Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its
updated financial guidance for the year ending December 31, 2011.
Reissuance of 2011 Financial Guidance
Sun Healthcare announced the withdrawal of its full-year 2011
guidance on August 1, 2011 in order to have time to evaluate the
impact of the final rule for skilled nursing facilities that was
published by the Centers for Medicare and Medicaid Services ("CMS")
on July 29, 2011. After completing that review, the Company is
reissuing and updating its full year 2011 guidance. The significant
changes include:
- consolidated revenues are expected to be between $1.925 billion
and $1.945 billion, compared to a previously expected range of
$1.950 billion to $1.995 billion;
- consolidated adjusted EBITDAR is expected to be between $237
million and $242 million, compared to a previously expected range
of $259 million to $265 million; and
- diluted earnings per share from continuing operations is
expected to be between $0.83 and $0.94, compared to a previously
expected range of $1.30 to $1.45.
The CMS final rule includes a parity adjustment reducing
Medicare rates by 11.1 percent, changes to group therapy
reimbursement, and the introduction of new change-of-therapy
provisions as patients move through their post-acute stay. Based on
a thorough review of the final rule's impact, the Company estimates
that the parity adjustment will impact adjusted EBITDAR negatively
by $15 million in the fourth quarter of 2011. The impact of group
therapy and change-of-therapy provisions established in the final
rule have required substantial changes in the methods by which
therapy services are delivered and are estimated to have a combined
negative impact on adjusted EBITDAR of between $10 million and $12
million in the fourth quarter of 2011, including the changes in
methods by which therapy services are delivered.
The Company has commenced a broad-based mitigation initiative,
which includes infrastructure cost reductions that will reduce the
net impact of the final rule during the fourth quarter and is
expected to continue to ramp up into 2012. The Company expects that
after giving effect to these mitigation efforts, there will be a
net negative impact of the final rule to 2011 adjusted EBITDAR of
between $22 million and $23 million as reflected in the Company's
updated financial guidance. The Company anticipates that the net
negative impact of the final rule on the Company's results of
operations in 2012, after the mitigation initiatives are fully
realized and changes in methods of delivering therapy services are
fully implemented, will be between $45 million and $50 million.
William A. Mathies, Sun's chairman and chief executive officer,
commented, "Our analysis demonstrates that the rate reductions
imposed by the CMS final rule have far exceeded the stated goal of
parity with prior Medicare rates, and we remain concerned that
these reductions may have serious consequences for our entire
industry. That said, we are moving expeditiously to mitigate the
impact of the rule on our operations while retaining our focus on
our primary mission of providing quality care."
Mathies added, "We continue to closely monitor our spending
programs, including reducing our capital expenditures, and expect
to have 2011 free cash flow of approximately $20 million. We
believe we have sufficient liquidity to satisfy our financial
covenants and will continue to evaluate opportunities to pursue
additional flexibility."
The table below sets forth Sun's updated 2011 full-year guidance
which includes transaction and integration costs related to the
disposition of closed operations:
----------------------------------------------------------------------------
(Dollars in millions, except EPS) 2011 Full-Year Guidance
-------------------------------
Low High
Revenue $ 1,925.0 $ 1,945.0
-------------- --------------
Adjusted EBITDAR $ 237.0 $ 242.0
-------------- --------------
Margin 12.3% 12.4%
Center rent expense 148.3 148.3
-------------- --------------
Adjusted EBITDA $ 88.7 $ 93.7
-------------- --------------
Margin 4.6% 4.8%
Transaction and integration costs 1.1 1.1
Depreciation & amortization 32.4 32.4
Interest, net 19.6 19.6
-------------- --------------
Pre-tax earnings $ 35.6 $ 40.6
-------------- --------------
Income tax expense 13.9 16.0
-------------- --------------
Income from continuing operations $ 21.7 $ 24.6
-------------- --------------
Diluted earnings per share $ 0.83 $ 0.94
Diluted weighted average shares 26.2 26.2
----------------------------------------------------------------------------
Impairment Charge
As a result of environmental changes in the skilled nursing
industry and the declines in Medicare reimbursement rates effective
October 1, 2011 in connection with the CMS final rule, the Company
expects to take a material charge in the third quarter of 2011
related to goodwill.
About Sun Healthcare Group, Inc.
Sun Healthcare Group, Inc. (NASDAQ: SUNH) is a healthcare
services company, serving principally the senior population, with
consolidated annual revenues in excess of $1.9 billion and
approximately 30,000 employees in 46 states. Sun's services are
provided through its subsidiaries: as of June 30, 2011, SunBridge
Healthcare and its subsidiaries operate 164 skilled nursing
centers, 15 combined skilled nursing, assisted and independent
living centers, 10 assisted living centers, two independent living
centers and eight mental health centers with an aggregate of 22,898
licensed beds in 25 states; SunDance Rehabilitation provides
rehabilitation therapy services to affiliated and non-affiliated
centers in 38 states; CareerStaff Unlimited provides medical
staffing services in 45 states; and SolAmor Hospice provides
hospice services in 10 states. For more information, go to
www.sunh.com.
Forward-looking Statements
Statements made in this release that are not historical facts
are "forward-looking" statements (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risks and
uncertainties and are subject to change at any time. These
forward-looking statements may include, but are not limited to,
statements containing words such as "anticipate," "believe,"
"plan," "estimate," "expect," "hope," "intend," "may" and similar
expressions. Forward-looking statements in this release include all
statements regarding the expected results of operations, growth
opportunities and plans and objectives of management for future
operations, including the impact of changes in the Medicare payment
system and the Company's mitigation initiatives. Factors that could
cause actual results to differ are identified in filings made by
the Company with the Securities and Exchange Commission and include
changes in Medicare and Medicaid reimbursements; our ability to
mitigate the effect of decreases in such reimbursements; the impact
that healthcare reform legislation will have on the Company's
business; the ability to maintain the occupancy rates and payor mix
at the Company's healthcare centers; potential liability for losses
not covered by, or in excess of, insurance; the effects of
government regulations and investigations; the ability of the
Company to collect its accounts receivable on a timely basis; the
amount of the Company's indebtedness; covenants in debt agreements
and leases that may restrict the Company's activities, including
the Company's ability to make acquisitions and incur more
indebtedness on favorable terms; the impact of the economic
downturn on the business; increasing labor costs and the shortage
of qualified healthcare personnel; and the Company's ability to
receive increases in reimbursement rates from government payors to
cover increased costs. More information on factors that could
affect the Company's business and financial results are included in
Sun's filings made with the Securities and Exchange Commission,
including its Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q, copies of which are available on Sun's web site,
www.sunh.com. There may be additional risks of which the Company is
presently unaware or that it currently deems immaterial.
The forward-looking statements involve known and unknown risks,
uncertainties and other factors that are, in some cases, beyond the
Company's control. Sun cautions investors that any forward-looking
statements made by Sun are not guarantees of future performance and
are only made as of the date of this release. Sun disclaims any
obligation to update any such factors or to announce publicly the
results of any revisions to any of the forward-looking statements
to reflect future events or developments.
Adjusted EBITDA and adjusted EBITDAR as used in this press
release are non-GAAP financial measures. Adjusted EBITDA is defined
as earnings before income (loss) on discontinued operations, income
taxes, net loss (gain) on sale of assets, net interest,
depreciation and amortization and transaction and integration
costs. Adjusted EBITDA margin is adjusted EBITDA as a percentage of
revenue. Adjusted EBITDAR is defined as adjusted EBITDA before
facility rent expense. Adjusted EBITDAR margin is adjusted EBITDAR
as a percentage of revenue. Sun believes that the presentation of
adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDAR and
adjusted EBITDAR margin provides useful information regarding Sun's
operational performance because it enhances the overall
understanding of the financial performance and prospects for the
future of Sun's core business activities, provides consistency in
Sun's financial reporting and provides a basis for the comparison
of results of core business operations between current, past and
future periods. These measures are also some of the primary
indicators Sun uses for planning and forecasting in future periods,
including trending and analyzing the core operating performance of
its business from period to period without the effect of GAAP
expenses, revenues and gains that are unrelated to day-to-day
performance, including transaction and integration costs related to
the disposition of closed operations. Adjusted EBITDA, adjusted
EBITDA margin, adjusted EBITDAR and adjusted EBITDAR margin should
not be considered as measures of financial performance under
generally accepted accounting principles. As the items excluded
from adjusted EBITDA and adjusted EBITDAR are significant
components in understanding and assessing financial performance,
these measures should not be considered in isolation or as
alternatives to net income (loss), cash flows generated by or used
in operating, investing or financing activities or other financial
statement data presented in the consolidated financial statements
as indicators of financial performance or liquidity. Sun uses
adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDAR and
adjusted EBITDAR margin only to supplement net income on a basis
prepared in conformance with GAAP in order to provide a more
complete understanding of the factors and trends affecting our
business. Sun strongly encourages investors to consider net income
determined under GAAP as compared to adjusted EBITDA and adjusted
EBITDAR, and to perform their own analysis, as appropriate.
Contact: Investor Inquiries (505) 468-2341
Media Inquiries (505) 468-4582
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