Gentiva® Health Services Reports Third Quarter 2012 Results

Gentiva Health Services, Inc. (GTIV), the largest provider of home health and hospice services in the United States based on revenue, today reported third quarter 2012 results.  Quarterly highlights include:

• Total net revenues of $424.4 million.
• Adjusted income from continuing operations on a diluted per share basis of $0.32.
• Adjusted EBITDA of $46.1 million.
• Free cash flow of $23.2 million.

Third quarter 2012 financial highlights include: 

• Total net revenues of $424.4 million, a decrease of 6% compared to $449.7 million for the quarter ended September 30, 2011. Excluding the impact of branches sold or closed, total net revenues would have been down slightly compared to the third quarter of 2011.  Net revenues included home health episodic revenues of $206.4 million, a decline of 6% compared to $219.6 million in the 2011 third quarter.  Hospice revenues were $189.8  million, a decrease of 3% compared to $196.5 million in the 2011 third quarter.  Hospice represented 45% of total net revenues in the third quarter of 2012, compared to 44% in the 2011 third quarter.
• Loss from continuing operations attributable to Gentiva shareholders of $0.5 million, or $0.02 per diluted share, compared to a loss of $479.7 million, or $15.82 per diluted share, for the third quarter of 2011.  During the third quarter of 2012, the Company recorded a $19.1 million non-cash write-off of existing trade name balances in connection with the rebranding of its branch operations under the single Gentiva name.  In the third quarter of 2011, the Company recorded a non-cash impairment charge of $643.3 million as a result of its impairment test of goodwill, intangibles and other long-lived assets.
• Adjusted income from continuing operations attributable to Gentiva shareholders of $9.9 million, compared with $8.3 million in the comparable 2011 period. On a diluted per share basis, adjusted income from continuing operations attributable to Gentiva shareholders was $0.32 for the third quarter of 2012 compared to $0.27 for the third quarter of 2011.
• Adjusted earnings before interest, taxes, depreciation and amortization attributable to continuing operations (Adjusted EBITDA) was $46.1 million in the third quarter of 2012 as compared to $41.5 million in the third quarter of 2011.  Adjusted EBITDA as a percentage of net revenues was 10.9% in the third quarter of 2012 versus 9.2% in the prior year period.  

Adjusted income from continuing operations 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, 2012 include: 

• Total net revenues of $1,287.8 million, a decrease of 5% compared to $1,349.6 million for the prior year period. Net revenues included home health episodic revenues of $624.5 million, a decline of 5%, compared to $659.7 million in the comparable 2011 period.  Hospice revenues were $577.5 million, compared to $585.9 million in the comparable 2011 period. 
• Income from continuing operations attributable to Gentiva shareholders of $18.2 million, or $0.60 per diluted share, compared to a loss of $462.2 million, or $15.27 per diluted share, in the prior year period. 
• Adjusted income from continuing operations attributable to Gentiva shareholders of $28.0 million, compared with $38.0 million in the 2011 period. On a diluted per share basis, adjusted income from continuing operations attributable to Gentiva shareholders was $0.91 for 2012 as compared with $1.23 in the corresponding period of 2011.  Excluding the expenses associated with the March 6, 2012 credit agreement amendment, adjusted income from continuing operations attributable to Gentiva shareholders was $0.94 on a diluted per share basis for the 2012 period.
• Adjusted earnings before interest, taxes, depreciation and amortization attributable to continuing operations (Adjusted EBITDA) was $136.3 million as compared to $152.1 million in the 2011 period.  Adjusted EBITDA as a percentage of net revenues was 10.6% versus 11.3% in the prior year period.

For the third quarter of 2012, the Company reported a net loss attributable to Gentiva shareholders of $0.5 million, or $0.02 per diluted share, compared to a net loss of $473.8 million, or $15.62 per diluted share, in the third quarter of 2011. For the first nine months of 2012, net income attributable to Gentiva shareholders was $18.2 million, or $0.60 per diluted share, compared with a net loss of $455.1 million, or $15.04 per diluted share, for the first nine months of 2011. The results included special items discussed above as well as the results from discontinued operations.

Cash Flow and Balance Sheet Highlights

At September 30, 2012, the Company reported cash and cash equivalents of $156.0 million, compared to $155.3 million at June 30, 2012.  Total outstanding debt was $938.1 million as of September 30, 2012. Total Company days sales outstanding, or DSO's, was 52 days at September 30, 2012, consistent with June 30, 2012 and down significantly from 61 days at March 31, 2012.

For the third quarter of 2012, net cash provided by operating activities was $25.5 million, compared to negative $5.5 million in the prior year period. Free cash flow was $23.2 million for the third quarter of 2012, compared to negative $11.4 million in the prior year period.   

For the first nine months of 2012, free cash flow was $90.4 million, after excluding the $25.0 million OIG related payment made in the first quarter of 2012. Free cash flow is calculated as net cash provided by operating activities less capital expenditures.

During the quarter, Gentiva acquired three agencies to expand the Company's geographic coverage and leverage its existing home health and hospice capabilities in given markets.  In July 2012, the Company acquired Advocate Hospice based in Danville, Indiana.  In August 2012, the Company acquired Spokane, Washington based Family Home Care, which provides both home health and hospice services, and North Mississippi Hospice which is based in Oxford, Mississippi.

Full-Year 2012 Outlook

Based on results through the first nine months of 2012 and recent trends, the Company raised its 2012 full-year outlook for adjusted income from continuing operations attributable to Gentiva shareholders to a range of $1.20 to $1.30 on a diluted per share basis. Additionally, the Company tightened its 2012 full-year net revenue outlook to a range of $1.71 billion to $1.74 billion.  This outlook does not include any potential fourth quarter 2012 impact from sequestration, which is currently scheduled to become effective on January 1, 2013, or the impact from Hurricane Sandy.

Adjusted income from continuing operations attributable to Gentiva shareholders excludes charges related to cost savings initiatives, restructuring, impairment, acquisition, integration activities, the cost of legal settlements and other special items.

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 EBITDA 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, the results of discontinued operations and the impact of any future acquisitions or divestitures, which can fluctuate significantly and may have a significant impact on net income.

Conference Call and Webcast Details

The Company will comment further on its third quarter 2012 results during its conference call and live webcast to be held today, Thursday, November 1, 2012 at 9:00 a.m. Eastern Time. To participate in the call from the United States, Canada or an international location, dial (973) 935-2408 and reference call #37851480. The webcast is an audio-only, one-way event. Webcast listeners who wish to ask questions must participate in the conference call. Log onto http://investors.gentiva.com/events.cfm to hear the webcast. A replay of the call will be available on November 1 and will remain available continuously through November 8. To listen to a replay of the call from the United States, Canada or international locations dial (800) 585-8367 or (404) 537-3406 and enter the following PIN at the prompt: 37851480. Visit http://investors.gentiva.com/events.cfm to access the webcast archive. This press release is accessible at http://investors.gentiva.com/releases.cfm and a transcript of the conference call will be posted on the Company's website.

About Gentiva Health Services, Inc.

Gentiva Health Services, Inc. is the nation's largest provider of home health and hospice services based on revenue, delivering innovative, high quality care to patients across the United States. Gentiva is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; and other therapies and services. GTIV-G

(unaudited tables and notes follow)

Notes:

1. The comparability between reporting periods has been affected by the following items:
        a. During the second quarter of 2012, the Company completed the sale of eight home health and four hospice branches in Louisiana. In addition, the Company completed several acquisitions in the third quarter of 2012.
   During the fourth quarter of 2011, the Company closed 34 locations (25 home health and 9 hospice) and sold 9 home health branches as a result of a comprehensive review of its branch structure, support infrastructure and other significant expenditures in response to the challenging Medicare reimbursement rate environment.  In addition, during the first quarter of 2012, the Company closed four additional home health branches.
   As a result of this activity, the Company's revenues for the third quarter and first nine months of 2012 were negatively impacted by approximately $20 million and $62 million, respectively, as compared to the third quarter and first nine months of 2011.
        b. The first nine months of 2012 included 274 days of activity as compared to 273 days for the first nine months of 2011 due to 29 days in February 2012 versus 28 days in February 2011.  
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, and interest expense and other (net), but include revenues and all other costs directly attributable to the specific segment. 
3. Adjusted EBITDA, a non-GAAP financial measure, is defined as income from continuing operations before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating primarily to restructuring, legal settlements and acquisition and integration activities, dividend income and gain on sale of business, net of taxes.  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.  Because 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 EBITDA presented in the Supplemental Information relates to the Company's continuing operations.
   Adjusted income from continuing operations attributable to Gentiva shareholders is defined as income from continuing operations attributable to Gentiva shareholders, excluding tax reserves relating to the OIG settlement and charges relating to restructuring, legal settlements and acquisition and integration activities, dividend income and gain on sale of business, net of taxes.
4. Discontinued operations consist of the financial results of the Company's Rehab Without Walls and IDOA businesses and for the nine month period the HME and IV business.  Net revenues and operating results associated with these operating units for the third quarter and first nine months of 2011were as follows (dollars in thousands):
   
   

   				3rd Quarter		Nine Months
   				2011		2011
   		Net revenues		$   6,699		$  22,636
   		Operating income before income taxes		$      840		$    2,686
   		Gain on sale of business		9,088		9,088
   		Income tax expense		(3,945)		(4,678)
   		Discontinued operations, net of tax		$   5,983		$    7,096

5. 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 and established a receivable of approximately $0.5 million.
   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 $5.4 million for the first nine months of 2012.
6. Operating contribution and EBITDA included charges relating to restructuring, legal settlements and acquisition and integration activities of $0.1 million and $5.5 million for the third quarter and first nine months of 2012, respectively, and $9.8 million and $34.9 million for the third quarter and first nine months of 2011, respectively.
   For the third quarter and first nine months of 2012, the Company recorded (i) restructuring costs of $0.1 million and $1.5 million, respectively, and (ii) legal settlement reserves of $5.0 million, associated with the tentative settlement of the Wilkie wage and hour lawsuit, partially offset by (iii) a reduction in acquisition and integration costs of $1.0 million, primarily relating to favorable lease settlements associated with the acquisition of Odyssey HealthCare, Inc.
   For the third quarter and first nine months of 2011, the Company recorded (i) restructuring costs of $0.8 million and $2.6 million, respectively, (ii) legal settlement reserves of $6.5 million and $25.0 million, respectively, associated with a government investigation assumed in the Odyssey acquisition, and (iii) acquisition and integration costs of $2.5 million and $7.3 million, respectively, primarily relating to the acquisition of Odyssey HealthCare, Inc.
   These charges were reflected as follows for segment reporting purposes (dollars in millions):
   
   

   			3rd Quarter			Nine Months
   			2012	2011		2012	2011
   		Home Health	$     -	$     -		$ 5.7	$ 0.3
   		Hospice	-	0.8		0.1	1.6
   		Corporate expenses	0.1	9.0		(0.3)	33.0
   		Total	$ 0.1	$ 9.8		$ 5.5	$ 34.9

7. Interest expense and other, net for the first nine months of 2012 included charges of approximately $0.5 million relating to the write-off of deferred debt issuance costs associated with the Company's March 6, 2012 credit agreement amendment. Interest expense and other, net for the first nine months of 2011 included charges of approximately $3.8 million relating to the write-off of deferred debt issuance costs and costs of terminating the Company's interest rate swaps in connection with the refinancing of the indebtedness outstanding under its credit agreement.
8. 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 third quarter and first nine months of 2012.
   During the third quarter of 2011, the Company performed an impairment test of its goodwill, intangibles and other long-lived assets in response to changes in our business climate, including uncertainties around Medicare reimbursement as the federal government worked to reduce the federal deficit.  The Company's impairment test indicated that the fair value of certain identifiable intangible assets, as well as goodwill, was less than their carrying values. In addition, the Company finalized its review of alternatives to replacing various field operating systems. As such, the Company recorded non-cash impairment charges of approximately $643.3 million for the third quarter and first nine months of 2011.
9. Dividend income for the third quarter and first nine months of 2011 represents a 12% cumulative preferred dividend received in connection with the sale of the Company's preferred investment in CareCentrix in 2011.
10. The Company's effective tax rate for adjusted income from continuing operations was a tax provision of 39.8% and 40.8% for the third quarter and first nine months of 2012, respectively, as compared to 39.6% for both the third quarter and first nine months of 2011.

Forward-Looking Statement

Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: economic and business conditions; demographic changes; changes in, or failure to comply with, existing governmental regulations; the impact on our Company of healthcare reform legislation and its implementation through governmental regulations; legislative proposals for healthcare reform; changes in Medicare, Medicaid and commercial payer reimbursement levels; the outcome of any inquiries into the Company's operations and business practices by governmental authorities; effects of competition in the markets in which the Company operates; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; ability to access capital markets; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; business disruption due to natural disasters, pandemic outbreaks, or terrorist acts; ability to successfully integrate the operations of acquisitions the Company may make and achieve expected synergies and operational efficiencies within expected time-frames; ability to maintain compliance with its financial covenants under the Company's credit agreement; effect on liquidity of the Company's debt service requirements; and changes in estimates and judgments associated with critical accounting policies and estimates. For a detailed discussion of certain of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission, including the "Risk Factors" section contained in the Company's annual report on Form 10-K for the year ended December 31, 2011.