue increase of 74% for the Company's Sleep Management Solutions or SMS segment, comprised of our sleep diagnostic and sleep therapy businesses to $5.9 million in the first quarter of 2010 compared to $3.4 million in Q1 2009 and a decrease of 2% for the Company's ApothecaryRx segment, which owns and operates independent retail pharmacies, to $21.7 million for Q1 2010, compared to Q1 2009 revenue of $22.1 million.

First Quarter 2010 EBITDA was a loss of ($0.2 million) compared to Q1 2009 positive EBITDA of $1.0 million.  After-tax net loss attributable to Graymark was approximately ($1.4 million) for Q1 2010, or a loss of ($0.05) per diluted share compared to break-even, or $0.00 per diluted share in Q1 2009.  

In our SMS segment, $1.9 million of the increase in revenue was related to our diagnostic business, with our new acquisitions from the third quarter of 2009 contributing $2.3 million of new revenue.  First quarter revenues from our existing business were down $0.4 million compared to Q1 2009 due to a combination of lower volumes, primarily in January, and lower revenue per sleep study.  An additional $0.6 million of the increase in revenue came from our therapy business, with our new acquisitions contributing $0.5 million of new revenue and our existing therapy business growing $0.1 million over Q1 2009.  The growth in our existing therapy business was a combination of growth in our therapy services of 21% and our resupply or PRSP program of 69% compared to Q1 2009 revenues.  

Gross margin for the Company's SMS segment was 69% for the quarter, compared to 70% in Q1 2009.  First Quarter EBITDA for SMS was $0.2 million compared to Q1 2009 EBITDA of $0.5 million.  Net loss for our SMS segment was ($0.4 million) for Q1 compared to break-even net income in Q1 2009.

The decrease in revenue for the ApothecaryRx segment was primarily due to weak January sales as patients adjusted to new co-pay levels and the continued shift towards generic drugs, which have a lower revenue per script compared to brand drugs.  Gross margin for the ApothecaryRx segment was 23% for the first quarter of 2010 compared to 25% in Q1 2009.   ApothecaryRx EBITDA was $0.9 million for the quarter compared to $1.1 million in 2009.  Net income for ApothecaryRx was $0.3 million compared to $0.5 million in Q1 2009.