Gentiva Health Services third quarter 2013 net revenues decrease 3.3% to $410.5 million

Gentiva Health Services, Inc.Nov 5 2013

Gentiva Health Services, Inc. (NASDAQ: GTIV), the largest provider of home health and hospice services in the United States based on revenue, today reported third quarter 2013 results.

On October 18, 2013, Gentiva announced the closing of its acquisition of Harden Healthcare Holdings, Inc. ("Harden"). Under the terms of the merger agreement, Gentiva acquired Harden's home health, hospice and community care businesses. Harden's existing shareholders retained the company's long-term care business. Harden's results will be included in Gentiva's financial results beginning in the fourth quarter of 2013, commencing from the acquisition date.

Additionally, following quarter-end, the Company announced a corporate restructuring initiative, referred to as "One Gentiva", to better align its home health, hospice and community care businesses under a common regional management structure. One Gentiva was developed to enable the Company to provide a seamless continuum of care for its patients, families and referral sources, while also streamlining the Company's management organization to meet reimbursement challenges.

Quarterly highlights include:

• Net revenues of $410.5 million.
• Adjusted income attributable to Gentiva shareholders per diluted share of $0.15.
• Adjusted EBITDA of $35.3 million.

Third quarter 2013 financial highlights include:

• Net revenues of $410.5 million, a decrease of 3.3% compared to $424.4 million for the quarter ended September 30, 2012. During the quarter ended September 30, 2013, net revenues were negatively impacted by the 2013 home health Medicare rate reduction, the 2% sequestration rate cut on our Medicare-based revenues and the sale or closure of branches in the prior year. Net revenues included home health episodic revenues of $206.9 million, flat compared to $206.4 million in the 2012 third quarter. Hospice revenues were $175.6 million, a decrease of 7.5% compared to $189.8 million in the 2012 third quarter. Hospice represented 42.8% of total net revenues in the third quarter of 2013, compared to 44.7% in the 2012 third quarter.
• Income attributable to Gentiva shareholders of $3.7 million, or $0.12 per diluted share, compared to a loss of $0.5 million, or $0.02 per diluted share, for the third quarter of 2012.
• Adjusted income attributable to Gentiva shareholders of $4.8 million, compared with $9.9 million in the comparable 2012 period. On a diluted per share basis, adjusted income attributable to Gentiva shareholders was $0.15 for the third quarter of 2013 as compared to $0.32 for the third quarter of 2012.
• Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) was $35.3 million in the third quarter of 2013 as compared to $46.1 million in the third quarter of 2012. Adjusted EBITDA as a percentage of net revenues was 8.6% in the third quarter of 2013 versus 10.9% in the prior year period.

Adjusted income attributable to Gentiva shareholders and Adjusted EBITDA exclude charges related to restructuring, legal settlements, acquisition and integration activities and other special items.

Highlights for the nine months ended September 30, 2013 include:

• Net revenues of $1,240.5 million, a decrease of 3.7% as compared to $1,287.8 million for the prior year period. Net revenues included home health episodic revenues of $621.0 million, compared to $624.5 million in the comparable 2012 period. Hospice revenues were $534.4 million, compared to $577.5 million in the comparable 2012 period.
• Loss attributable to Gentiva shareholders of $197.1 million, or $6.38 per diluted share. Income attributable to Gentiva shareholders in the comparable 2012 period was $18.2 million, or $0.60 per diluted share.
• Adjusted income attributable to Gentiva shareholders of $18.7 million, compared with $28.0 million in the 2012 period. On a diluted per share basis, adjusted income attributable to Gentiva shareholders was $0.60 as compared to $0.91 in the corresponding period of 2012, prior to the $0.03 add-back in the first quarter of 2012 for credit agreement amendment expenses.
• Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) was $113.4 million as compared to $136.3 million in the 2012 period. Adjusted EBITDA as a percentage of net revenues was 9.1% versus 10.6% in the prior-year period.

Cash Flow and Balance Sheet Highlights

At September 30, 2013, the Company reported cash and cash equivalents of $183.3 million, down from $185.1 million at June 30, 2013. Total outstanding debt was $910.2 million as of September 30, 2013. Total Company days sales outstanding, or DSO, was 50 days at September 30, 2013, down 2 days from June 30, 2013.

For the third quarter of 2013, net cash provided by operating activities was $8.4 million, compared to $25.5 million in the prior year period for 2012. Free cash flow was $1.7 million for the third quarter of 2013, compared to $23.2 million in the prior year period. Free cash flow is calculated as net cash provided by operating activities less capital expenditures.

Full-Year 2013 Outlook

Including the estimated operating results of the Harden acquisition and the potential fourth quarter 2013 impact of the 2014 Medicare home health and hospice reimbursement rules, the Company now expects full-year net revenues to be in the range of $1.72 billion to $1.74 billion. Additionally, the Company expects 2013 adjusted income attributable to Gentiva shareholders to be in the range of $0.90 to $1.00 on a diluted per share basis. The final results for the fourth quarter of 2013 will be subject to a number of factors including the impact from closed or sold locations, the timing of synergies, the timing of branch consolidations, the timing of One Gentiva initiatives, final results from the Harden business valuation, and the final balance sheet accounting treatment of various items related to the Harden consolidation. The Company expects to take restructuring charges in the fourth quarter of 2013 associated with the acquisition and other initiatives.

Non-GAAP Financial Measures

The information provided in this press release includes certain non-GAAP financial measures as defined under SEC rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those historical measures to the most directly comparable GAAP measures.

A reconciliation of adjusted income attributable to Gentiva shareholders to net income, the most directly comparable GAAP measure, is not accessible on a forward-looking basis without unreasonable effort due to the inherent difficulties in predicting the costs of restructuring, legal settlements and merger and acquisition activities and the impact of any future acquisitions or divestitures, which can fluctuate significantly and may have a significant impact on net income.