LAKE FOREST, Calif., July 27, 2006 (PRIMEZONE) -- Apria Healthcare Group Inc. (NYSE:AHG), the nation's leading home healthcare company, today announced its financial results for the quarter ended June 30, 2006. Revenues were $376.1 million in the second quarter of 2006 compared to $374.9 million in the second quarter of 2005. Net income for the second quarter of 2006 was $18.5 million or $0.43 per share (diluted), compared to $3.0 million or $0.06 per share (diluted) for the second quarter of 2005. The 2005 period reflects the initial recording of a $20 million accrual upon settlement of a qui tam lawsuit. Net cash provided by operating activities was $90.7 million in the second quarter of 2006, compared to $44.6 million in the same period last year.
Revenue and net income growth for the second quarter of 2006, when compared to the second quarter of 2005, were negatively impacted by Medicare reimbursement reductions and related respiratory drug product cost increases. The impact of these Medicare effects was $3.3 million to revenues, $1.4 million to cost of goods and $3.0 million to net income.
Gross margins were 65.7% in the second quarter of 2006, compared to 68.1% reported in the second quarter of last year. The decline in margins is primarily attributable to the Medicare revenue pricing reductions and related product cost increases noted above, managed care pricing reductions and product mix shifts.
The provision for doubtful accounts as a percentage of net revenue was 2.6%, compared to 3.4% in the comparable period last year.
Selling, distribution and administrative expenses were 52.7% of net revenues in the second quarter of 2006, unadjusted for the Medicare revenue pricing reductions noted above. In 2005, the expense percentage was 58.6%, reflecting the effects of the $20 million qui tam accrual. Excluding that item, selling, distribution and administrative expenses would have been 53.3% of net revenues in last year's second quarter. The improvement in the second quarter of 2006 compared to the second quarter of 2005 is directly attributable to the realization of savings from cost control measures put into place in 2005 and in early 2006. The favorable variance in the percentages was reflected in all areas of operations, including labor and other operating expenses.
"We are encouraged by our solid performance in the second quarter," said Lawrence M. Higby, Chief Executive Officer. "Our collection and cost control initiatives are starting to deliver concrete savings to the P&L as evidenced by the decreases in bad debt and SD&A percentages. During late 2005 and early 2006, we have intently focused our efforts on improving our billing processes and implementing a credit card initiative which has successfully increased the collection of patient co-pays. In addition, expenditures for patient service equipment reached an all-time low level, while days sales outstanding (DSO) improved quarter-to-quarter by four days -- two more indicators that suggest our cost control initiatives are on the right track."
"Revenues from the CIGNA contract are continuing to exceed our initial expectations," Mr. Higby added, "while trends related to revenue statistics such as new patient starts and growth in patient census -- especially in the product lines of oxygen therapy, home medical equipment, enteral nutrition and infusion therapy -- are also positive. In addition, our sales team signed over 200 new revenue-generating managed care contracts in the quarter. However, based on our revenue growth rate, we realize there is still much work to be done in the sales organization. During the second half of the year, we will focus heavily on increasing the productivity of the sales team to accelerate the growth rate."
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $72.9 million in the second quarter of 2006. EBITDA in the second quarter of 2005 was $56.0 million, which includes the $20 million qui tam accrual. EBITDA in the second quarter of 2006 was negatively impacted by the Medicare revenue and cost impacts noted previously. 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.
Liquidity and Capital
Free cash flow was $63.3 million in the second quarter of 2006 versus $17.2 million in the second quarter of 2005 and $(.7) million in the first quarter of 2006. The main drivers of the increase in free cash flow in the second quarter of 2006 were strong cash collections of receivables, minimal income tax payments due to a favorable IRS ruling, and the timing of the payment of payroll liabilities. The Company utilized the free cash flow to reduce its revolving credit line balance by $50 million during the second quarter.
Free cash flow is defined as operating cash flow minus capital expenditures and does not include acquisitions or financing activities. It is presented as a supplemental performance measure and is not intended as an alternative to any other cash flow measure calculated in accordance with generally accepted accounting principles. Further, free cash flow may not be comparable to similarly titled measures used by other companies. A table reconciling free cash flow to cash provided by operating activities is presented at the bottom of the condensed consolidated statements of cash flows included in this release.
Net purchases of patient service equipment in the second quarter of 2006 were 6.2% of net revenue versus 6.6% in the second quarter of 2005. Days sales outstanding (DSO) were 52 days at June 30, 2006, down from 56 days at March 31, 2006 and 57 days December 31, 2005.
2006 Outlook
The Company has decided to defer any further share repurchases until after the end of 2006. Instead, the focus will be on reducing long-term debt and otherwise strengthening the balance sheet.
Given the slower return of organic sales growth, the Company now estimates that sales growth in 2006 will be approximately 3%. Management expects that the impact of the sales shortfall will be largely offset by cost savings. The Company does not expect earnings per share in the third quarter to exceed second quarter results, as the current quarter is a seasonally slow revenue period and labor costs will be higher due to a Company-wide wage increase which took effect in the beginning of July.
Resignation of Chief Financial Officer
Amin I. Khalifa, the Company's Executive Vice President and Chief Financial Officer, will be resigning from Apria effective August 25, 2006. "I want to thank Larry Higby and all Apria employees for making my three years here fulfilling," said Mr. Khalifa. "My move comes at a time when Apria is on the rebound with tighter operations, favorable cash flow and building sales momentum. I am making this change for only one reason -- a unique opportunity to join a growth company in the telecommunications industry." Mr. Higby commented, "David Goldsmith and I want to thank Amin for his many contributions to Apria's success. He leaves with our financial house in good order and we wish him well in his new endeavor."
A search for Mr. Khalifa's replacement is already underway. Upon his departure, Alicia Price, the Company's Vice President and Controller, will assume the duties of the Chief Financial Officer on an interim basis.
Apria provides home respiratory therapy, home infusion therapy and home medical equipment through approximately 500 branches serving patients in all 50 states. With approximately $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
June 30, December 31,
(dollars in thousands) 2006 2005
---------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,820 $ 23,304
Accounts receivable, net of allowance
for doubtful accounts 216,901 226,478
Inventories, net 42,020 42,571
Other current assets 51,442 51,648
----------- -----------
TOTAL CURRENT ASSETS 342,183 344,001
PATIENT SERVICE EQUIPMENT, NET 222,591 225,575
PROPERTY, EQUIPMENT & IMPROVEMENTS, NET 45,294 46,087
OTHER ASSETS, NET 564,976 570,235
----------- -----------
TOTAL ASSETS $ 1,175,044 $ 1,185,898
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 161,484 $ 166,326
Current portion of long-term debt 1,039 4,465
----------- -----------
TOTAL CURRENT LIABILITIES 162,523 170,791
LONG-TERM DEBT, net of current portion 585,561 640,855
OTHER NON-CURRENT LIABILITIES 60,528 47,088
----------- -----------
TOTAL LIABILITIES 808,612 858,734
STOCKHOLDERS' EQUITY 366,432 327,164
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,175,044 $ 1,185,898
=========== ===========
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
(dollars in thousands,
except per share data) 2006 2005 2006 2005
---------------------------------------------------------------------
Respiratory therapy $ 256,289 $ 255,913 $ 509,437 $ 513,401
Infusion therapy 68,231 64,562 133,003 126,265
Home medical equipment/
other 51,559 54,456 101,695 107,128
--------- --------- --------- ---------
NET REVENUES 376,079 374,931 744,135 746,794
GROSS PROFIT 247,109 255,347 488,191 507,439
Provision for doubtful
accounts 9,737 12,582 19,905 27,250
Selling, distribution
and administrative
expenses 198,352 199,667 396,045 394,703
Qui tam settlement and
related costs -- 20,000 -- 20,000
Amortization of intangible
assets 1,665 1,509 2,942 3,129
--------- --------- --------- ---------
OPERATING INCOME 37,355 21,589 69,299 62,357
Interest expense, net 8,016 4,865 15,303 9,632
--------- --------- --------- ---------
INCOME BEFORE TAXES 29,339 16,724 53,996 52,725
Income tax expense 10,881 13,708 19,415 24,539
--------- --------- --------- ---------
NET INCOME $ 18,458 $ 3,016 $ 34,581 $ 28,186
========= ========= ========= =========
Income per common share
-- assuming dilution $ 0.43 $ 0.06 $ 0.81 $ 0.56
========= ========= ========= =========
Weighted average number
of common shares
outstanding 42,789 50,082 42,871 49,933
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
--------------------------------
(dollars in thousands) 2006 2005
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 34,581 $ 28,186
Items included in net income not
requiring cash:
Provision for doubtful accounts 19,905 27,250
Depreciation and amortization 70,832 69,400
Deferred income taxes and other 16,828 (3,964)
Changes in operating assets and
liabilities, exclusive of effects of
acquisitions (13,246) (24,553)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 128,900 96,319
----------- -----------
INVESTING ACTIVITIES
Purchases of patient service
equipment and property, equipment
and improvements, exclusive of
effects of acquisitions (66,264) (61,849)
Proceeds from disposition of assets 648 183
Cash paid for acquisitions, including
payments of deferred consideration (5,040) (96,229)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (70,656) (157,895)
----------- -----------
FINANCING ACTIVITIES
Net payments on debt (58,720) 21,512
Capitalized debt issuance costs (1,119) (15)
Outstanding checks included in
accounts payable 7,238 (3,308)
Issuances of common stock 2,873 17,016
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (49,728) 35,205
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,516 (26,371)
Cash and cash equivalents at
beginning of period 23,304 39,399
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 31,820 $ 13,028
=========== ===========
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2006 2005 2006 2005
---------------------------------------------------------------------
Reconciliation -- EBITDA:
Reported net income $ 18,458 $ 3,016 $ 34,581 $ 28,186
Add back: Interest
expense, net 8,016 4,865 15,303 9,632
Add back: Income tax
expense 10,881 13,708 19,415 24,539
Add back: Depreciation 33,926 32,940 67,890 66,271
Add back: Amortization
of intangible assets 1,665 1,509 2,942 3,129
--------- --------- --------- ---------
Adjusted EBITDA $ 72,946 $ 56,038 $ 140,131 $ 131,757
========= ========= ========= =========
Reconciliation -- Free Cash Flow:
Net cash provided by
operating activities $ 90,737 $ 44,574 $ 128,900 $ 96,319
Less: Purchases of
patient service
equipment and property,
equipment and
improvements, exclusive
of effects of
acquisitions (27,430) (27,416) (66,264) (61,849)
--------- --------- --------- ---------
Free cash flow $ 63,307 $ 17,158 $ 62,636 $ 34,470
========= ========= ========= =========