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Continucare Corporation Reports Financial Results for Second Quarter of Fiscal 2007

Posted on: Thursday, 8 February 2007, 09:01 CST

Continucare Corporation (AMEX:CNU) today reported financial results for its second quarter of fiscal 2007 and the six months ended December 31, 2006. Financial highlights for the quarter and other recent events include:

-- Introduction of Continucare ValuClinic™;

-- Completion of Miami Dade Health Centers acquisition and integration proceeding as planned;

-- Total revenue of $55.4 million, an 89% increase from $29.4 million in the second quarter of fiscal 2006;

-- Income from operations of $2.2 million compared to $2.3 million for the same period last year; and

-- Net income of $1.4 million, or $0.02 per diluted share, as compared to $1.5 million, or $0.03 per diluted share, for the same period a year ago.

Results of operations for the second quarter of fiscal 2007 include approximately $0.1 million of charges relating to the restructuring of the former Miami Dade Health Centers, which we acquired on October 1, 2006. Continucare had previously estimated that restructuring charges would be between $0.5 million and $0.7 million. The lower actual amount is primarily attributable to lower than estimated lease termination costs. Continucare does not expect to incur material restructuring charges related to Miami Dade Health Centers in future periods.

Six-Month Results

For the six-months ended December 31, 2006, total revenue increased 54% to $91.3 million compared to $59.3 million in the same period one year ago. Income from operations during the six-month period was $4.3 million compared to $4.5 million for the same period one year ago. Net income for the six-month period was $2.8 million, or $0.05 per diluted share, compared to $2.9 million, or $0.06 per diluted share, one year earlier.

"Activity is at a high level and we continue to make important advances with our business," said Richard C. Pfenniger, Jr., Continucare's Chairman and Chief Executive Officer. "Our second fiscal quarter revenues increased substantially with a significant portion of the improvement relating to the inclusion within our operations of the recently acquired Miami Dade Health Centers. We are pleased with the integration effort to date. We have completely integrated the management teams, consolidated three facilities -- two medical centers and one outpatient diagnostic imaging center -- into other existing facilities, and are working diligently to realize other expected efficiencies from the combination, including, in particular, those relating to medical utilization. We continue to believe that the acquisition will be accretive to earnings during the first full year of combined operations.

"Our financial position following the acquisition of Miami Dade Health Centers remains strong and is improving. In connection with the acquisition, we incurred approximately $7.6 million of consolidated net indebtedness and used a significant portion of our available cash. Since the closing, however, we have repaid nearly all of the increased indebtedness and begun replenishing our cash position.

"We are also continuing to prepare for the opening of our first Continucare ValuClinic™ health centers. We are making good progress and currently expect to have our first four health centers, which will be located within Sedano's Pharmacy stores in South Florida, opened sometime in the Spring of this year," concluded Mr. Pfenniger.

Balance Sheet

Continucare's cash and cash equivalents were $1.8 million at December 31, 2006 compared to $10.7 million at June 30, 2006, while working capital was $7.4 million at December 31, 2006 compared to $15.6 million at June 30, 2006. Total liabilities were $12.8 million at December 31, 2006 as compared to $4.7 million at June 30, 2006. Shareholders' equity increased to $99.3 million at December 31, 2006 from $37.0 million at June 30, 2006.

About Continucare ValuClinic™

Continucare ValuClinic™ is a new line of consumer-oriented, retail-based health centers which will offer treatment for common illnesses such as the flu, bronchitis, strep throat, pink eye, skin infections and seasonal allergies, in a quick, convenient, and patient-friendly health care setting. Continucare ValuClinic™ will also offer other high demand health care services such as common vaccinations, physical examinations and diagnostic screenings. The clinics will be staffed primarily by certified nurse practitioners and physician assistants and will be open seven days a week with extended hours on weekdays. No appointment will be necessary and fees for services will represent a meaningful discount to care provided in more traditional health care settings.

About Continucare Corporation

Continucare provides primary care physician services on an outpatient basis through a network of medical facilities and independent physician affiliates (IPAs) in the State of Florida. Continucare has 18 medical offices equipped with state-of-the-practice technology and staffed with experienced physicians and a comprehensive support staff. In addition, Continucare provides health practice management services to IPAs who practice primary care medicine in South Florida. Continucare assists these physicians with medical utilization and pharmacy management and specialist network development, freeing them to devote more time to patient care. Currently, through its network of medical facilities and IPAs, Continucare provides health care services for approximately 40,000 patients. For more information please visit www.continucare.com.

Except for historical matters contained herein, statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors and others are cautioned that forward-looking statements are subject to risks and uncertainties that may affect our business and prospects and cause our actual results to differ materially from those set forth in the forward-looking statements. These factors include, without limitation, the risk that the current trend in revenue or income growth may not continue or may be less than anticipated, risks and uncertainties relating to our ability to implement our growth strategy and to manage future growth, including our ability to achieve expected levels of patient volumes and control the costs of providing services, risks and uncertainties relating to our acquisition of Miami Dade Health Centers, Inc. and its affiliated companies, including the risk that we may not realize the expected benefits of the acquisition and that the acquisition may not ultimately be accretive to earnings, the risk that we may be unable to successfully complete the integration of the Miami Dade Health Centers companies into our business and achieve expected synergies, and the risk that further restructuring or other acquisition-related charges may be required in future periods, risks relating to the timely opening of Continucare ValuClinic health centers as currently scheduled, risks relating to pricing and other pressures exerted on us by managed care organizations, the risk that the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and the Medicare Risk Adjustment on payments we receive for our managed care operations may not continue to be positive for us, the risk that future legislation, changes in governmental regulations, including possible changes in Medicare programs, could adversely impact our operations or reduce reimbursements to health care providers and insurers, risks and uncertainties relating to our current dependence on two HMOs for substantially all of our revenues, including our ability to work together effectively with our HMO affiliates, uncertainties relating to technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care, and general economic conditions and uncertainties generally associated with the health care business. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from our forward-looking statements are included in our annual report on Form 10-K for the fiscal year ended June 30, 2006 and other filings with the SEC. We undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date hereof except as required by law.

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS

December 31, 2006

June 30,

2006

Current assets:

Cash and cash equivalents

$ 1,819,324 

$ 10,681,685 

Other receivables, net

274,820 

231,832 

Due from HMOs, net of a liability for incurred but not reported medical claims expense of approximately $20,436,000 and $14,207,000 at December 31, 2006 and June 30, 2006, respectively

9,006,113 

6,339,526 

Prepaid expenses and other current assets

1,504,565 

689,096 

Deferred tax assets, net

1,263,118 

658,768 

Total current assets

13,867,940 

18,600,907 

Certificates of deposit, restricted

1,157,727 

1,126,987 

Property and equipment, net

8,509,630 

824,220 

Goodwill, net of accumulated amortization of approximately $7,610,000

76,309,510 

14,342,510 

Intangible assets, net of accumulated amortization of $360,000

7,070,168 

- 

Managed care contracts, net of accumulated amortization of approximately $2,949,000 and $2,773,000 at December 31, 2006 and June 30, 2006, respectively

560,828 

737,234 

Deferred tax assets, net

4,456,762 

5,519,095 

Other assets, net

173,610 

551,927 

Total assets

$ 112,106,175 

$ 41,702,880 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$ 978,830 

$ 575,925 

Accrued expenses and other current liabilities

5,484,325 

2,401,933 

Total current liabilities

6,463,155 

2,977,858 

Capital lease obligations, less current portion

136,695 

112,068 

Deferred tax liability

6,181,504 

1,638,034 

Other liability

39,068 

- 

Total liabilities

12,820,422 

4,727,960 

Commitments and contingencies

Shareholders' equity:

Common stock, $0.0001 par value: 100,000,000 shares authorized; 70,003,567 shares issued and outstanding at December 31, 2006 and 50,242,478 shares issued and outstanding at June 30, 2006

7,000 

5,024 

Additional paid-in capital

123,369,117 

63,838,051 

Accumulated deficit

(24,090,364)

(26,868,155)

Total shareholders' equity

99,285,753 

36,974,920 

Total liabilities and shareholders' equity

$ 112,106,175 

$ 41,702,880 

CONTINUCARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

December 31,

2006 

2005 

Revenue:

Medical services revenue, net

$ 55,276,078 

$ 29,246,624 

Management fee revenue and other income

123,529 

136,082 

Total revenue

55,399,607 

29,382,706 

Operating expenses:

Medical services:

Medical claims

40,123,259 

20,147,583 

Other direct costs

6,393,501 

3,134,753 

Total medical services

46,516,760 

23,282,336 

Administrative payroll and employee benefits

2,740,149 

1,782,539 

General and administrative

3,932,673 

2,015,741 

Total operating expenses

53,189,582 

27,080,616 

Income from operations

2,210,025 

2,302,090 

Other income (expense):

Interest income

50,621 

63,689 

Interest expense

(36,187)

(4,832)

Income before income tax provision

2,224,459 

2,360,947 

Income tax provision

843,784 

903,097 

Net income

$ 1,380,675 

$ 1,457,850 

Net income per common share:

Basic

$ .02 

$ .03 

Diluted

$ .02 

$ .03 

Weighted average common shares outstanding:

Basic

70,091,102 

49,764,617 

Diluted

71,232,537 

51,134,864 

CONTINUCARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Six Months Ended

December 31,

2006 

2005 

Revenue:

Medical services revenue, net

$ 91,157,993 

$ 58,976,261 

Management fee revenue and other income

175,211 

277,596 

Total revenue

91,333,204 

59,253,857 

Operating expenses:

Medical services:

Medical claims

67,184,301 

41,553,762 

Other direct costs

9,704,695 

6,267,177 

Total medical services

76,888,996 

47,820,939 

Administrative payroll and employee benefits

4,365,384 

3,177,886 

General and administrative

5,769,032 

3,717,949 

Total operating expenses

87,023,412 

54,716,774 

Income from operations

4,309,792 

4,537,083 

Other income (expense):

Interest income

204,743 

122,831 

Interest expense

(39,121)

(7,801)

Income before income tax provision

4,475,414 

4,652,113 

Income tax provision

1,697,623 

1,755,511 

Net income

$ 2,777,791 

$ 2,896,602 

Net income per common share:

Basic

$ .05 

$ .06 

Diluted

$ .05 

$ .06 

Weighted average common shares outstanding:

Basic

60,169,568 

49,813,860 

Diluted

61,377,276 

51,192,371 

CONTINUCARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

December 31,

2006 

2005 

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$ 2,777,791 

$ 2,896,602 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

830,052 

353,507 

Loss on disposal of fixed assets

35,924 

- 

Provision for bad debts

105,795 

19,171 

Recognition of compensation expense related to issuance of stock options

752,258 

616,438 

Deferred tax expense

1,296,780 

1,688,989 

Changes in operating assets and liabilities, excluding the effects of disposals:

Other receivables, net

(148,783)

88,527 

Due from HMOs, net

(418,791)

(2,306,208)

Prepaid expenses and other current assets

(815,469)

(85,099)

Other assets, net

762,739 

20,795 

Accounts payable

340,649 

(264,616)

Accrued expenses and other current liabilities

114,091 

(511,181)

Net cash provided by continuing operations

5,633,036 

2,516,925 

Net cash used in discontinued operations

- 

(32,512)

Net cash provided by operating activities

5,633,036 

2,484,413 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of certificates of deposit

(30,740)

(13,550)

Proceeds from sales of fixed assets

25,000 

- 

Acquisition of MDHC Companies, net of cash acquired

(6,033,017)

- 

Purchase of property and equipment

(512,114)

(105,276)

Acquisition costs related to MDHC Companies

(359,147)

- 

Net cash used in investing activities

(6,910,018)

(118,826)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from note payable

1,813,317 

- 

Repayments on note payable

(1,813,317)

(520,000)

Proceeds from long-term debt

6,916,079 

- 

Repayment on long-term debt

(14,679,439)

- 

Excess tax benefit from exercise of stock options

249,362 

- 

Principal repayments under capital lease obligations

(46,836)

(74,450)

Proceeds from exercise of stock options

17,275 

358,668 

Payment of fees related to issuance of stock

(41,820)

- 

Repurchase and retirement of common stock

- 

(696,134)

Net cash used in financing activities

(7,585,379)

(931,916)

Net increase (decrease) in cash and cash equivalents

(8,862,361)

1,433,671 

Cash and cash equivalents at beginning of period

10,681,685 

5,780,544 

Cash and cash equivalents at end of period

$ 1,819,324 

$ 7,214,215 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for taxes

$ 164,000 

$ - 

Cash paid for interest

$ 39,121 

$ 7,801 

CONTINUCARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

December 31,

2006 

2005 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Purchase of equipment, furniture and fixtures with proceeds of capital lease obligations

$ 81,736 

$ 109,106 

Retirement of treasury stock

$ - 

$ 5,424,701 

Stock issued upon conversion of related party notes payable (102,180 shares)

$ - 

$ 102,180 

Information with respect to MDHC acquisition accounted for under the purchase method of accounting is summarized as follows:

Fair value of assets acquired

$ 18,035,473 

$ - 

Liabilities assumed

(13,795,841)

- 

Net assets acquired

4,239,632 

- 

Purchase price:

Cash paid to principal owners of MDHC

5,529,352 

- 

Acquisition costs

901,313 

- 

Cash to be paid related to acquisition

1,220,000 

- 

Fair market value of stock issued

58,555,967 

- 

Total

66,206,632 

- 

Goodwill

$ 61,967,000 

$ - 

Source: Business Wire

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