SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

November 01, 2011 16:30 ET

Sun Healthcare Group, Inc. Reports 2011 Third-Quarter Results and Normalized EPS of $0.32

IRVINE, CA--(Marketwire - Nov 1, 2011) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its operating results for the third quarter ended Sept. 30, 2011.

Normalized results for the third quarter period ended Sept. 30, 2011:

  • consolidated revenues rose 2.6 percent to $485.9 million, compared to the same period in 2010, driven primarily by growth in rate and skilled mix in the inpatient services segment;
  • consolidated adjusted EBITDAR increased 5.6 percent to $63.8 million and adjusted EBITDAR margin grew 30 basis points to 13.1 percent, compared to normalized data for the same period in 2010;
  • diluted earnings per share from continuing operations was $0.32 on 26.2 million weighted-average diluted shares;
  • free cash flow was $3.7 million; and
  • the Company recorded a non-cash, pre-tax impairment charge of $317.1 million associated with the write-down of goodwill and other intangible assets as a result of the impact on the inpatient services business of the final Medicare reimbursement rates for fiscal year 2012 established by the Centers for Medicare and Medicaid Services (CMS), which became effective on Oct. 1, 2011 (the CMS final rule), and a $2.4 million expense related to restructuring initiatives. Both the impairment charge and the restructuring costs have been normalized out of reported results, and the results reported above do not reflect the impact of these charges.

Regarding the Company's third-quarter results, William A. Mathies, Sun's chairman and chief executive officer, stated, "Revenue growth and EBITDAR margin expansion in the quarter were in line with our expectations. Our operating metrics showed strength too, with skilled mix days growing 30 basis points year-over-year as our focus on attracting and providing high quality care for high-acuity, short-stay patients continues to have a positive return for the Company. Additionally, the free cash flow we generated in the quarter contributed to bringing our quarter-end cash balance to $91.2 million. The quarter's strength provides us with a solid footing from which to address the challenges we face related to the CMS final rule for skilled nursing facilities implemented on October 1."

Mathies concluded, "We have begun our mitigation efforts to offset the impact of the CMS final rule, some of which will impact the fourth quarter of 2011 but most of which will yield results in 2012. Based on our experience thus far, we continue to believe that the net impact of the CMS final rule on our 2012 EBITDAR will be between $45 million and $50 million. We also continue to evaluate strategic uses of our significant cash balance toward enhancing our financial flexibility, as well as other strategic initiatives through which we can strengthen our competitive positioning."

Segment Updates

SunBridge, Sun's inpatient services business, reported year-over-year revenue growth in the quarter of $13.7 million, or 3.2 percent, and adjusted EBITDAR of $74.5 million for the quarter, up $5.7 million or 8.2 percent compared to the same quarter during the prior year. Adjusted EBITDAR margin for inpatient services in the quarter was 17.1 percent, up 80 basis points from the same period in 2010. Skilled mix revenue as a percent of total revenue increased by 260 basis points (to 39.8 percent) compared to the same quarter in 2010, driven by continued growth in total skilled admissions. In the quarter, the number of Rehab Recovery Suites® (RRS) beds was increased by an additional 113 beds, enhancing the ability to attract high-acuity patients. These additional beds bring total available RRS beds to 2,185, an increase of 32.7 percent during the same quarter in 2010.

Included in the inpatient segment, revenues from SolAmor, Sun's hospice business, increased $3.6 million from $11.3 million in the third quarter of 2010 to $14.9 million in the third quarter of 2011. Same-store revenue growth in the quarter was 9.4 percent or $1.1 million. An additional $2.5 million of revenue growth was attributable to the Countryside acquisition. On Oct. 1, 2011, SolAmor acquired a small Ohio-based hospice business which complements SunBridge's Ohio nursing centers and broadens SolAmor's footprint to 11 states.

SunDance, Sun's rehabilitation therapy services business, reported for the quarter revenues of $62.4 million, adjusted EBITDAR of $2.7 million and adjusted EBITDAR margin of 4.3 percent. While revenues were up compared to the same quarter one year ago, EBITDAR and EBITDAR margin were both down year-over-year due to changes in concurrent therapy reimbursement, which was effective on Oct. 1, 2010, and also due to the implementation of the multiple procedure payment reduction (MPPR), which was effective on Jan. 1, 2011.

CareerStaff, Sun's medical staffing services business, reported revenues of $21.8 million for the quarter, down 2.0 percent compared to revenues in the same quarter of 2010. Despite the decline in revenues, CareerStaff achieved adjusted EBITDAR of $1.6 million and an adjusted EBITDAR margin of 7.3 percent for the quarter.

Cash Flow, Capital Structure, Rent Expense and Taxes

At Sept. 30, 2011, Sun had $91.2 million in cash and $142.6 million of long-term debt. Sun's free cash flow for the third quarter of 2011 was $3.7 million, after taking into account $14.2 million of cash used for capital expenditures in the quarter. Rent expense in the quarter reflected the third full quarter in which the increased rents, resulting from Sun's 2010 restructuring, were paid. Rent expense in the third quarter totaled $37.2 million, consistent with second quarter rent of $37.0 million. As a result of the CMS final rule and its expected impact on Sun's profitability, the effective income tax rate for the nine months ended Sept. 30, 2011, was lowered to 39.0 percent from the 41.0 percent effective tax rate recorded through the end of the second quarter. Lowering the effective tax rate in the third quarter to balance out the year-to-date tax rate at 39.0 percent produced a lower than expected income tax expense (and rate) in the third quarter. The effective income tax rate for the fourth quarter is expected to be 39.0 percent.

Goodwill Impairment Charge and Restructuring Expense

Sun recorded a non-cash, pre-tax impairment charge of $317.1 million associated with the write-down of goodwill and other intangible assets as a result of the impact of the CMS final rule, which became effective on Oct. 1, 2011, on the inpatient services business. Sun also recorded a $1.8 million income tax benefit associated with the impairment charge and an expense of $2.4 million related to restructuring costs from Sun's mitigation initiatives in response to the CMS final rule. The restructuring costs are expected to be non-recurring.

Conference Call

As previously announced, investors and the general public are invited to listen to a conference call with Sun's senior management on Wednesday, Nov. 2, 2011, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company's third-quarter results for the period ended Sept. 30, 2011.

To listen to the conference call, dial (888) 208-1812 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Nov. 2, 2011, until midnight Eastern on Dec. 2, 2011, by calling (888) 203-1112 and using access code 8727814.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc. (NASDAQ: SUNH) is a healthcare services company, serving principally the senior population, with consolidated annual revenues in excess of $1.9 billion and approximately 30,000 employees in 46 states. Sun's services are provided through its subsidiaries: as of Oct. 1, 2011, SunBridge Healthcare and its subsidiaries operate 165 skilled nursing centers, 14 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers with an aggregate of 22,997 licensed beds in 25 states; SunDance Rehabilitation provides rehabilitation therapy services to affiliated and non-affiliated centers in 38 states; CareerStaff Unlimited provides medical staffing services in 43 states; and SolAmor Hospice provides hospice services in 11 states. For more information, go to www.sunh.com.

Forward-looking Statements

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Forward-looking statements in this release include all statements regarding the scope, timing and effectiveness of the Company's efforts to mitigate the impact on the Company's business of the CMS final rule; the Company's expectations regarding the amount and recurring nature of restructuring costs associated with the CMS final rule; and the Company's expectations for the effective income tax rate for the fourth quarter of 2011. Factors that could cause actual results to differ are identified in filings made by the Company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements, including with respect to the CMS final rule, and the Company's ability to mitigate the impact of such changes; the impact that healthcare reform legislation will have on the Company's business; the ability to maintain the occupancy rates and payor mix at the Company's healthcare centers; potential liability for losses not covered by, or in excess of, insurance; the effects of government regulations and investigations; the ability of the Company to collect its accounts receivable on a timely basis; the amount of the Company's indebtedness; covenants in debt agreements and leases that may restrict the Company's activities, including the Company's ability to make acquisitions and incur more indebtedness on favorable terms; the impact of the economic downturn on the business; increasing labor costs and the shortage of qualified healthcare personnel; and the Company's ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect the Company's business and financial results are included in Sun's filings made with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun's web site, www.sunh.com. There may be additional risks of which the Company is presently unaware or that it currently deems immaterial.

The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control. Sun cautions investors that any forward-looking statements made by Sun are not guarantees of future performance and are only made as of the date of this release. Sun disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

EBITDA, adjusted EBITDA, adjusted EBITDAR and free cash flow, as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to their respective GAAP-recognized financial measures in the accompanying tables. In addition, normalizing adjustments to adjusted EBITDAR and other financial measures, as discussed in this press release and shown in the accompanying tables, are non-GAAP adjustments and are reconciled to GAAP financial measures in the accompanying tables.

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
KEY INCOME STATEMENT FIGURES
CONSOLIDATED
(in thousands, except per share data)
For the For the
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
Revenue $ 485,850 $ 473,411
Center rent expense 37,184 18,954
Depreciation and amortization 8,295 12,639
Interest expense, net 4,835 10,527
Pre-tax (loss) income (306,797 ) 13,592
Income tax expense 1,569 5,559
(Loss) income from continuing operations (308,366 ) 8,033
Loss from discontinued operations (1,040 ) (477 )
Net (loss) income $ (309,406 ) $ 7,556
Diluted earnings per share $ (11.81 ) $ 0.37
Adjusted EBITDAR $ 63,843 $ 55,712
Margin - Adjusted EBITDAR 13.1 % 11.8 %
Adjusted EBITDAR normalized $ 63,843 $ 60,459
Margin - Adjusted EBITDAR normalized 13.1 % 12.8 %
Adjusted EBITDA $ 26,659 $ 36,758
Margin - Adjusted EBITDA 5.5 % 7.8 %
Adjusted EBITDA normalized $ 26,659 $ 41,505
Margin - Adjusted EBITDA normalized 5.5 % 8.8 %
Pre-tax income continuing operations - normalized $ 12,720 $ 18,339
Income tax expense - normalized $ 4,317 $ 7,505
Income from continuing operations - normalized $ 8,403 $ 10,834
Diluted earnings per share from continuing operations - normalized $ 0.32 $ 0.53
Net income - normalized $ 7,363 $ 10,357
Diluted earnings per share - normalized $ 0.28 $ 0.50
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
KEY INCOME STATEMENT FIGURES
CONSOLIDATED
(in thousands, except per share data)
For the For the
Nine Months Ended Nine Months Ended
September 30, 2011 September 30, 2010
Revenue $ 1,457,421 $ 1,415,734
Center rent expense 111,110 56,306
Depreciation and amortization 23,636 37,449
Interest expense, net 14,689 34,105
Pre-tax (loss) income (274,911 ) 49,451
Income tax expense 14,642 19,990
(Loss) income from continuing operations (289,553 ) 29,461
Loss from discontinued operations (1,794 ) (1,734 )
Net (loss) income $ (291,347 ) $ 27,727
Diluted earnings per share $ (11.19 ) $ 1.59
Adjusted EBITDAR $ 195,152 $ 177,311
Margin - Adjusted EBITDAR 13.4 % 12.5 %
Adjusted EBITDAR normalized $ 195,152 $ 184,306
Margin - Adjusted EBITDAR normalized 13.4 % 13.0 %
Adjusted EBITDA $ 84,042 $ 121,005
Margin - Adjusted EBITDA 5.8 % 8.5 %
Adjusted EBITDA normalized $ 84,042 $ 128,000
Margin - Adjusted EBITDA normalized 5.8 % 9.0 %
Pre-tax income continuing operations - normalized $ 44,606 $ 56,446
Income tax expense - normalized $ 17,390 $ 22,858
Income from continuing operations - normalized $ 27,216 $ 33,588
Diluted earnings per share from continuing operations - normalized $ 1.05 $ 1.92
Net income - normalized $ 25,422 $ 31,854
Diluted earnings per share - normalized $ 0.98 $ 1.82
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, 2011 December 31, 2010
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 91,179 $ 81,163
Restricted cash 16,382 15,329
Accounts receivable, net 213,858 218,040
Prepaid expenses and other assets 26,380 16,859
Deferred tax assets 71,996 69,800
Total current assets 419,795 401,191
Property and equipment, net 145,611 139,860
Intangible assets, net 35,317 41,967
Goodwill 35,679 348,047
Restricted cash, non-current 352 350
Deferred tax assets 115,243 126,540
Other assets 45,606 23,803
Total assets $ 797,603 $ 1,081,758
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,659 $ 49,993
Accrued compensation and benefits 49,328 61,518
Accrued self-insurance obligations, current portion 62,038 52,093
Other accrued liabilities 56,457 53,945
Current portion of long-term debt and capital lease obligations 11,033 11,050
Total current liabilities 228,515 228,599
Accrued self-insurance obligations, net of current portion 153,471 133,405
Long-term debt and capital lease obligations, net of current portion 131,548 144,930
Unfavorable lease obligations, net 7,771 9,815
Other long-term liabilities 52,394 52,566
Total liabilities 573,699 569,315
Stockholders' equity:
Preferred stock of $.01 par value, authorized 3,333 shares, zero shares were issued and outstanding as of September 30, 2011 and December 31, 2010 - -
Common stock of $.01 par value, authorized 41,667 shares, 25,146 and 24,974 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively 251 250
Additional paid-in capital 724,814 720,854
Accumulated deficit (500,008 ) (208,661 )
Accumulated other comprehensive loss, net (1,153 ) -
223,904 512,443
Total liabilities and stockholders' equity $ 797,603 $ 1,081,758
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
For the For the
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Total net revenues $ 485,850 $ 473,411
Costs and expenses:
Operating salaries and benefits 273,223 268,501
Self-insurance for workers' compensation and general and professional liability insurance 15,250 14,531
Operating administrative costs 13,157 13,343
Other operating costs 100,636 97,333
Center rent expense 37,184 18,954
General and administrative expenses 14,825 14,146
Depreciation and amortization 8,295 12,639
Provision for losses on accounts receivable 4,916 5,098
Interest, net of interest income of $103 and $59, respectively 4,835 10,527
Transaction costs - 4,747
Loss on sale of assets, net 809 -
Restructuring costs 2,426 -
Loss on asset impairment 317,091 -
Total costs and expenses 792,647 459,819
(Loss) income before income taxes and discontinued operations (306,797 ) 13,592
Income tax expense 1,569 5,559
(Loss) income from continuing operations (308,366 ) 8,033
Discontinued operations:
Loss from discontinued operations, net of related taxes (359 ) (477 )
Loss on disposal of discontinued operations, net of related taxes (681 ) -
Loss from discontinued operations, net (1,040 ) (477 )
Net (loss) income $ (309,406 ) $ 7,556
Basic income per common and common equivalent share:
(Loss) income from continuing operations $ (11.77 ) $ 0.39
Loss from discontinued operations, net (0.04 ) (0.02 )
Net (loss) income $ (11.81 ) $ 0.37
Diluted income per common and common equivalent share:
(Loss) income from continuing operations $ (11.77 ) $ 0.39
Loss from discontinued operations, net (0.04 ) (0.02 )
Net (loss) income $ (11.81 ) $ 0.37
Weighted average number of common and common equivalent shares outstanding:
Basic 26,203 20,529
Diluted 26,203 20,550
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
For the For the
Nine Months Ended Nine Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Total net revenues $ 1,457,421 $ 1,415,734
Costs and expenses:
Operating salaries and benefits 818,248 799,603
Self-insurance for workers' compensation and general and professional liability insurance 45,779 43,433
Operating administrative costs 39,913 38,932
Other operating costs 298,213 289,079
Center rent expense 111,110 56,306
General and administrative expenses 45,156 44,570
Depreciation and amortization 23,636 37,449
Provision for losses on accounts receivable 14,960 15,811
Interest, net of interest income of $244 and $222, respectively 14,689 34,105
Transaction costs - 6,995
Loss on sale of assets, net 809 -
Restructuring costs 2,728 -
Loss on asset impairment 317,091 -
Total costs and expenses 1,732,332 1,366,283
(Loss) income before income taxes and discontinued operations (274,911 ) 49,451
Income tax expense 14,642 19,990
(Loss) income from continuing operations (289,553 ) 29,461
Discontinued operations:
Loss from discontinued operations, net of related taxes (1,113 ) (1,734 )
Loss on disposal of discontinued operations, net of related taxes (681 ) -
Loss from discontinued operations, net (1,794 ) (1,734 )
Net (loss) income $ (291,347 ) $ 27,727
Basic income per common and common equivalent share:
(Loss) income from continuing operations $ (11.12 ) $ 1.69
Loss from discontinued operations, net (0.07 ) (0.10 )
Net (loss) income $ (11.19 ) $ 1.59
Diluted income per common and common equivalent share:
(Loss) income from continuing operations $ (11.12 ) $ 1.68
Loss from discontinued operations, net (0.07 ) (0.09 )
Net (Loss) income $ (11.19 ) $ 1.59
Weighted average number of common and common equivalent shares outstanding:
Basic 26,038 17,418
Diluted 26,038 17,485
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the For the
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Cash flows from operating activities:
Net (loss) income $ (309,406 ) $ 7,556
Adjustments to reconcile net income to net cash provided by operating activities, including discontinued operations:
Depreciation and amortization 8,335 12,736
Amortization of favorable and unfavorable lease intangibles (492 ) (504 )
Provision for losses on accounts receivable 4,975 5,289
Loss on sale of assets, including discontinued operations, net 1,925 -
Loss on asset impairment 317,091 -
Stock-based compensation expense 2,359 1,661
Deferred taxes (105 ) 3,286
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 23 (1,307 )
Restricted cash 52 2,769
Prepaid expenses and other assets (1,600 ) 5,399
Accounts payable 1,595 (4,909 )
Accrued compensation and benefits (11,717 ) (2,117 )
Accrued self-insurance obligations 3,618 199
Income taxes payable - 1,267
Other accrued liabilities 2,104 4,429
Other long-term liabilities (880 ) (676 )
Net cash provided by operating activities 17,877 35,078
Cash flows from investing activities:
Capital expenditures (14,190 ) (13,774 )
Proceeds from sale of assets 1,809 -
Net cash used for investing activities (12,381 ) (13,774 )
Cash flows from financing activities:
Borrowings of long-term debt - 20,500
Principal repayments of long-term debt and capital lease obligations (2,806 ) (234,116 )
Proceeds from issuance of common stock - 226,001
Deferred financing costs - (2,312 )
Net cash used for financing activities (2,806 ) 10,073
Net increase in cash and cash equivalents 2,690 31,377
Cash and cash equivalents at beginning of period 88,489 106,973
Cash and cash equivalents at end of period $ 91,179 $ 138,350
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities $ 17,877 $ 35,078
Capital expenditures (14,190 ) (13,774 )
Free cash flow $ 3,687 $ 21,304
Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for debt service and other financing activities.
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the For the
Nine Months Ended Nine Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Cash flows from operating activities:
Net (loss) income $ (291,347 ) $ 27,727
Adjustments to reconcile net income to net cash provided by operating activities, including discontinued operations:
Loss on extinguishment of debt
Depreciation and amortization 23,879 37,744
Amortization of favorable and unfavorable lease intangibles (1,466 ) (1,452 )
Provision for losses on accounts receivable 15,479 16,428
Loss on sale of assets, including discontinued operations, net 1,925 -
Loss on asset impairment 317,091 -
Stock-based compensation expense 5,160 4,748
Deferred taxes 9,871 14,976
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (12,555 ) (12,500 )
Restricted cash (1,876 ) 5,040
Prepaid expenses and other assets (1,410 ) 8,012
Accounts payable (1,906 ) (3,628 )
Accrued compensation and benefits (12,298 ) 1,945
Accrued self-insurance obligations (294 ) 5,041
Income taxes payable - 1,605
Other accrued liabilities 1,158 4,442
Other long-term liabilities (2,098 ) (5,775 )
Net cash provided by operating activities 49,313 104,353
Cash flows from investing activities:
Capital expenditures (32,346 ) (41,488 )
Proceeds from sale of assets 1,809 -
Acquisitions, net of cash acquired (356 ) -
Net cash used for investing activities (30,893 ) (41,488 )
Cash flows from financing activities:
Borrowings of long-term debt - 20,500
Principal repayments of long-term debt and capital lease obligations (8,404 ) (271,093 )
Payment to non-controlling interest - (2,025 )
Distribution to non-controlling interest - (69 )
Proceeds from issuance of common stock - 226,001
Deferred financing costs - (2,312 )
Net cash used for financing activities (8,404 ) (28,998 )
Net increase in cash and cash equivalents 10,016 33,867
Cash and cash equivalents at beginning of period 81,163 104,483
Cash and cash equivalents at end of period $ 91,179 $ 138,350
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities $ 49,313 $ 104,353
Capital expenditures (32,346 ) (41,488 )
Free cash flow $ 16,967 $ 62,865
Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for debt service and other financing activities.
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA and ADJUSTED EBITDAR
(in thousands)
For the For the
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Total net revenues $ 485,850 $ 473,411
Net (loss) income $ (309,406 ) $ 7,556
(Loss) income from continuing operations (308,366 ) 8,033
Income tax expense 1,569 5,559
Interest, net 4,835 10,527
Depreciation and amortization 8,295 12,639
EBITDA $ (293,667 ) $ 36,758
Loss on sale of assets, net 809 -
Restructuring costs 2,426 -
Loss on asset impairment 317,091 -
Adjusted EBITDA $ 26,659 $ 36,758
Center rent expense 37,184 18,954
Adjusted EBITDAR $ 63,843 $ 55,712
EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before loss on sale of assets, restructuring costs and loss on asset impairment. Adjusted EBITDAR is defined as Adjusted EBITDA before center rent expense. Adjusted EBITDA and Adjusted EBITDAR are used by management to evaluate financial performance and resource allocation for each entity within the operating units and for the Company as a whole. Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. Adjusted EBITDA and Adjusted EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles. As the items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing finance performance, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as alternatives to net income, cash flows generated by or used in operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA and Adjusted EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations. Adjusted EBITDA and Adjusted EBITDAR as presented may not be comparable to other similarly titled measures of other companies.
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA and ADJUSTED EBITDAR
(in thousands)
For the For the
Nine Months Ended Nine Months Ended
September 30, 2011 September 30, 2010
(unaudited) (unaudited)
Total net revenues $ 1,457,421 $ 1,415,734
Net (loss) income $ (291,347 ) $ 27,727
(Loss) income from continuing operations (289,553 ) 29,461
Income tax expense 14,642 19,990
Interest, net 14,689 34,105
Depreciation and amortization 23,636 37,449
EBITDA $ (236,586 ) $ 121,005
Loss on sale of assets, net 809 -
Restructuring costs 2,728 -
Loss on asset impairment 317,091 -
Adjusted EBITDA $ 84,042 $ 121,005
Center rent expense 111,110 56,306
Adjusted EBITDAR $ 195,152 $ 177,311
EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before loss on sale of assets, restructuring costs and loss on asset impairment. Adjusted EBITDAR is defined as Adjusted EBITDA before center rent expense. Adjusted EBITDA and Adjusted EBITDAR are used by management to evaluate financial performance and resource allocation for each entity within the operating units and for the Company as a whole. Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. Adjusted EBITDA and Adjusted EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles. As the items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing finance performance, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as alternatives to net income, cash flows generated by or used in operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Adjusted EBITDA and Adjusted EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations. Adjusted EBITDA and Adjusted EBITDAR as presented may not be comparable to other similarly titled measures of other companies.
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)
For the Three Months Ended September 30, 2011
(unaudited)
Inpatient Services Rehabilitation Therapy Services Medical Staffing Services Other & Corp Seg Elimination of Affiliated Revenue Consolidated
Nonaffiliated revenue $ 435,271 $ 29,568 $ 20,996 $ 15 $ - $ 485,850
Affiliated revenue - 32,791 757 - (33,548 ) -
Total revenue $ 435,271 $ 62,359 $ 21,753 $ 15 $ (33,548 ) $ 485,850
Income (loss) from continuing operations $ (287,174 ) $ 2,296 $ 1,221 $ (24,709 ) $ - $ (308,366 )
Income tax expense - - - 1,569 - 1,569
Interest, net (32 ) - - 4,867 - 4,835
Depreciation and amortization 6,902 236 187 970 - 8,295
EBITDA $ (280,304 ) $ 2,532 $ 1,408 $ (17,303 ) $ - $ (293,667 )
Loss on sale of assets, net 809 - - - - 809
Restructuring costs - - - 2,426 - 2,426
Loss on asset impairment 317,091 - - - - 317,091
Adjusted EBITDA $ 37,596 $ 2,532 $ 1,408 $ (14,877 ) $ - $ 26,659
Center rent expense 36,874 140 170 - - 37,184
Adjusted EBITDAR $ 74,470 $ 2,672 $ 1,578 $ (14,877 ) $ - $ 63,843
Normalized Adjusted EBITDA $ 37,596 $ 2,532 $ 1,408 $ (14,877 ) $ - $ 26,659
Normalized Adjusted EBITDAR $ 74,470 $ 2,672 $ 1,578 $ (14,877 ) $ - $ 63,843
Adjusted EBITDA margin 8.6 % 4.1 % 6.5 % 5.5 %
Adjusted EBITDAR margin 17.1 % 4.3 % 7.3 % 13.1 %
Normalized Adjusted EBITDA margin 8.6 % 4.1 % 6.5 % 5.5 %
Normalized Adjusted EBITDAR margin 17.1 % 4.3 % 7.3 % 13.1 %
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)
For the Nine Months Ended September 30, 2011
(unaudited)
Inpatient Services Rehabilitation Therapy Services Medical Staffing Services Other & Corp Seg Elimination of Affiliated Revenue Consolidated
Nonaffiliated revenue $ 1,302,431 $ 89,645 $ 65,309 $ 36 $ - $ 1,457,421
Affiliated revenue - 98,710 2,079 - (100,789 ) -
Total revenue $ 1,302,431 $ 188,355 $ 67,388 $ 36 $ (100,789 ) $ 1,457,421
Income (loss) from continuing operations $ (222,322 ) $ 8,495 $ 4,082 $ (79,808 ) $ - $ (289,553 )
Income tax expense - - - 14,642 - 14,642
Interest, net (68 ) - 1 14,756 - 14,689
Depreciation and amortization 19,726 689 561 2,660 - 23,636
EBITDA $ (202,664 ) $ 9,184 $ 4,644 $ (47,750 ) $ - $ (236,586 )
Loss on sale of assets, net 809 - - - - 809
Restructuring costs 302 - - 2,426 - 2,728
Loss on asset impairment 317,091 - - - - 317,091
Adjusted EBITDA $ 115,538 $ 9,184 $ 4,644 $ (45,324 ) $ - $ 84,042
Center rent expense 110,203 394 513 - - 111,110
Adjusted EBITDAR $ 225,741 $ 9,578 $ 5,157 $ (45,324 ) $ - $ 195,152
Normalized Adjusted EBITDA $ 115,538 $ 9,184 $ 4,644 $ (45,324 ) $ - $ 84,042
Normalized Adjusted EBITDAR $ 225,741 $ 9,578 $ 5,157 $ (45,324 ) $ - $ 195,152
Adjusted EBITDA margin 8.9 % 4.9 % 6.9 % 5.8 %
Adjusted EBITDAR margin 17.3 % 5.1 % 7.7 % 13.4 %
Normalized Adjusted EBITDA margin 8.9 % 4.9 % 6.9 % 5.8 %
Normalized Adjusted EBITDAR margin 17.3 % 5.1 % 7.7 % 13.4 %
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)
For the Three Months Ended September 30, 2010
(unaudited)
Inpatient Services Rehabilitation Therapy Services Medical Staffing Services Other & Corp Seg Elimination of Affiliated Revenue Consolidated
Nonaffiliated revenue $ 421,573 $ 30,343 $ 21,481 $ 14 $ - $ 473,411
Affiliated revenue - 21,397 724 - (22,121 ) -
Total revenue $ 421,573 $ 51,740 $ 22,205 $ 14 $ (22,121 ) $ 473,411
Income (loss) from continuing operations $ 36,168 $ 3,961 $ 1,195 $ (33,291 ) $ - $ 8,033
Income tax expense - - - 5,559 - 5,559
Interest, net 2,483 - - 8,044 - 10,527
Depreciation and amortization 11,536 173 181 749 - 12,639
EBITDA $ 50,187 $ 4,134 $ 1,376 $ (18,939 ) $ - $ 36,758
Restructuring costs - - - - - -
Adjusted EBITDA $ 50,187 $ 4,134 $ 1,376 $ (18,939 ) $ - $ 36,758
Center rent expense 18,629 123 202 - - 18,954
Adjusted EBITDAR $ 68,816 $ 4,257 $ 1,578 $ (18,939 ) $ - $ 55,712
Normalized Adjusted EBITDA $ 50,187 $ 4,134 $ 1,376 $ (14,192 ) $ - $ 41,505
Normalized Adjusted EBITDAR $ 68,816 $ 4,257 $ 1,578 $ (14,192 ) $ - $ 60,459
Adjusted EBITDA margin 11.9 % 8.0 % 6.2 % 7.8 %
Adjusted EBITDAR margin 16.3 % 8.2 % 7.1 % 11.8 %
Normalized Adjusted EBITDA margin 11.9 % 8.0 % 6.2 % 8.8 %
Normalized Adjusted EBITDAR margin 16.3 % 8.2 % 7.1 % 12.8 %
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)
For the Nine Months Ended September 30, 2010
(unaudited)
Inpatient Services Rehabilitation Therapy Services Medical Staffing Services Other & Corp Seg Elimination of Affiliated Revenue Consolidated
Nonaffiliated revenue $ 1,258,271 $ 89,723 $ 67,712 $ 28 $ - $ 1,415,734
Affiliated revenue - 63,584 1,364 - (64,948 ) -
Total revenue $ 1,258,271 $ 153,307 $ 69,076 $ 28 $ (64,948 ) $ 1,415,734
Income (loss) from continuing operations $ 113,601 $ 11,757 $ 4,479 $ (100,376 ) $ - $ 29,461
Income tax expense - - - 19,990 - 19,990
Interest, net 7,826 - (1 ) 26,280 - 34,105
Depreciation and amortization 34,037 484 543 2,385 - 37,449
EBITDA $ 155,464 $ 12,241 $ 5,021 $ (51,721 ) $ - $ 121,005
Restructuring costs - - - - - -
Adjusted EBITDA $ 155,464 $ 12,241 $ 5,021 $ (51,721 ) $ - $ 121,005
Center rent expense 55,326 364 616 - - 56,306
Adjusted EBITDAR $ 210,790 $ 12,605 $ 5,637 $ (51,721 ) $ - $ 177,311
Normalized Adjusted EBITDA $ 155,464 $ 12,241 $ 5,021 $ (44,726 ) $ - $ 128,000
Normalized Adjusted EBITDAR $ 210,790 $ 12,605 $ 5,637 $ (44,726 ) $ - $ 184,306
Adjusted EBITDA margin 12.4 % 8.0 % 7.3 % 8.5 %
Adjusted EBITDAR margin 16.8 % 8.2 % 8.2 % 12.5 %
Normalized Adjusted EBITDA margin 12.4 % 8.0 % 7.3 % 9.0 %
Normalized Adjusted EBITDAR margin 16.8 % 8.2 % 8.2 % 13.0 %
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date Comparison."
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
SELECTED OPERATING STATISTICS
CONTINUING OPERATIONS
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Consolidated Company
Revenues - Non-affiliated (in thousands)
Skilled Nursing and similar facilities $ 419,878 $ 409,709 $ 1,257,342 $ 1,222,976
Hospice 14,885 11,277 43,647 33,633
Other - Inpatient Services 508 587 1,442 1,662
Inpatient Services 435,271 421,573 1,302,431 1,258,271
Rehabilitation Therapy Services 29,568 30,343 89,645 89,723
Medical Staffing Services 20,996 21,481 65,309 67,712
Other - non-core businesses 15 14 36 28
Total $ 485,850 $ 473,411 $ 1,457,421 $ 1,415,734
Revenue Mix - Non-affiliated (in thousands)
Medicare $ 154,953 32 % $ 137,606 29 % $ 472,652 32 % $ 419,846 30 %
Medicaid 191,821 39 % 193,013 41 % 562,981 39 % 569,222 40 %
Private and Other 109,232 23 % 113,502 24 % 332,338 23 % 339,162 24 %
Managed Care / Insurance 24,387 5 % 24,142 5 % 73,762 5 % 72,476 5 %
Veterans 5,457 1 % 5,148 1 % 15,688 1 % 15,028 1 %
Total $ 485,850 100 % $ 473,411 100 % $ 1,457,421 100 % $ 1,415,734 100 %
Inpatient Services Stats
Number of centers: 199 199 199 199
Number of available beds: 22,045 22,113 22,045 22,113
Occupancy %: 86.3 % 87.1 % 86.6 % 87.1 %
Payor Mix % based on patient days:
Medicare - SNF Beds 15.0 % 14.7 % 15.5 % 15.2 %
Managed care / Ins. - SNF Beds 3.9 % 3.9 % 4.1 % 4.0 %
Total SNF skilled mix 18.9 % 18.6 % 19.6 % 19.2 %
Medicare 13.7 % 13.4 % 14.2 % 13.9 %
Medicaid 62.6 % 62.4 % 62.2 % 62.1 %
Private and Other 18.9 % 19.4 % 18.7 % 19.1 %
Managed Care / Insurance 3.6 % 3.6 % 3.7 % 3.7 %
Veterans 1.2 % 1.2 % 1.2 % 1.2 %
Revenue Mix % of revenues:
Medicare - SNF Beds 33.8 % 31.2 % 34.7 % 32.0 %
Managed care / Ins. - SNF Beds 6.0 % 6.0 % 6.0 % 6.1 %
Total SNF skilled mix 39.8 % 37.2 % 40.7 % 38.1 %
Medicare 34.5 % 31.5 % 35.2 % 32.3 %
Medicaid 44.1 % 45.8 % 43.2 % 45.2 %
Private and Other 14.6 % 15.8 % 14.8 % 15.6 %
Managed Care / Insurance 5.5 % 5.7 % 5.6 % 5.7 %
Veterans 1.3 % 1.2 % 1.2 % 1.2 %
Revenues PPD:
Medicare
(Part A)
$ 519.12 $ 463.45 $ 519.70 $ 464.51
Medicare Blended Rate
(Part A & B)
$ 562.41 $ 505.71 $ 558.66 $ 504.00
Medicaid $ 174.89 $ 173.11 $ 173.73 $ 172.91
Medicaid, net of provider taxes $ 159.64 $ 159.20 $ 158.81 $ 159.30
Private and Other $ 183.77 $ 182.90 $ 187.62 $ 184.91
Managed Care / Insurance $ 382.31 $ 375.78 $ 375.49 $ 368.92
Veterans $ 257.15 $ 238.74 $ 249.90 $ 241.06
Rehab contracts
Affiliated 178 132 178 132
Non-affiliated 343 344 343 344
Average Qtrly Revenue per Contract (in thousands) $ 120 $ 109 $ 121 $ 107
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NORMALIZING ADJUSTMENTS - QUARTER COMPARISON
(in thousands, except per share data)
AS REPORTED - 3rd QUARTER 2011
Revenue Adjusted EBITDAR Adjusted EBITDA Pre-tax Income from Continuing Operations Disc Ops Net Income
As Reported 3rd QUARTER 2011 $ 485,850 $ 63,843 $ 26,659 $ (306,797 ) $ (308,366 ) $ (1,040 ) $ (309,406 )
Percent of Revenue 13.1 % 5.5 % -63.1 % -63.5 % -0.2 % -63.7 %
Normalizing Adjustments:
Restructuring costs - - - 2,426 1,480 - 1,480
Impairment of assets - - - 317,091 315,289 - 315,289
Normalized As Reported - 3rd QUARTER 2011 $ 485,850 $ 63,843 $ 26,659 $ 12,720 $ 8,403 $ (1,040 ) $ 7,363
Percent of Revenue 13.1 % 5.5 % 2.6 % 1.7 % -0.2 % 1.5 %
As Reported $ (11.77 ) $ (0.04 ) $ (11.81 )
Diluted EPS:
As Normalized $ 0.32 $ (0.04 ) $ 0.28
AS REPORTED - 3rd QUARTER 2010
Revenue Adjusted EBITDAR Adjusted EBITDA Pre-tax Income from Continuing Operations Disc Ops Net Income
As Reported - 3rd QUARTER 2010 $ 473,411 $ 55,712 $ 36,758 $ 13,592 $ 8,033 $ (477 ) $ 7,556
Percent of Revenue 11.8 % 7.8 % 2.9 % 1.7 % -0.1 % 1.6 %
Normalizing Adjustments:
REIT separation transaction costs - 4,747 4,747 4,747 2,801 - 2,801
Normalized As Reported - 3rd QUARTER 2010 $ 473,411 $ 60,459 $ 41,505 $ 18,339 $ 10,834 $ (477 ) $ 10,357
Percent of Revenue 12.8 % 8.8 % 3.9 % 2.3 % -0.1 % 2.2 %