Odyssey HealthCare, Inc. (NASDAQ: ODSY), one of the largest providers of hospice care in the United States, today announced financial results for the second quarter and six months ended June 30, 2008.
For the second quarter of 2008, net patient service revenue increased 61.3% to $160.7 million, compared with $99.6 million for the second quarter of 2007. The Company’s income from continuing operations for the second quarter of 2008 was $4.0 million, or $0.12 per diluted share, as compared with $5.2 million, or $0.15 per diluted share, for the second quarter of 2007.
For the six months ended June 30, 2008, net patient service revenue increased 44.5% to $283.5 million, compared with $196.2 million for the second quarter of 2007. The Company’s income from continuing operations for the first six months of 2008 was $7.6 million, or $0.23 per diluted share, compared with income from continuing operations for the same six-month period of 2007 of $9.8 million, or $0.29 per diluted share.
On February 28, 2008, Odyssey acquired approximately 84% of the outstanding common stock of VistaCare, Inc. and acquired the remaining outstanding stock of VistaCare on March 6, 2008. Odyssey’s financial results for the second quarter of 2008 include the operations of VistaCare while the financial results for the six months ended June 30, 2008 include only four full months of VistaCare operations. Income from continuing operations for the second quarter of 2008 was negatively impacted by approximately $2.5 million, after tax, or $0.08 per share, in expenses related to the ramp down of VistaCare’s corporate office and the integration of VistaCare’s operations.
In commenting on the results, Robert A. Lefton, president and chief executive officer of Odyssey HealthCare, said, “I am pleased with the progress we have made with the integration of VistaCare and in implementing our 2008 operating initiatives. We are currently on schedule to complete the transition of the VistaCare corporate functions to our Dallas Support Center by year end and to have all the VistaCare program sites transitioned to our information systems by the end of the third quarter of 2008. We are also continuing with the process of ramping up our Support Center operations to handle the incremental work related to the transfer of the VistaCare corporate functions to our Dallas Support Center and will be adding costs related to the ramp up until it is completed in the fourth quarter of 2008. The expenses related to the ramp down of VistaCare’s corporate office will decrease as we transition corporate functions to our Dallas Support Center.
“With respect to the progress we have made with our 2008 operating initiatives, we experienced good admission volume in the second quarter of 2008, with admissions increasing by approximately 10.0% over the second quarter of 2007 for our Odyssey programs. Our average daily census for the second quarter of 2008 was 12,212, inclusive of our VistaCare programs. Our average daily census for the second quarter of 2008 for just the Odyssey programs was 7,790, an increase of 1.3% over the average daily census of 7,687 for the second quarter of 2007 and 2.8% over the average daily census of 7,579 for the first quarter of 2008 for the Odyssey programs.
“In addition, we continued to make progress during the second quarter with our operating initiatives to improve our labor productivity and to decrease our operating expenses. On a per patient day of care basis, operating expenses for the second quarter of 2008 were $132.04, excluding ramp down expenses of $3.57 per patient day of care and depreciation and amortization expenses of $1.93 per patient day of care, which is an increase of 1.8% over operating expenses per patient day of care of $129.69 for the second quarter of 2007, excluding depreciation and amortization expenses of $2.00 per patient day of care. Although our Medicare cap contractual as a percentage of gross revenue declined from 1.3% of gross revenue for the second quarter of 2007 to 0.8% of gross revenue for the second quarter of 2008, we experienced an increase in our Medicare cap contractual beginning in the latter part of the second quarter of 2008. This increase is primarily centered in a few VistaCare programs. We are continuing with our operating initiative to improve the management of the Medicare cap contractual in our Odyssey programs and are in the process of implementing plans to address the Medicare cap in the VistaCare programs.”
Mr. Lefton added, “As in the first quarter of this year, the second quarter of 2008 was negatively impacted by an increase in our bad debt expense from 1.1% of net revenue in the second quarter of 2007 to 1.9% of net revenue in the second quarter of 2008. This increase is due primarily to the impact of additional development requests (ADRs) from our Medicare fiscal intermediaries, which increased our accounts receivable aging and correspondingly our provision for uncollectible accounts in accordance with our bad debt reserve policy. On a sequential basis, our bad debt expense in the second quarter of 2008 was essentially flat as compared with the bad debt expense for the first quarter of 2008 of 1.8% of net revenue.”
Conference Call
Odyssey will host a conference call to discuss the second quarter 2008 results on Tuesday, August 5, 2008, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time). The call will be broadcast live and can be accessed through the Investor Relations section of the Company’s website at www.odsyhealth.com or at www.earnings.com. An online archive of the broadcast, commencing approximately two hours after the live call, will also be available for two weeks.
Based in Dallas, Texas, Odyssey is one of the largest providers of hospice care in the country in terms of both average daily patient census and number of locations. Odyssey seeks to improve the quality of life of terminally ill patients and their families by providing care directed at managing pain and other discomforting symptoms and by addressing the psychosocial and spiritual needs of patients and their families.
Certain statements contained in this press release and that will be contained in the presentation are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements are based on management’s current expectations and are subject to known and unknown risks, uncertainties and assumptions which may cause the forward-looking events and circumstances discussed in this press release and in the presentation to differ materially from those anticipated or implied by the forward-looking statements. Additional risks, uncertainties and assumptions include, but are not limited to, general market conditions; adverse changes in reimbursement levels under Medicare and Medicaid programs; the Company’s ability to successfully integrate the acquisition of VistaCare, Inc.; adverse changes in the Medicare payment cap limits and increases in the Company’s estimated Medicare cap contractual adjustment; decline in patient census growth; increases in inflation including inflationary increases in patient care costs; challenges inherent in and potential changes in the Company’s growth and development strategy; our ability to effectively implement the Company’s 2008 operations and development initiatives; the Company’s dependence on patient referral sources and potential adverse changes in patient referral practices of those referral sources; the ability to attract and retain healthcare professionals; increases in the Company’s bad debt expense due to various factors including an increase in the volume of pre-payment reviews by the Company’s Medicare fiscal intermediaries; adverse changes in the state and federal licensure and certification laws and regulations; adverse results of regulatory surveys; delays in licensure and/or certification; government and private party legal proceedings and investigations; cost of complying with the terms and conditions of our corporate integrity agreement; adverse changes in the competitive environment in which the Company operates; changes in state or federal income, franchise or similar tax laws and regulations; adverse impact of natural disasters; changes in our estimate of additional compensation costs under FASB Statement No. 123(R); and the disclosures contained under the headings “Government Regulation and Payment Structure” in “Item 1. Business” and “Item 1A. Risk Factors” of Odyssey’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008, and its most recent report on Form 10-Q and in its other filings with the Securities and Exchange Commission. Many of these factors are beyond the ability of the Company to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, which reflect management’s views only as of the date hereof. The Company undertakes no obligation to revise or update any of the forward-looking statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions, circumstances or assumptions underlying such statements.
ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES UNAUDITED SELECTED OPERATING DATA Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2008 2007 2008 2007 --------- -------- -------- -------- Continuing Operations: (1) Admissions 12,274 7,932 22,959 16,421 Average daily census 12,212 7,687 10,668 7,636 Discharge average length of stay 87.8 85.8 85.0 84.0 Gross revenue per patient day $149.59 $148.88 $150.98 $148.32 Medicare cap as % of gross revenue 0.8% 1.3% 0.8% 1.2% Net revenue per patient day $144.63 $142.39 $146.02 $141.98 Operating expense per patient day $137.54 $131.69 $138.80 $131.82 Bad debt expense as % of net revenue 1.9% 1.1% 1.8% 0.9% Same-Facility: (2) Admissions 8,676 7,932 18,108 16,421 Average daily census 7,761 7,687 7,657 7,636 Average length of stay 76.5 85.8 76.8 84.0 (1) Continuing operations excludes the operations of hospices that the Company classifies as discontinued operations. (2) Same-facility information includes hospice programs that have been in operation for the entire period of each period presented and Medicare certified for at least 12 months. This information excludes VistaCare operations.
ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2008 2007 2008 2007 --------- -------- --------- --------- Net patient service revenue $160,716 $99,602 $283,525 $196,231 Operating expenses: Direct hospice care 94,371 58,326 165,832 115,393 General and administrative - hospice care 34,643 20,989 61,816 41,397 General and administrative - support center 18,702 10,262 32,741 20,888 Provision for uncollectible accounts 2,979 1,139 5,230 1,714 Depreciation 2,056 1,332 3,707 2,662 Amortization 102 69 167 128 --------- -------- --------- --------- Income from continuing operations before other income (expense) 7,863 7,485 14,032 14,049 Other income (expense): Interest income 540 618 1,191 1,258 Interest expense (2,094) (49) (3,321) (97) Other expense - - - - Minority interest in earnings of consolidated subsidiaries (13) - 20 - --------- -------- --------- --------- (1,567) 569 (2,110) 1,161 --------- -------- --------- --------- Income from continuing operations before provision for income taxes 6,296 8,054 11,922 15,210 Provision for income taxes 2,278 2,831 4,308 5,415 --------- -------- --------- --------- Income from continuing operations 4,018 5,223 7,614 9,795 Loss from discontinued operations, net of tax 2,365 1,045 4,428 1,962 --------- -------- --------- --------- Net income $ 1,653 $ 4,178 $ 3,186 $ 7,833 ========= ======== ========= ========= Income (loss) per common share: Basic: Continuing operations $ 0.12 $ 0.16 $ 0.23 $ 0.29 Discontinued operations (0.07) (0.03) (0.13) (0.06) --------- -------- --------- --------- Net income $ 0.05 $ 0.13 $ 0.10 $ 0.23 ========= ======== ========= ========= Diluted: Continuing operations $ 0.12 $ 0.15 $ 0.23 $ 0.29 Discontinued operations (0.07) (0.03) (0.13) (0.06) --------- -------- --------- --------- Net income $ 0.05 $ 0.12 $ 0.10 $ 0.23 ========= ======== ========= ========= Weighted average shares outstanding: Basic 32,660 33,276 32,650 33,407 Diluted 32,872 33,466 32,853 33,590
ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET (in thousands, except per share amounts) June 30, Dec. 31, 2008 2007 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 34,929 $ 12,386 Short-term investments 15,822 49,793 Accounts receivable from patient services, net of allowance for uncollectible accounts of $7,094 and $4,363 at June 30, 2008 and December 31, 2007, respectively 123,683 77,433 Income taxes receivable 5,161 1,968 Deferred tax asset 2,316 1,400 Prepaid expenses and other current assets 11,951 5,414 Assets of discontinued operations 2,221 2,830 --------- --------- Total current assets 196,083 151,224 Property and equipment, net of accumulated depreciation 27,418 21,757 Goodwill 208,348 98,179 Long-term investments 16,706 - Other assets 2,704 - Intangibles, net of accumulated amortization 7,293 4,049 --------- --------- Total Assets $458,552 $275,209 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,678 $ 6,109 Accrued compensation 31,245 16,797 Accrued nursing home costs 19,894 14,146 Accrued Medicare cap contractual adjustments 28,929 21,682 Other accrued expenses 41,283 17,445 Current maturities of long-term debt 6,500 1 --------- --------- Total current liabilities 135,529 76,180 Long-term debt, less current maturities 121,875 - Deferred tax liability 9,888 14,041 Other liabilities 2,111 1,256 Minority interests in equity of consolidated subsidiaries 1,429 895 Commitments and contingencies Stockholders' equity: Common stock, $0.001 par value: 75,000,000 shares authorized, 38,092,683 and 38,063,439 shares issued at June 30, 2008 and December 31, 2007, respectively 38 38 Additional paid-in capital 115,708 113,339 Retained earnings 142,600 139,414 Accumulated other comprehensive loss (672) - --------- --------- Treasury stock, at cost, 5,347,072 shares held at June 30, 2008 and December 31, 2007 (69,954) (69,954) --------- --------- Total stockholders' equity 187,720 182,837 --------- --------- Total Liabilities and Stockholders' Equity $458,552 $275,209 ========= =========
ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended June 30, -------------------- 2008 2007 ---------- --------- Operating Activities: Net income $ 3,186 $ 7,833 Adjustments to reconcile net income to net cash provided by operating activities: Loss from discontinued operations, net of tax 4,428 1,962 Minority interest (20) - Depreciation and amortization 3,874 2,790 Amortization of debt issue costs 523 54 Stock-based compensation 2,123 2,051 Deferred tax expense (benefit) 2,050 (633) Tax benefit realized for stock option exercises (16) (115) Provision for uncollectible accounts 5,230 1,714 Changes in operating assets and liabilities: Accounts receivable (10,451) (13,093) Other current assets (6,733) 3,839 Accounts payable, accrued nursing home costs, accrued Medicare cap and other accrued expenses 2,864 405 ---------- --------- Net cash provided by operating activities 7,058 6,807 ---------- --------- Investing Activities: Cash paid for acquisitions and procurement of licenses (124,174) (1,273) Cash received from the sale of hospice programs 160 430 Decrease in short-term and long-term investments 16,871 16,304 Purchase of property and equipment (2,247) (6,429) ---------- --------- Net cash (used in) provided by investing activities (109,390) 9,032 ---------- --------- Financing Activities: Proceeds from issuance of common stock 246 842 Cash received from sale of partnership interests 554 - Tax benefit realized for stock option exercises 16 115 Purchases of treasury stock - (10,747) Payments of debt issue costs (4,315) (341) Proceeds from issuance of debt 130,000 - Payments on debt (1,626) (1) ---------- --------- Net cash provided by (used in) financing activities 124,875 (10,132) ---------- --------- Net increase in cash and cash equivalents 22,543 5,707 Cash and cash equivalents, beginning of period 12,386 7,572 ---------- --------- Cash and cash equivalents, end of period $ 34,929 $ 13,279 ========== ========= Supplemental Cash Flow Information: Interest paid $ 2,443 $ 42 Income taxes paid $ 1,367 $ 194
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