MedCath net revenue increases 0.4% to $97.2 million for second fiscal quarter 2011

MedCath Corporation (Nasdaq: MDTH), a healthcare provider focused on high acuity healthcare services, today announced  operating results for its second fiscal quarter ended March 31, 2011. On April 26, 2011, MedCath announced its intention to release the operating results for its second fiscal quarter ended March 31, 2011 on Tuesday, May 10, 2011. MedCath elected to release its quarterly results today and simultaneously with today’s announcement that it has entered into definitive agreements relating to the sale of Arkansas Heart Hospital and Heart Hospital of New Mexico (MedCath Corporation Announces Entering Into Definitive Agreements Relating to the Sale of Arkansas Heart Hospital and Heart Hospital of New Mexico, May 9, 2011). The operating results of Arkansas Heart Hospital and Heart Hospital of New Mexico are included in the financial results for all periods included in this release.

Second Fiscal Quarter Highlights

• Net revenue of $97.2 million, up 0.4% compared to the second quarter of fiscal 2010.
• Loss from continuing operations of ($12.3) million and adjusted EBITDA of $9.8 million, up 8.2% compared to second quarter of fiscal 2010.  Adjusted EBITDA margin up 80 basis points to 10.1% from 9.3%.
• Diluted loss per share from continuing operations of ($0.61) and adjusted EPS of $0.05.
• Total admissions decrease for the second fiscal quarter of 2011 of 0.3%, and adjusted admissions decrease of 0.4%, compared to second quarter of fiscal 2010.

Second Quarter of Fiscal 2011 Results Compared to Second Quarter of Fiscal 2010 Results

MedCath’s reported net revenue increased 0.4% to $97.2 million in the second quarter of fiscal 2011 compared to $96.8 million in the second quarter of fiscal 2010.  Net loss was $(13.5) million in the second quarter of fiscal 2011 compared to $(11.2) million in the second quarter of fiscal 2010. MedCath’s income from continuing operations was $(8.9) million, or $(0.61) per diluted share, in the second quarter of fiscal 2011 compared to $(6.8) million, or $(0.46) per diluted share, in the second quarter of fiscal 2010.

MedCath’s second quarter of fiscal 2011 financial results include the following items:

• $19.5 million, or ($0.59) per diluted share, in long-lived asset impairment expense related to two hospitals;
• $1.6 million, or ($0.05) per diluted share, of professional fees and other expenses incurred in connection with MedCath’s strategic options process announced on March 1, 2010;
• $0.9 million, or ($0.03) per diluted share, in share-based compensation expense; and
• $0.2 million, or $0.01 per diluted share, related to a gain on the sale of a small unconsolidated affiliate.

MedCath’s second quarter of fiscal 2010 financial results include the following items:

• $14.7 million, or ($0.60) per diluted share, in impairment expense;  
• $1.2 million, or ($0.03) per diluted share, in share-based compensation expense; and
• $1.5 million, or ($0.05) per diluted share, loss on a note receivable.

Adjusted EBITDA was $9.8 million in the second quarter of fiscal 2011 compared to $9.0 million in the same period of the prior year.  MedCath’s Adjusted EPS for the second quarter of fiscal 2011 was $0.05 compared with $0.23 in the second quarter of fiscal 2010.

Commenting on the quarter, O. Edwin French, MedCath President and Chief Executive Officer, stated, “With a smaller number of operating units compared to the prior periods there’s potential for less predictability in this and future quarters.  Our operating units were able to mitigate the risk this quarter with good cost management on soft admissions so I’m especially pleased with the earnings accretion we’re reporting.”  

Operating Statistics and Cash Flow

MedCath’s financial results for the second fiscal quarter ended March 31, 2011, reflect a 0.3% decrease in total admissions and a 0.4% decrease in adjusted admissions compared to the second quarter of fiscal 2010. Hospital outpatient cases, including emergency department visits, totaled 15,469 in the second quarter of fiscal 2011, up 14.7% compared to the second quarter of fiscal 2010.

Total uncompensated care, which includes charity care plus bad debt expense, equaled 13.0% of hospital division net patient revenue before the deduction for charity care in the second quarter of fiscal 2011 compared to 12.5% in the second quarter of fiscal 2010.

Net cash provided (used) by operating activities from continuing operations for the second quarter of fiscal 2011 was $(6.0) million compared to $9.7 million in the second quarter of fiscal 2010.  This decline in net cash provided by operating activities primarily resulted from the payment of taxes during the quarter which were higher than amounts previously paid due to taxable gains incurred on asset sales in prior periods.  

Impairment Expense

MedCath’s second quarter of fiscal 2011 results include a $19.5 million  impairment charge related to the reduction in the carrying value of long-lived assets associated with its Hualapai Mountain Medical Center (“HMMC”) and Louisiana Medical Center and Heart Hospital (“LMCHH”). The impairment charge reduced income from continuing operations by $19.5 million and earnings per diluted share by ($0.59) in the second quarter of fiscal 2011. In accordance with generally accepted accounting principles, MedCath evaluates whether or not the carrying values of long lived assets exceed their fair values whenever indications of impairment arise.  The fair values of long lived assets were determined by a review of current and anticipated operating performance and outlook, and market-based information.  MedCath will continue to evaluate the carrying value of its long lived assets when and if new indications of impairment exist.  

MedCath has intercompany notes outstanding with HMMC and LMCHH as of March 31, 2011.  The net realizable value of those notes is the carrying value of the underlying assets that serve as collateral on the notes, which was approximately $44.7 million at March 31, 2011 after taking into consideration the impairment charges.