Gentiva Health Services Inc. (GTIV) reported its third-quarter adjusted operating earnings of $8.3 million or 27 cents per share, lagging behind the Zacks Consensus Estimate of 48 cents. The income also compares negatively with $21.6 million or 71 cents earned in the year-ago quarter.
Including the dividend received from CareCentrix and impact of businesses moved to discontinued operations in the reported quarter, Gentiva’s adjusted income from continuing operations for the reported quarter amounts to 37 cents per share.
The adjusted earnings exclude the impact of impairment of goodwill, intangible assets and other long-lived assets, gain on CareCentrix sale, legal settlement, restructuring, acquisition and integration costs, reserves on OIG legal settlements, tax impact of items excluded from income from continuing operations and dividend income.
Including all one-time charges, Gentiva posted net loss of $473.8 million or $15.48 per share, as opposed to the prior-year income of $8.1 million or 27 cents per share.
Gentiva’s total net revenues climbed 18.0% year over year to $449.7 million, lagging the Zacks Consensus Estimate of $457.0 million.
The increase in revenue was due to the huge year-over-year surge in the revenue of the Hospice segment, which increased to $196.5 million from $115.7 million in the prior-year quarter. However, this was partly off-set by a decline of 3% in the revenue of Home Health Episodic segment to $219.6 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to continuing operations decreased 23% to $41.5 million from $53.8 million in the prior-year quarter. Adjusted EBITDA excludes charges associated with restructuring, acquisition and integration activities, dividend income, cost of legal settlements and impairment of goodwill, intangible assets and other long-lived assets.
Financial Update
Gentiva exited the quarter with cash and cash equivalents of approximately $196.1 million and outstanding debt of $1.01 billion. During the reported quarter, the company repaid $20 million on term loans. The company has repaid $96.9 million on its revolving credit facility and term loans since the completion of the Odyssey acquisition.
During the reported quarter, net cash used in operating activities was $5.5 million, declining sharply from cash flow of $43.7 million in the prior-year period. Free cash flow also declined to a negative $11.2 million from $40.0 million in the third quarter of 2010. The decline was primarily due to the impact of the company’s bi-weekly payroll on the reported quarter’s free cash flow. Excluding the impact of the payroll, free cash flow in the reported quarter amounts to $20 million.
As on September 30, 2011, Gentiva had total assets of $1.54 billion and shareholders’ equity of $195.3 million, as compared to $2.12 billion and $638.2 million, respectively, on December 31, 2010.
Business Update
During the reported quarter, Gentiva sold its residual 31% share in CareCentrix Holdings Inc. Previously, in 2008, Gentiva had sold a 69% stake out of its holding in CareCentrix ended its control over the company. However, Gentiva continues to hold a $25 million receivable note in CareCentrix, which carries an interest rate of 10%.
Additionally, Gentiva sold its Rehab Without Walls business and committed to a plan to exit a non-core business. Both units are classified as discontinued operations in the financial statements. Gentiva expects to generate $75 million after-tax from these divestitures.
Other Highlights
During the reported quarter, Gentiva undertook a comprehensive review of its expenditures, with a view to reduce costs. Consequently, the company decided to close or divest 33 home health branches and 9 hospice branches, reduce employee count in regional and areas support levels and streamline support operations, among other things.
Expenses of about $20–25 million are expected to be incurred in the fourth quarter of 2011, pursuant to these cost saving initiatives.
Additionally, Gentiva incurred non-cash asset impairment charges of $643 million in the reported quarter in order to reduce the carrying costs of goodwill and certain other intangible assets.
Outlook for Fiscal 2011
Gentiva reduced its net revenue guidance to $1.78–1.82 billion from the previous range of $1.80–$1.85 billion. The company also reduced the guidance for adjusted income from continuing operations to $1.50–1.70 billion from $2.00-$2.20 per share.
The outlook was revised to include the impact of the final 2012 home health reimbursement rates, CareCentrix sale, divestitures of business units and discontinued operations in the reported quarter.
Gentiva’s competitor, Amedisys Inc. (AMED) reported third-quarter adjusted EPS of 36 cents, which was well below the Zacks Consensus Estimate of 51 cents and 59.5% down from the year-ago quarter.
Gentiva carries a Zacks #4 Rank, which translates into a short-term Sell rating.
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