LAKE FOREST, Calif., April 25, 2006 (PRIMEZONE) -- Apria Healthcare Group Inc. (NYSE:AHG), the nation's leading home healthcare company, today announced its financial results for the quarter ended March 31, 2006. Revenues were $368.1 million in the first quarter of 2006 compared to $359.7 million in the fourth quarter of 2005 and $371.9 million in the first quarter of 2005. Net income for the first quarter of 2006 was $16.1 million or $0.38 per share (diluted), compared to $19.5 million or $0.43 per share for the fourth quarter of 2005. Net income for the first quarter of 2005 was $25.2 million or $0.51 per share.
Medicare reimbursement reductions and related respiratory drug product cost increases were responsible for the majority of the first quarter revenue and net income declines when compared to the prior year quarter. The impact of the Medicare reductions versus the first quarter of 2005 was $8.4 million to revenues and $6.3 million to net income. Compared to the fourth quarter of 2005, the Medicare-related impact to revenues and net income was $3.3 million and $2.6 million, respectively.
"We are encouraged by signs of a return of overall organic revenue growth as it started to rebound in the first quarter versus the fourth quarter, but there's still work to be done," said Lawrence M. Higby, Chief Executive Officer. "Revenues from the CIGNA contract are coming in strong and are trending upward. Overall, March revenues outpaced January and February and, for certain product lines such as oxygen, nebulizers, hospital beds and two key infusion therapies, March represented the highest patient census numbers that we have experienced in the past two years."
Gross margins were 65.5% in the first quarter of 2006, 0.8% lower than the fourth quarter and 2.3% lower than the first quarter of last year. The decline in margins is primarily attributable to the Medicare revenue pricing reductions and related product cost increases noted above.
Selling, distribution and administrative expenses were 53.7% of net revenues in the first quarter of 2006, down from 54.3% in the fourth quarter of 2005 and up from 52.4% in the first quarter of 2005. The comparison between the percentages for the two first quarters is directly impacted by the incremental Medicare revenue reductions of $8.4 million, which accounts for the difference. The favorable variance of 0.6% between the first quarter of 2006 and the fourth quarter of 2005 was due to productivity improvements and was achieved despite the Medicare reimbursement reductions of $3.3 million and start-up costs on the CIGNA contract. During the first quarter of 2006, Apria management effected a number of expense savings initiatives. Realization of the related savings is expected to accelerate in the second half of the year.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $67.2 million in the first quarter of 2006. This compares to $69.4 million for the fourth quarter of 2005 and $75.7 million in the first quarter of 2005. Compared to the fourth quarter of 2005, the EBITDA reduction was due to the Medicare-related impacts and seasonally higher bad debt expense, offset by improved organic revenues and expense leveraging. EBITDA is presented as a supplemental performance measure and is not intended as an alternative to net income 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.
The tax rate in the first quarter was 34.6% due to the completion of the 2002 I.R.S. audit and a subsequent adjustment to the tax contingency reserves. The tax rate for the year is expected to be approximately 37%.
Liquidity and Capital
Operating cash flow was $38.2 million in the first quarter of 2006 versus $77.3 million in the fourth quarter of 2005 and $51.7 million in the first quarter of 2005. The main drivers of the decrease in 2006 are the timing of the payment of payroll liabilities and the increase in net accounts receivable due to the revenue increase in March.
Net purchases of patient service equipment were 9.0% of net revenue in the first quarter of 2006. This increase, when compared to purchases of 8.3% in the first quarter of 2005, can be attributed to the CIGNA contract transition. In order to accelerate the transition, Apria increased purchases of new equipment to accommodate the high volume of new patients and purchased the patient service equipment already in place in the homes of existing CIGNA patients from previously contracted providers.
Days sales outstanding (DSO) were 56 days at March 31, 2006, down from 57 days at March 31, 2005 and December 31, 2005.
Apria provides home respiratory therapy, home infusion therapy and home medical equipment through approximately 500 branches serving patients in all 50 states. With almost $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
March 31, December 31,
(dollars in thousands) 2006 2005
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(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,900 $ 23,304
Accounts receivable, net
of allowance for doubtful
accounts 229,549 226,478
Inventories, net 44,184 42,571
Other current assets 51,307 51,648
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TOTAL CURRENT ASSETS 338,940 344,001
PATIENT SERVICE EQUIPMENT, NET 229,164 225,575
PROPERTY, EQUIPMENT & IMPROVEMENTS,
NET 46,465 46,087
OTHER ASSETS, NET 568,712 570,235
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TOTAL ASSETS $1,183,281 $1,185,898
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 148,795 $ 166,326
Current portion of long-term debt 2,442 4,465
--------- ----------
TOTAL CURRENT LIABILITIES 151,237 170,791
LONG-TERM DEBT, net of current
portion 635,709 640,855
OTHER NON-CURRENT LIABILITIES 49,147 47,088
--------- ----------
TOTAL LIABILITIES 836,093 858,734
STOCKHOLDERS' EQUITY 347,188 327,164
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,183,281 $1,185,898
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APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
(dollars in thousands, except per ------------------
share data) 2006 2005
------------------------------------------------------------------
Respiratory therapy $ 253,148 $ 257,489
Infusion therapy 64,772 61,703
Home medical equipment/other 50,136 52,671
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NET REVENUES 368,056 371,863
GROSS PROFIT 241,082 252,092
Provision for doubtful accounts 10,168 14,668
Selling, distribution and administrative
expenses 197,693 195,036
Amortization of intangible assets 1,277 1,620
--------- ---------
OPERATING INCOME 31,944 40,768
Interest expense, net 7,287 4,767
--------- ---------
INCOME BEFORE TAXES 24,657 36,001
Income tax expense 8,534 10,831
--------- ---------
NET INCOME $ 16,123 $ 25,170
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Net income per common share - assuming
dilution $ 0.38 $ 0.51
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Weighted average number of common shares
outstanding 42,954 49,785
Reconciliation - EBITDA:
Reported net income $ 16,123 $ 25,170
Add back: Interest expense, net 7,287 4,767
Add back: Income tax expense 8,534 10,831
Add back: Depreciation 33,964 33,331
Add back: Amortization of intangible assets 1,277 1,620
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Adjusted EBITDA $ 67,185 $ 75,719
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APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
------------------
(dollars in thousands) 2006 2005
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OPERATING ACTIVITIES
Net income $ 16,123 $ 25,170
Items included in net income not
requiring cash:
Provision for doubtful accounts 10,168 14,668
Depreciation and amortization 35,241 34,951
Deferred income taxes and other 3,647 (4,215)
Changes in operating assets and liabilities,
exclusive of effects of acquisitions (27,016) (18,828)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,163 51,746
--------- ---------
INVESTING ACTIVITIES
Purchases of patient service equipment and
property, equipment and improvements,
exclusive of effects of acquisitions (38,834) (34,433)
Proceeds from disposition of assets 555 121
Cash paid for acquisitions, including
payments of deferred consideration (4,063) (28,938)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (42,342) (63,250)
--------- ---------
FINANCING ACTIVITIES
Net payments on debt (7,169) (2,459)
Capitalized debt issuance costs -- (15)
Outstanding checks included in accounts
payable (858) (7,062)
Issuances of common stock 2,802 9,275
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (5,225) (261)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,404) (11,765)
Cash and cash equivalents at beginning
of period 23,304 39,399
--------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 13,900 $ 27,634
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