CIGNA Contract Win and Kaiser Contract Renewal Also Announced
LAKE FOREST, Calif., Oct. 25, 2005 (PRIMEZONE) -- Apria Healthcare Group Inc. (NYSE:AHG), the nation's leading home healthcare company, today announced its financial results for the quarter ended September 30, 2005 and other developments. The Company also announced that Apria's Board of Directors has concluded that the interests of shareholders are best served by focusing 100% on revenue growth and operating improvements and terminating the process of entertaining potential offers for the Company.
As projected in the Company's press release of October 7, 2005, revenues were $367.6 million in the third quarter of 2005, a 1% increase over revenues of $364.6 million for the third quarter of 2004. Net income for the third quarter of 2005 was $19.3 million or $.38 per share (diluted), compared to $29.8 million or $.60 per share for the same period last year.
The comparison of revenues and net income between the third quarters of 2005 and 2004 was negatively impacted by Medicare reimbursement reductions that went into effect for certain items of home medical equipment on January 1, 2005; for oxygen on April 8, 2005; and for respiratory medications in each of the first three quarters of 2005. Excluding the effects of the Medicare reductions, revenue growth was 3%.
"As previously announced, revenue growth was short of expectations in the third quarter and as a result we reduced earnings expectations for the year," said Lawrence M. Higby, Apria's Chief Executive Officer. "The shortfall was mainly in the home medical equipment and infusion therapy lines of business. Between now and the end of the year, we plan to take a number of decisive actions to correct this situation."
Net income for the third quarter of 2005 reflects a tax benefit of $2.3 million related to the $17.6 million settlement of the Company's qui tam litigation concerning Medicare billing documentation in 1995-1998. The settlement amount was originally accrued in the second quarter when the preliminary agreement was reached. In the third quarter, the settlement agreement was finalized and payment was made to the government, at which time the tax benefit was recorded. Without this benefit, diluted net income per share would have been $.34.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $69.0 million for the third quarter of 2005 compared to $85.6 million for the third quarter of 2004. The 2005 Medicare reimbursement reductions lowered third quarter EBITDA by $10.6 million. EBITDA is presented as a supplemental performance measure and is not meant to be considered as an alternative to net income or cash flows from operating activities or any other measure calculated in accordance with generally accepted accounting principles. Further, EBITDA may not be comparable to similarly titled measures used by other companies. A table reconciling EBITDA to net income is presented at the bottom of the condensed consolidated statements of income included in this release.
Third quarter sales, distribution and administrative expenses increased $1.8 million or .8% from the second quarter due entirely to recent acquisitions as well as higher fuel prices and health benefit expense increases.
New Contracts
Apria also announced several contract wins and expansions that will help accelerate its organic growth. The Company recently signed a new three-year contract with CIGNA HealthCare, effective February 2006, and renewed an existing five-year contract with Kaiser Permanente. In addition, a national contract with Aetna has been expanded.
Higby stated, "With these new contracts in hand and our recent success in gaining Medicare oxygen business, we believe we have the basis for solid organic growth in 2006. We also expect to benefit from expanded Medicare Advantage business as new beneficiaries become eligible for Medicare."
Liquidity and Capital
During the third quarter, Apria acquired five small businesses for total consideration of $4.1 million. For the year, 19 acquisitions for total consideration of $99.5 million were completed.
Cash flows from operations for the nine months ended September 30, 2005 reflect the $17.6 million qui tam settlement payment. Capital expenditures continued to improve, as net purchases of patient service equipment for the third quarter of 2005 totaled $26.7 million or 7.1% of net revenues, as adjusted for the Medicare reimbursement reductions. This compares to purchases of $29.4 million or 8.1% of net revenues in the third quarter of 2004. Days sales outstanding (DSO) were 57 days at September 30, 2005, up from 55 days reported at the same date last year, primarily resulting from unavoidable delays in the government's issuance of new provider numbers associated with freestanding acquisition sites.
Stock Repurchase
Apria's Board of Directors has authorized the Company to repurchase up to $250 million worth of its outstanding common stock, $175 million of which will be in an accelerated stock repurchase transaction. Depending on market conditions and other considerations, the Company plans to repurchase the remaining $75 million in stock in open market or privately negotiated transactions over the next five fiscal quarters.
2005 Projection and 2006 Outlook
As previously reported, management now estimates full year 2005 revenue growth in the 2% to 3% range. Earnings per share (excluding the cost of the qui tam settlement) are estimated in the range of $1.68 to $1.72.
On a comparable basis for 2006, management estimates revenue growth will be approximately 5%. Earnings per share are expected to increase in the 20% range, including the effects of stock repurchases.
Decision with Respect to Sale Process
After extensive discussions with a number of potential financial and strategic investors, Apria's Board of Directors has determined that the interests of shareholders will be best served by terminating the previously announced process to explore potential opportunities for a sale of the Company.
From time to time, Apria had received expressions of interest from a variety of persons concerning the possibility of an acquisition of Apria's outstanding equity. In June, the Company announced that its Board had decided to provide non-public information to potentially interested parties in order to determine if an acquisition might be achieved at an attractive price level for its shareholders. David Goldsmith, Chairman of Apria's Board of Directors, reported that after a thorough process, the Board concluded that there was no proposal received which, in the Board's opinion, appropriately reflected Apria's intrinsic value and prospects for future appreciation.
"Despite Apria's recent lowering of expectations for 2005, the Board believes there have been significant achievements in recent months," noted Mr. Goldsmith, "including the previously announced settlement of litigation involving Medicare billing documentation, new contracts with managed care customers, and the growing importance of Medicare Advantage plans which uniquely position Apria in this new growth segment. As a result of these and other factors, we believe there are attractive opportunities for future appreciation in Apria's value and are fully supportive of the Company's strategic direction."
Mr. Higby said, "The Company has a strong future ahead of it. Throughout the summer, we have remained focused on implementing various initiatives related to logistics, revenue management, centralized Medicare billing and centralized pharmacy management -- all of which have made good progress. Given our third quarter revenues, we will redouble our focus on revenue growth while continuing to pursue the operating initiatives which should further enhance long-term shareholder value."
Apria provides home respiratory therapy, home infusion therapy and home medical equipment through approximately 500 branches serving patients in 50 states. With $1.5 billion in annual revenues, it is the nation's leading homecare company.
This release may contain statements regarding anticipated future developments that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Results may differ materially as a result of the risk factors included in the Company's filings with the Securities and Exchange Commission and other factors over which the Company has no control.
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(dollars in thousands) 2005 2004
--------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,440 $ 39,399
Accounts receivable, net of
allowance for doubtful accounts 233,586 219,365
Inventories, net 40,415 40,295
Other current assets 59,742 49,252
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TOTAL CURRENT ASSETS 346,183 348,311
PATIENT SERVICE EQUIPMENT, NET 232,784 224,801
PROPERTY, EQUIPMENT &
IMPROVEMENTS, NET 46,579 51,012
OTHER ASSETS, NET 572,218 483,540
---------- ----------
TOTAL ASSETS $1,197,764 $1,107,664
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 155,145 $ 173,434
Current portion of long-term debt 6,342 4,901
---------- ----------
TOTAL CURRENT LIABILITIES 161,487 178,335
LONG-TERM DEBT, exclusive of
current portion 506,126 475,957
OTHER NON-CURRENT LIABILITIES 48,988 47,187
---------- ----------
TOTAL LIABILITIES 716,601 701,479
STOCKHOLDERS' EQUITY 481,163 406,185
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,197,764 $1,107,664
========== ==========
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in thousands, --------------------- ---------------------
except per share data) 2005 2004 2005 2004
---------------------------------------------------------------------
Respiratory therapy $ 249,847 $ 245,958 $ 763,248 $ 735,035
Infusion therapy 65,893 63,639 192,158 182,751
Home medical equipment/
other 51,875 54,972 159,003 157,226
---------- ---------- ---------- ----------
NET REVENUES 367,615 364,569 1,114,409 1,075,012
GROSS PROFIT 259,717 262,593 788,386 775,195
Provision for doubtful
accounts 12,160 12,268 39,410 38,548
Selling, distribution
and administrative
expenses 212,150 200,619 628,083 582,496
Qui tam settlement and
related costs -- -- 20,000 --
Amortization of
intangible assets 2,047 1,854 5,176 4,639
---------- ---------- ---------- ----------
OPERATING INCOME 33,360 47,852 95,717 149,512
Interest expense, net 5,262 5,210 14,894 15,119
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 28,098 42,642 80,823 134,393
Income tax expense 8,843 12,807 33,382 47,652
---------- ---------- ---------- ----------
NET INCOME $ 19,255 $ 29,835 $ 47,441 $ 86,741
========== ========== ========== ==========
Income per common share-
assuming dilution $ 0.38 $ 0.60 $ 0.95 $ 1.72
====== ====== ====== ======
Weighted average number
of common shares
outstanding 50,465 49,792 50,111 50,436
Reconciliation --
EBITDA:
Reported net income $ 19,255 $ 29,835 $ 47,441 $ 86,741
Add back: Interest
expense, net 5,262 5,210 14,894 15,119
Add back: Income tax
expense 8,843 12,807 33,382 47,652
Add back: Depreciation 33,552 35,847 99,823 106,323
Add back: Amortization
of intangible assets 2,047 1,854 5,176 4,639
---------- ---------- ---------- ----------
EBITDA $ 68,959 $ 85,553 $ 200,716 $ 260,474
========== ========== ========== ==========
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
----------------------
(dollars in thousands) 2005 2004
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 47,441 $ 86,741
Items included in net income not
requiring cash:
Provision for doubtful accounts 39,410 38,548
Depreciation and amortization 104,999 110,962
Deferred income taxes and other (4,153) 24,378
Changes in operating assets and
liabilities, exclusive of effects
of acquisitions (58,806) (62,835)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 128,891 197,794
--------- ---------
INVESTING ACTIVITIES
Purchases of patient service
equipment and property, equipment
and improvements, exclusive of
effects of acquisitions (92,872) (111,890)
Proceeds from disposition of assets 686 159
Cash paid for acquisitions,
including payments of deferred
consideration (101,907) (116,121)
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (194,093) (227,852)
--------- ---------
FINANCING ACTIVITIES
Net payments on debt 24,544 (5,695)
Capitalized debt issuance costs (15) (37)
Outstanding checks included in
accounts payable (6,775) (1,689)
Issuances of common stock 20,489 15,784
Repurchases of common stock -- (100,000)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 38,243 (91,637)
--------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (26,959) (121,695)
Cash and cash equivalents at
beginning of period 39,399 160,553
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 12,440 $ 38,858
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