Contact:
Rich Cockrell
Vice President, Investor Relations
770/767-4500
MATRIA HEALTHCARE REPORTS THIRD QUARTER RESULTS
Company Meets Revenue and Earnings Expectations
Marietta, GA, October 26, 2006 — Matria Healthcare, Inc. (NASDAQ: MATR) today announced its financial results for the third quarter and nine months ended September 30, 2006.
For all periods presented in this press release, Matria’s continuing operations include the Company’s disease management, wellness and productivity enhancement, and maternity management businesses. Dia Real, the Company’s former German diabetes supply business, which was sold October 17, 2006, is included in discontinued operations and classified as assets held for sale. Also included in discontinued operations is Facet Technologies, the Company’s former diabetes product design, development and assembly business, which was sold September 1, 2006.
Revenues for the third quarter of 2006 were $84.2 million, compared with $46.3 million in the third quarter of 2005. Before share-based compensation expense, operating earnings from continuing operations for the third quarter of 2006 were $16.0 million, or 19% of revenues, compared to $2.5 million, or 5% of revenues, reported in the third quarter of 2005. Effective January 1, 2006, the Company began expensing share-based compensation, which is a non-cash expense. After share-based compensation expense of $1.9 million, operating earnings from continuing operations for the third quarter of 2006 were $14.1 million, or 17% of revenues.
Earnings from continuing operations for the third quarter of 2006 were $5.8 million, or $0.27 per diluted common share, before share-based compensation expense of $0.06 per diluted common share, compared with $1.6 million, or $0.07 per diluted common share, in the 2005 third quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2006 were $20.9 million, compared to $4.1 million in the third quarter 2005, in each case excluding share-based compensation.
The Company’s third quarter of 2006 disease management and wellness revenues were $56.4 million, compared to $20.1 million in the third quarter of 2005. Maternity management revenues for the third quarter of 2006 increased by 6% to $27.7 million, compared to $26.1 million in the 2005 third quarter.
During the third quarter, the Company completed the sale of Facet Technologies for approximately $122 million. As a result, the Company recorded an after-tax gain on disposal of discontinued operations of $16.9 million, or $0.78 per diluted common share in the third quarter of 2006.
“The divestitures of Facet Technologies and Dia Real complete our multi-year strategy to become a ‘pure play,’ totally focused in the wellness and disease management sector of healthcare,” said Parker H. Petit, Chairman and Chief Executive Officer. “The cash flow from those two operations, and our domestic pharmacy and supplies business, which we sold in June of 2004, provided the capital to build our strong technology and informatics base for our disease management operations. We acquired all three of those operations in 1999, and the return on our investment, including cash flow from operations and profits on the sales, exceeded $250 million. With these divestitures behind us, we look forward to being able to focus solely on our wellness and disease management business opportunities.”
Petit added, “We continue to execute on the business strategy that we relayed to shareholders in early 2006. We now have much better clarity into our new business opportunities, and we continue to build a significant revenue backlog going into 2007. We recently disclosed that the annualized value of the awards of health enhancement business that are expected to begin generating revenues in 2007 totals more than $32 million. Since our second quarter earnings release, our 2007 revenue backlog has grown
by nearly $27 millon.”
“Matria has built a strong technology and informatics base over the last five years. We believe that many of our recent awards of business have been based on our clear leadership in the technology and informatics areas. Both employers and health plans clearly understand the importance of pristine data flow that translates into information, which ultimately translates into their understanding and improvement of the effectiveness of their health benefits and processes,” Petit concluded.
Revenues for the nine months ended September 30, 2006, were $247.7 million, compared with $130.7 million for the first nine months of 2005. Before share-based compensation expense, operating earnings from continuing operations for the nine months ended September 30, 2006, were $45.8 million, compared with $5.7 million for the same period in 2005. After share-based compensation expense of $5.1 million, operating earnings for the first nine months of 2006 were $40.6 million. Earnings from continuing operations for the first nine months of 2006 were $12.8 million, or $0.59 per diluted common share, after share-based compensation expense of $0.16 per diluted common share, compared with $2.5 million, or $0.13 per diluted common share, for the same period of 2005. EBITDA for the nine months ended September 30, 2006, were $60.1 million, excluding share-based compensation.
Disease management and wellness revenues for the first nine months of 2006 were $167.6 million, compared with $54.1 million in the same period of 2005. Maternity management revenues for the first nine months of 2006 increased by 5% to $80.1 million, compared with $76.5 million in the same period of 2005.
Richard M. Hassett, M.D., President and Chief Operating Officer, commented, “This is the second quarter that we have produced very strong operating earnings and EBITDA as a percentage of our revenues. The integration of CorSolutions and our two wellness companies is basically complete and our operating margins are reflective of the synergies we achieved from these strategic acquisitions. Our management team is well aligned, and we are producing excellent operating results. Futhermore, our incremental contribution margin for increased revenues is outstanding. As a result, we expect our future profits and EBITDA to continue to be strong and grow at faster rates than our revenue growth.”
DEBT REDUCTION
Matria used the net proceeds from the Facet Technologies and Dia Real divestitures to make additional prepayments under its First Lien credit facility. Following the end of the third quarter, the Company used its operating cash flow to make an additional debt prepayment in the amount of $10 million. The Company has made total prepayments this year of $165 million, and anticipates increasing that amount to at least $175 million by year-end, as originally planned.
INTEREST EXPENSE AND BANK CREDIT FACILITY
The Company expects fourth quarter of 2006 net interest expense of approximately $6.5 million, which includes approximately $0.6 million of charges associated with the write-off of debt issuance costs on the expected $20 million of debt prepayments.
The Company also announced that, after the completion of the Dia Real sale, the Company requested its lender group to increase its First Lien credit facility by $65 million, with the proceeds being used to prepay the Second Lien facility. The Company currently expects the amendment to close and fund next week. On an annual basis, the amendment is expected to generate interest savings of $3.1 million, or approximately $0.09 per diluted common share.
FOURTH QUARTER GUIDANCE
Matria announced its fourth quarter 2006 revenue guidance to be between $89 million and $91 million. The Company expects fourth quarter operating earnings from continuing operations to range from $18 million to $19 million, EBITDA from continuing operations to be between $23 million and $24 million, and earnings per diluted common share from continuing operations to be in the range of $0.32 to $0.35, in all cases excluding share-based compensation expense of $0.06 to $0.07 per diluted common share.
A listen-only simulcast and replay of Matria Healthcare’s third quarter conference call will be available online at the Company’s website at www.matria.com or at www.fulldisclosure.com on October 26, 2006, beginning at 9:00 a.m. Eastern time.
ABOUT MATRIA HEALTHCARE
Matria Healthcare is a leading provider of comprehensive health enhancement programs to health plans, employers and government agencies. Matria is dedicated to developing better educated, motivated and self-enabled healthcare consumers and supporting clinicians in managing the care of their patients. The Company manages major chronic diseases and episodic conditions including diabetes, congestive heart failure, coronary artery disease, asthma, chronic obstructive pulmonary disease, high-risk obstetrics, cancer, musculoskeletal and chronic pain, depression, obesity, and other conditions. Matria delivers programs that address wellness, healthy living, productivity improvement and patient advocacy, and provides case management of acute and catastrophic conditions. Headquartered in Marietta, Georgia, Matria operates through nearly 50 offices around the United States. More information about Matria can be found online at www.matria.com.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements. Such statements include but are not limited to the Company’s financial expectations for the fourth quarter of 2006, annualized revenues from awards expected to begin producing revenue in 2007, the success of the integration of CorSolutions, the synergies resulting from the integration of CorSolutions and the impact on the Company’s profit margins, the Company’s expectations for strong future profits and EBITDA, the validity of the Company’s interest rate assumptions, the amount of the Company’s expected debt repayments, and the increase in the Company’s First Lien credit facility. These statements are based on current information and belief, and are not guarantees of future performance. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include the Company’s inability to achieve its financial expectations, failure to realize anticipated revenues from backlog, unanticipated integration issues, failure to achieve anticipated synergies, lower than anticipated profit margins, failure to achieve expected profits and EBITDA, reduced cash flows from operations, unanticipated uses of cash, higher than expected interest rates, inability to
close the amendment increasing the Company’s First Lien credit facility, developments in the healthcare industry, third-party actions over which Matria does not have control, regulatory requirements applicable to Matria’s business and the risk factors detailed from time to time in Matria’s periodic reports and registration statements filed with the Securities and Exchange Commission, including Matria’s Annual Report on Form 10-K for the year ended December 31, 2005. By making these forward-looking statements, Matria does not undertake to update them in any manner except as may be required by Matria’s disclosure obligations in filings it makes with the Securities and Exchange Commission under the federal securities laws.
Matria Healthcare, Inc. | |
Unaudited Consolidated Condensed Statements of Operations | |
| (Amounts in thousands, except per share amounts) | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | | |
| Revenues | | $ | 84,186 | | $ | 46,266 | | $ | 247,719 | | $ | 130,651 | |
| | | | | | | | | | | | | | |
| Cost of revenues | | | 27,243 | | | 19,089 | | | 80,104 | | | 53,025 | |
| Selling and administrative expenses | | | 40,027 | | | 23,767 | | | 118,845 | | | 69,250 | |
| Provision for doubtful accounts | | | 1,021 | | | 878 | | | 2,785 | | | 2,621 | |
| Amortization of intangible assets | | | 1,786 | | | 40 | | | 5,358 | | | 80 | |
| | | | | | | | | | | | | | |
| Operating earnings from continuing operations | | | 14,109 | | | 2,492 | | | 40,627 | | | 5,675 | |
| Interest income (expense), net | | | (6,702 | ) | | 45 | | | (19,534 | ) | | (1,603 | ) |
| Other income, net | | | 310 | | | 156 | | | 879 | | | 137 | |
| Earnings from continuing operations before income taxes | | | 7,717 | | | 2,693 | | | 21,972 | | | 4,209 | |
| Income tax expense | | | (3,185 | ) | | (1,091 | ) | | (9,190 | ) | | (1,705 | ) |
| Earnings from continuing operations | | | 4,532 | | | 1,602 | | | 12,782 | | | 2,504 | |
| Discontinued Operations: | | | | | | | | | | | | | |
| Earnings from discontinued operations, net of tax | | | 1,261 | | | 4,835 | | | 5,159 | | | 12,813 | |
| Gain on disposal of discontinued operations, net of tax | | | 16,925 | | | - | | | 16,925 | | | - | |
| Earnings from discontinued operations | | | 18,186 | | | 4,835 | | | 22,084 | | | 12,813 | |
| Net earnings | | $ | 22,718 | | $ | 6,437 | | $ | 34,866 | | $ | 15,317 | |
| | | | | | | | | | | | | | |
| Net earnings per common share: | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | |
| Continuing Operations | | $ | 0.22 | | $ | 0.08 | | $ | 0.61 | | $ | 0.14 | |
| Discontinued Operations | | | 0.86 | | | 0.23 | | | 1.05 | | | 0.70 | |
| | | $ | 1.08 | | $ | 0.31 | | $ | 1.66 | | $ | 0.84 | |
| Diluted | | | | | | | | | | | | | |
| Continuing Operations | | $ | 0.21 | | $ | 0.07 | | $ | 0.59 | | $ | 0.13 | |
| Discontinued Operations | | | 0.84 | | | 0.23 | | | 1.02 | | | 0.67 | |
| | | $ | 1.05 | | $ | 0.30 | | $ | 1.61 | | $ | 0.80 | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | |
| Basic | | | 21,041 | | | 20,632 | | | 20,957 | | | 18,136 | |
| Diluted | | | 21,554 | | | 21,728 | | | 21,644 | | | 19,193 | |
Matria Healthcare, Inc. | |
Unaudited Consolidated Condensed Balance Sheets | |
| (Amounts in thousands) | |
| | | | | | |
| | | September 30, | | December 31, | |
| | | 2006 | | 2005 | |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | 28,178 | | $ | 22,758 | |
| Restricted cash | | | 1,344 | | | 550 | |
| Trade accounts receivable, net | | | 53,929 | | | 33,996 | |
| Assets held for sale | | | 30,322 | | | 132,455 | |
| Prepaid expenses and other current assets | | | 10,447 | | | 6,588 | |
| Deferred income taxes | | | 8,631 | | | 8,629 | |
| Total current assets | | | 132,851 | | | 204,976 | |
| | | | | | | | |
| Property and equipment, net | | | 37,851 | | | 26,430 | |
| Goodwill, net | | | 475,180 | | | 69,248 | |
| Other intangibles, net | | | 57,677 | | | 6,935 | |
| Deferred income taxes | | | 8,182 | | | 10,666 | |
| Other assets | | | 13,841 | | | 4,952 | |
| | | $ | 725,582 | | $ | 323,207 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Current installments of long-term debt | | | | | | | |
| and obligations under capital leases | | $ | 54,313 | | $ | 1,021 | |
| Accounts payable, principally trade | | | 9,778 | | | 10,702 | |
Liabilities related to assets held for sale and other discontinued operations discontinued operations | | | 8,153 | | | 31,042 | |
| Unearned revenue | | | 12,559 | | | 7,205 | |
| Other accrued liabilities | | | 58,815 | | | 13,412 | |
| Total current liabilities | | | 143,618 | | | 63,382 | |
| | | | | | | | |
| Long-term debt and obligations under capital | | | | | | | |
| leases, excluding current installments | | | 277,714 | | | 2,099 | |
| Other long-term liabilities | | | 7,618 | | | 5,788 | |
| Total liabilities | | | 428,950 | | | 71,269 | |
| | | | | | | | |
| Shareholders' equity | | | 296,632 | | | 251,938 | |
| | | $ | 725,582 | | $ | 323,207 | |
Matria Healthcare, Inc. | |
Unaudited Reconciliation of Non-GAAP Financial Measures | |
| (Amounts in thousands, except per share amounts) | |
| | | | | | |
| | | | | | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | | |
Reconciliation of Operating Earnings from Continuing Operations As Reported to Operating Earnings from Continuing Operations Excluding Share-Based Compensation | | | | | | | | | |
| Operating earnings from continuing operations as reported | | $ | 14,109 | | $ | 2,492 | | $ | 40,627 | | $ | 5,675 | |
| Add share-based compensation | | | 1,883 | | | - | | | 5,131 | | | - | |
Operating earnings from continuing operations excluding share- based compensation | | $ | 15,992 | | $ | 2,492 | | $ | 45,758 | | $ | 5,675 | |
| | | | | | | | | | | | | | |
Reconciliation of Earnings from Continuing Operations As Reported to Earnings from Continuing Operations Excluding Share-Based Compensation | | | | | | | | | | | | | |
| Earnings from continuing operations as reported | | $ | 4,532 | | $ | 1,602 | | $ | 12,782 | | $ | 2,504 | |
| Add share-based compensation, net of tax | | | 1,253 | | | - | | | 3,548 | | | - | |
Earnings from continuing operations excluding share-based compensation | | $ | 5,785 | | $ | 1,602 | | $ | 16,330 | | $ | 2,504 | |
| | | | | | | | | | | | | | |
Reconciliation of Earnings from Continuing Operations to EBITDA from Continuing Operations Excluding Share-Based Compensation | | | | | | | | | | | | | |
| Earnings from continuing operations | | $ | 4,532 | | $ | 1,602 | | $ | 12,782 | | $ | 2,504 | |
| Interest expense, net | | | 6,702 | | | (45 | ) | | 19,534 | | | 1,603 | |
| Income tax expense | | | 3,185 | | | 1,091 | | | 9,190 | | | 1,705 | |
| Depreciation and amortization | | | 4,615 | | | 1,459 | | | 13,501 | | | 4,357 | |
| Share-based compensation | | | 1,883 | | | - | | | 5,131 | | | - | |
| EBITDA excluding share-based compensation | | $ | 20,917 | | $ | 4,107 | | $ | 60,138 | | $ | 10,169 | |
| | | | | | | | | | | | | | |
Reconciliation of Diluted Earnings Per Common Share from Continuing Operations As Reported to Diluted Earnings Per Common Share from Continuing Operations Excluding Share-Based Compensation | | | | | | | | | | | | | |
| Diluted earnings per common share as reported | | $ | 0.21 | | $ | 0.07 | | $ | 0.59 | | $ | 0.13 | |
| Add Share-based compensation, net of tax | | | 0.06 | | | - | | | 0.16 | | | - | |
Diluted earnings per common share excluding share-based compensation | | $ | 0.27 | | $ | 0.07 | | $ | 0.75 | | $ | 0.13 | |
Matria Healthcare, Inc. | |
Reconciliation of Non-GAAP Financial Measures for Q4 2006 Guidance | |
| (Amounts in millions, except per share amounts) | |
| | | | | | |
Reconciliation of Operating Earnings from Continuing Operations to Operating Earnings from Continuing Operations Excluding Share-Based Compensation | | Low | | High | |
| Operating earnings from continuing operations | | $ | 16 | | $ | 17 | |
| Share-based compensation | | | 2 | | | 2 | |
Operating earnings from continuing operations excluding share-based compensation | | $ | 18 | | $ | 19 | |
| | | | | | | | |
| | | | | | | | |
Reconciliation of Earnings from Continuing Operations to EBITDA from Continuing Operations Excluding Share-Based Compensation | | | Low | | | High | |
| Earnings from continuing operations | | $ | 5 | | $ | 6 | |
| Share-based compensation | | | 2 | | | 2 | |
| Income tax expense | | | 4 | | | 4 | |
| Interest expense, net | | | 7 | | | 7 | |
| Depreciation and amortization | | | 5 | | | 5 | |
| EBITDA, excluding share-based compensation | | $ | 23 | | $ | 24 | |
| | | | | | | | |
Reconciliation of Earnings Per Diluted Share from Continuing Operations to Earnings Per Diluted Share from Continuing Operations Excluding Share-Based Compensation | | | Low | | | High | |
| Earnings per diluted share from continuing operations | | $ | 0.25 | | $ | 0.29 | |
| Share-based compensation | | | 0.07 | | | 0.06 | |
Earnings per diluted share from continuing operations excluding share-based compensation | | $ | 0.32 | | $ | 0.35 | |
