Gentiva® Health Services Reports Fourth Quarter and Full-Year 2013 Results

Gentiva Health Services, Inc. and Subsidiaries

Condensed Consolidated Financial Statements and Supplemental Information

(Unaudited)

(in 000's, except per share data)

4th Quarter

Fiscal Year

2013

2012

2013

2012

Condensed Statements of Comprehensive (Loss) Income

Net revenues

$

486,137

$

425,017

$

1,726,644

$

1,712,804

Cost of services sold

281,182

229,254

942,180

908,741

Gross profit

204,955

195,763

784,464

804,063

Selling, general and administrative expenses

(219,082)

(156,924)

(701,716)

(655,766)

Goodwill, intangibles and other long-lived asset impairment

(386,116)

—

(610,436)

(19,132)

Gain on sale of businesses

—

2,567

—

8,014

Interest income

638

650

2,704

2,661

Interest expense and other

(44,239)

(23,546)

(113,088)

(92,608)

(Loss) income before income taxes and equity in net loss of

CareCentrix

(443,844)

18,510

(638,072)

47,232

Income tax benefit (expense)

42,022

(6,373)

39,565

(17,251)

Equity in net loss of CareCentrix

—

(3,307)

—

(2,301)

Net (loss) income

(401,822)

8,830

(598,507)

27,680

Less: Net income attributable to noncontrolling interests

(62)

(260)

(487)

(884)

Net (loss) income attributable to Gentiva shareholders

$

(401,884)

$

8,570

$

(598,994)

$

26,796

Total comprehensive (loss) income

$

(401,822)

$

8,830

$

(598,507)

$

27,680

Earnings per Share

Net (loss) income attributable to Gentiva shareholders:

   Basic

$

(11.46)

$

0.28

$

(18.75)

$

0.88

   Diluted

$

(11.46)

$

0.28

$

(18.75)

$

0.87

Weighted average shares outstanding:

   Basic

35,054

30,548

31,954

30,509

   Diluted

35,054

30,891

31,954

30,687

(in 000's)

Condensed Balance Sheets

ASSETS

Dec 31, 2013

Dec 31, 2012

Cash and cash equivalents

$

86,957

$

207,052

Accounts receivable, net (A)

289,905

251,080

Deferred tax assets

28,153

12,263

Prepaid expenses and other current assets

64,746

45,632

Total current assets

469,761

516,027

Notes receivable from CareCentrix

28,471

28,471

Fixed assets, net

49,375

41,414

Intangible assets, net

256,282

193,613

Goodwill

390,081

656,364

Other assets

68,647

75,045

Total assets

$

1,262,617

$

1,510,934

LIABILITIES AND EQUITY

Current portion of long-term debt

$

45,325

$

25,000

Accounts payable

15,659

13,445

Payroll and related taxes

64,857

45,357

Deferred revenue

43,864

37,444

Medicare liabilities

23,894

27,122

Obligations under insurance programs

82,634

56,536

Accrued nursing home costs

22,219

18,428

Other accrued expenses

77,018

66,567

Total current liabilities

375,470

289,899

Long-term debt

1,124,432

910,182

Deferred tax liabilities, net

9,825

42,165

Other liabilities

53,084

33,988

Total equity

(300,194)

234,700

Total liabilities and equity

$

1,262,617

$

1,510,934

Common shares outstanding

36,375

30,748

(A) Accounts receivable, net included an allowance for doubtful accounts of $10.7 million and $8.8 million at December 31, 2013 and December 31, 2012, respectively.

(in 000's)

Fiscal Year

Condensed Statements of Cash Flows

2013

2012

OPERATING ACTIVITIES:

Net (loss) income

$

(598,507)

$

27,680

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

20,110

26,580

Amortization of debt issuance costs

14,715

13,761

Write-off of debt issuance costs

16,085

—

Provision for doubtful accounts

6,730

4,066

Equity-based compensation expense

8,210

7,645

Windfall tax benefits associated with equity-based compensation

(119)

(88)

Goodwill, intangibles and other long-lived asset impairment

610,436

19,132

Gain on sale of businesses, net

—

(8,014)

Equity in net loss of CareCentrix

—

2,301

Deferred income tax (benefit) expense

(36,660)

23,513

Changes in assets and liabilities, net of effects from acquisitions and dispositions:

Accounts receivable

910

34,882

Prepaid expenses and other current assets

(17,966)

(15,447)

Current liabilities

7,163

(15,979)

Other, net

5,998

5,936

Net cash provided by operating activities

37,105

125,968

INVESTING ACTIVITIES:

Purchase of fixed assets

(19,075)

(11,779)

Proceeds from sale of businesses, net of cash transferred

508

9,220

Proceeds from the sale of assets

203

—

Acquisition of businesses, net of cash acquired

(359,435)

(22,335)

Net cash used in investing activities

(377,799)

(24,894)

FINANCING ACTIVITIES:

Proceeds from issuance of common stock

3,231

3,980

Windfall tax benefits associated with equity-based compensation

119

88

Proceeds from issuance of debt

817,525

—

Borrowings under revolving credit facility

27,000

—

Payment of contingent consideration accrued at acquisition date

(1,675)

—

Repayment of long-term debt

(610,182)

(52,943)

Repurchase of common stock

—

(4,974)

Debt issuance costs

(15,187)

(4,125)

Minority interest capital contribution

1,600

—

Distribution to minority interests

(750)

(825)

Other

(1,082)

(135)

Net cash provided by (used in) financing activities

220,599

(58,934)

Net change in cash and cash equivalents

(120,095)

42,140

Cash and cash equivalents at beginning of period

207,052

164,912

Cash and cash equivalents at end of period

$

86,957

$

207,052

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

$

75,880

$

78,783

Income taxes paid

$

1,057

$

4,375

Fiscal Year

A reconciliation of Free cash flow to Net cash provided by operating activities follows:

2013

2012

Net cash provided by operating activities

$

37,105

$

125,968

Less: Purchase of fixed assets

(19,075)

(11,779)

Free cash flow

$

18,030

$

114,189

A reconciliation of Adjusted (loss) income attributable to Gentiva shareholders to Net (loss) income (all items presented are net of tax): (3)

4th Quarter

Fiscal Year

2013

2012

2013

2012

Adjusted (loss) income attributable to Gentiva shareholders

$

(4,901)

$

9,686

$

13,757

$

37,679

Cost savings, restructuring, legal settlement and acquisition and

integration costs (4)

(16,277)

(139)

(17,847)

(3,385)

Goodwill, intangibles and other long-lived asset impairment (5)

(366,453)

—

(580,651)

(11,352)

Impact of closed locations

(2,442)

—

(2,442)

—

Gain on sale of businesses (6)

—

1,516

—

4,765

Write-off of prepaid debt issuance costs

(11,811)

—

(11,811)

—

Equity in net loss of CareCentrix

—

(3,307)

—

(2,301)

Tax valuation allowance on OIG legal settlement

—

814

—

1,390

(Loss) income attributable to Gentiva shareholders

(401,884)

8,570

(598,994)

26,796

Add back: Net income attributable to noncontrolling interests

62

260

487

884

Net (loss) income

$

(401,822)

$

8,830

$

(598,507)

$

27,680

Adjusted (loss) income attributable to Gentiva shareholders

per diluted share

$

(0.14)

$

0.31

$

0.42

$

1.23

Cost savings, restructuring, legal settlement and acquisition and

integration costs (4)

(0.46)

—

(0.56)

(0.11)

Goodwill, intangibles and other long-lived asset impairment (5)

(10.45)

—

(18.17)

(0.37)

Impact of closed locations

(0.07)

—

(0.07)

—

Gain on sale of businesses (6)

—

0.05

—

0.16

Write-off of prepaid debt issuance costs

(0.34)

—

(0.37)

—

Equity in net loss of CareCentrix

—

(0.11)

—

(0.08)

Tax valuation allowance on OIG legal settlement

—

0.03

—

0.04

(Loss) income attributable to Gentiva shareholders per

diluted share

(11.46)

0.28

(18.75)

0.87

Add back: Net income attributable to noncontrolling interests

—

0.01

0.02

0.03

Net (loss) income per diluted share

$

(11.46)

$

0.29

$

(18.73)

$

0.90

Operating Metrics

4th Quarter

Fiscal Year

2013

2012

2013

2012

Home Health

Episodic admissions

52,300

49,300

199,000

198,000

Total episodes

79,300

71,900

293,200

287,800

Episodes per admission

1.52

1.46

1.47

1.45

Revenue per episode

$

2,850

$

2,920

$

2,890

$

2,900

Hospice

Admissions

13,000

12,600

50,500

51,500

Average daily census

13,500

13,200

12,900

13,600

Patient days (in thousands)

1,243

1,213

4,711

4,959

Revenue per patient day ^(a)

$

145

$

155

$

152

$

154

Length of stay at discharge (in days)

107

105

100

96

Services by patient type:

Routine

98%

98%

98%

98%

General Inpatient & Other

2%

2%

2%

2%

Community Care

Billed hours (in thousands)

3,600

—

3,600

—

Revenue per hour

$

13

$

—

$

13

$

—

(a) Revenue per patient day for Q4, 2013, includes approximately $6.9 million of hospice billing revenue adjustments. Excluding this adjustment, the revenue per patient day would be $151.

Notes:

1.

The comparability between reporting periods has been affected by the following items:

a.

The Company completed several acquisitions, including the Harden transaction on October 18, 2013, and closed a significant number of branch operations, affecting the reporting periods presented. As a result of these activities, the Company's net revenues comparisons were positively impacted for both the fourth quarter and full-year 2013 by approximately $91 million as compared to the corresponding periods of 2012.

2.

The Company's senior management evaluates performance and allocates resources based on operating contributions of the operating segments, which exclude corporate expenses, depreciation, amortization, interest income, and interest expense and other, but includes revenue and all other costs directly attributable to the specific segment. 

3.

Adjusted EBITDA, a non-GAAP financial measure, is defined as income before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating to (i) cost savings, restructuring, legal settlements, and acquisition and integration activities, (ii) EBITDA impact of closed locations, (iii) goodwill, intangibles and other long-lived asset impairment and (iv) gain on sale of businesses. Management uses Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States. Since Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and is susceptible to varying calculations, it may not be comparable to similarly titled measures in other companies.

Adjusted income attributable to Gentiva shareholders is defined as Adjusted EBITDA attributable to Gentiva shareholders, excluding (i) tax reserves relating to the OIG settlement, (ii) equity in net loss of CareCentrix and (iii) write-off of prepaid debt issuance costs.

4.

Operating contribution and EBITDA included charges relating to cost savings initiatives, legal settlements and acquisition and integration activities of $25.0 million and $27.5 million for the fourth quarter and full year 2013, respectively. For the fourth quarter and full year 2012, the Company recorded charges of $0.2 million and $5.7 million, respectively.

For the fourth quarter and full year 2013, the Company recorded charges associated with cost savings initiatives of $8.5 million and $8.7 million, respectively. For the fourth quarter and full year 2013, acquisition and integration activities of $16.5 million and $18.8 million, respectively, primarily related to the Company's acquisition of Harden. These costs consisted of legal, accounting and other professional fees and expenses.

For the fourth quarter and full year 2012, the Company recorded charges associated with cost savings initiatives of $0.2 million and $1.7 million, respectively. For the full year 2012, the Company recorded legal settlement reserves of $5.0 million, associated with the tentative settlement of the Wilkie wage and hour lawsuit, partially offset by a reduction in cost savings charges of $1.0 million, primarily relating to favorable lease settlements associated with the Company's branch closures.

These charges were reflected as follows for segment reporting purposes (dollars in millions):

5.

During the full year 2013, the Company recorded non-cash charges of $610.4 million related to goodwill, intangibles and other long-lived assets. The Company performed its annual impairment test as of December 31, 2013 for its Home Health, Hospice and Community Care reporting units. Based on this assessment, for the year ended December 31, 2013, the Company recorded a non-cash impairment charge associated with its Hospice reporting unit of approximately $386.1 million.

At March 31, 2013, the Company performed an interim impairment test of its Hospice reporting unit due to lower than expected average daily census and higher than expected discharge rates during the quarter. Based on the results of the interim impairment test, the Company recorded a non-cash impairment charge relating to goodwill of approximately $220.8 million. As part of that analysis, the Company reviewed the valuation of its owned real estate utilized in the Hospice business. The analysis indicated that two of the Company's hospice inpatient units had estimated fair values lower than their carrying values and, as such, the Company recorded a non-cash impairment charge of approximately $1.9 million.

In addition, the Company conducted an evaluation of the various systems used to support its field operations. In connection with that review, the Company made a strategic decision to replace its business intelligence software platform and, as such, recorded a non-cash impairment charge, related to developed software, of approximately $1.6 million.

During the third quarter of 2012, the Company initiated an effort to re-brand all of its branch operations under the single Gentiva name. In connection with this re-branding effort, the Company recorded a $19.1 million non-cash write-off of existing trade name balances for the year 2012.

6.

During the fourth quarter of 2012, the Company completed the sale of its Phoenix area hospice operations to Banner Health, an Arizona non-profit corporation, pursuant to an asset purchase agreement for cash consideration of $3.5 million.

During the second quarter of 2012, the Company completed the sale of eight home health branches and four hospice branches in Louisiana, pursuant to an asset purchase agreement, for total consideration of approximately $6.4 million. The Company received proceeds of approximately $5.9 million for the full year 2012 and established a receivable of approximately $0.5 million, which the Company received during the second quarter of 2013. 

Effective May 31, 2012, the Company completed the sale of its Gentiva consulting business to MP Healthcare Partners, LLC pursuant to an asset purchase agreement, for cash consideration of approximately $0.3 million.

In connection with the sales, the Company recorded a gain on sale of businesses of approximately $2.6 million and $8.0 million for the fourth quarter and full year 2012, respectively.

7.

Interest expense and other for the year 2013 and 2012 included charges of approximately $19.1 million and $0.5 million, respectively, relating to the write-off of deferred debt issuance costs and fees associated with the Company entering a new credit agreement, dated October 18, 2013 and for the 2012 period, write-off of deferred debt issuance costs related to Amendment No. 3 to the Company's former credit agreement.

8.

The Company's effective tax rate was a tax benefit of 9.5% and 6.2% for the fourth quarter and full year 2013, respectively, as compared to a tax provision of 34.4% and 36.5% for the fourth quarter and full year 2012, respectively. The Company's effective tax rate for adjusted income from continuing operations was a tax provision of 41.0% and 41.3% for the fourth quarter and full year 2013, respectively, as compared to 38.4% and 39.8% for the fourth quarter and full year 2013, respectively.

Financial and Investor Contact:

Eric Slusser

770-951-6101

[email protected]

or 

John Mongelli

770-951-6496

[email protected]

Media Contact:

Scott Cianciulli

Brainerd Communicators

212-986-6667

[email protected]