Gentiva Health Services Inc.
) reported first-quarter 2012 operating net earnings of 27 cents
per share, at par with the Zacks Consensus Estimate, but lower than
the year-ago quarter level of 57 cents per share. Operating net
income of $9.1 million also compares unfavorably with $19.1 million
in the year-ago quarter.
Operating earnings in the reported quarter exclude the impact of
amendment fees and other related expenses incurred in connection
with the amendment of Gentiva's credit agreement, write-off of debt
issuance costs in connection with the reduction of the company's
revolving credit facility, costs related to restructuring, legal
settlements, acquisition and integration and various other one-time
charges. However, the prior-year quarter excludes costs related to
legal settlement, restructuring, acquisition and integration as
well as refinancing related charges.
Including all one-time charges and income from discontinued
operations, Gentiva posted net income of $4.8 million or 16 cents
per share, declining substantially from the prior-year income of
$13.5 million or 44 cents per share.
Gentiva's net revenues declined 3.0% year over year to $435.7
million, marginally lagging the Zacks Consensus Estimate of $438.0
million. The year-over-year decline was largely due to the sale and
closure of some branches coupled with a 4% decline in the Home
Health Episodic segment revenue to $210.6 million, arising from
reduced Medicare reimbursement rates. However, the Hospice segment
revenue remained almost flat year over year at $195.7 million.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) attributable to continuing operations
decreased 27% to $43.1 million from $59.0 million in the prior-year
quarter. Adjusted EBITDA also excludes all the one-time charges
that are excluded from adjusted operating income.
Gentiva exited the quarter with cash and cash equivalents of
approximately $72.8 million compared with $164.9 million as of
December 31, 2012 and outstanding debt of $938.1 million, down from
$988.1 million at 2011 end. During the reported quarter, the
company repaid $50 million on term loans. The company has repaid
$166.9 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 $34.7 million versus $2.7 million in the prior-year
period, mainly due to higher DSO levels and a $25 million
settlement payment pertaining to an investigation into the
provision of continuous care services of its subsidiary, Odyssey
HealthCare Inc. Free cash flow also deteriorated considerably to a
negative $38.5 million from a negative $0.6 million in the
first-quarter of 2011.
As of March 31, 2011, Gentiva had total assets of $1.46 billion
and shareholders' equity of $209.7 million, as compared with $1.53
billion and $202.5 million, respectively, as of December 31,
Stock Repurchase Update
On March 12, 2012, Gentiva announced a stock repurchase plan
under Rule 10b5-1 of the U.S. Securities and Exchange Commission.
The rule allows the company to override restrictions on buybacks
imposed due to access to substantial non-public information or
self-imposed trading black out periods.
Consequently, since March 31, 2012, the company repurchased 0.61
million shares for $5.0 million.
On March 6, 2012, Gentiva announced an amendment to its senior
secured credit agreement to make the financial covenants more
flexible for the remaining period of the credit facility. The
amendment consists of alteration of the definition of consolidated
EBITDA (earnings before interest, taxes, depreciation and
amortization) in the credit agreement.
Consequently, all expenses related to Gentiva's cost realignment
initiative, certain non-recurring cash charges and legal
settlements will be added back during the calculation of
consolidated EBITDA. Additionally, the maximum limit for the
consolidated leverage ratio has been raised to 6.25:1.00 for the
period starting January 1, 2012 to September 30, 2014 and 5.75:1.00
subsequently. The previous limit was 4.50:1.00 till September 30,
2012, 3.75:1.00 from October 1, 2012 to September 30, 2013 and
3.00:1.00 beyond that.
Further, the minimum interest coverage ratio requirement has
been relaxed to 2.00:1.00 for the period from January 1, 2012 to
June 30, 2013, 1.75:1.00 from July 1, 2013 to June 30, 2014 and
2.00:1.00 from July 1, 2014 onwards. Moreover, the definition of
consolidated interest charges has been modified to exclude non-cash
interest charges, which were previously included.
The amendment also hiked the interest rates on the term loans
taken under the credit facility by 1.75% per annum. Thus, the new
rates applicable on the Eurodollar term loans A and B are 6.25% and
Additionally, Gentiva is now allowed to make discounted
prepayments of outstanding term loans through a Dutch auction
process. Gentiva also repaid $50 million of its principal
outstanding under term loans A and B on a pro rata basis and
downsized its revolving credit facility to $110 million from $125
Outlook for Fiscal 2012
Gentiva affirmed its net revenue guidance at $1.70-1.76 billion
and adjusted income from continuing operations guidance at
$1.00-1.20 per share. The adjusted income from continuing
operations guidance excludes expenses associated with acquisitions,
restructuring, integration activities, legal settlements and other
special items but includes the impact of increased interest rates
due to the amendment of its credit agreement.
) is expected to release its first-quarter 2012 earnings before the
market opens on May 8, 2012.
Gentiva carries a Zacks #3 Rank, which translates into a
short-term Hold rating.
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