SunLink Health Systems, Inc. Announces Fiscal 2013 First Quarter Results

SunLink Health Systems, Inc. (NYSE MKT: SSY) today announced a loss from continuing operations for its first fiscal quarter ended September 30, 2012 of $1,622,000, or a loss of $0.17 per fully diluted share, compared to a loss from continuing operations of $1,743,000, or a loss of $0.20 per fully diluted share, for the quarter ended September 30, 2011. The results for the quarter ended September 30, 2012 included a pre-tax impairment charge of $789,000 resulting from a write-down of the value of a hospital facility which is leased to a third-party. The results for the quarter ended September 30, 2011 included $659,000 of pre-tax Medicaid electronic health records incentive payments. No electronic health records incentive payments were recorded for the quarter ended September 30, 2012.

SunLink reported a net loss of $1,424,000, or a loss of $0.15 per fully diluted share, for the quarter ended September 30, 2012 compared to a net loss of $1,555,000, or a loss of $0.18 per fully diluted share, for the quarter ended September 30, 2011.

A pre-tax gain of $1,191,000 on the July 2012 sale of Memorial Hospital of Adel is included in the results of discontinued operations for the quarter ended September 30, 2012. The pre-tax earnings for Dexter Hospital LLC are also included in results of discontinued operations. Discontinued operations tax expense was $1,370,000 for the quarter ended September 30, 2012 due to intangible assets sold in the Memorial Hospital of Adel transaction that are not deductible for income tax purposes. Earnings from discontinued operations after tax were $198,000 for the quarter ended September 30, 2012.

The results for SunLink’s Dexter Hospital LLC subsidiary, which operates Missouri Southern Healthcare, are included in discontinued operations for all periods shown. SunLink earlier announced it has signed an agreement for the sale of substantially all the assets and the leasehold interest of Dexter Hospital, LLC, to Southeast Missouri Hospital Association, D/B/A SoutheastHEALTH. The assets of Missouri Southern Healthcare consist of a leased 50-bed acute care hospital and related clinics, equipment, and home health services in Dexter, MO. The sale agreement is expected to close by December 31, 2012.

Consolidated net revenues from continuing operations for the quarters ended September 30, 2012 and 2011 were $25,690,000 and $26,177,000, respectively, a decrease of 1.9% in the current year’s quarter. The Healthcare Facilities Segment net revenues in the current quarter of $18,941,000 increased $519,000, or 2.8%, compared to $18, 422,000 from the prior year. The increase in the Healthcare Facilities Segment net revenues resulted from $814,000 of net revenues from geriatric psychiatric services units which opened at two facilities in July 2012, an increase of $141,000 in state indigent care program payments and $149,000 of prior year Medicare cost report settlements this year compared to none last year, offset by revenue decreases resulting from 14% fewer hospital acute-care admissions in the quarter ended September 30, 2012 compared to the prior year. The Specialty Pharmacy Segment revenues of $6,749,000 in the quarter ended September 30, 2012 decreased $1,006,000, or 13.0% from the prior year. The decrease in Specialty Pharmacy Segment revenues this year resulted from lower Medicaid prescription reimbursement, increased brand-to-generic drug activity and decreased sales to healthcare institutions served in the current year.

The company had an operating loss from continuing operations for the quarter ended September 30, 2012 of $2,491,000, which included the $789,000 impairment relating to the leased hospital facility, compared to an operating loss from continuing operations for the quarter ended September 30, 2011 of $1,509,000 which included $659,000 of Medicaid electronic health records incentive payments. Excluding the impairment charge and Medicaid electronic health records incentive payments, the operating margin increased in the current year’s quarter by $466,000.

Adjusted EBITDA (a non-GAAP measure of the liquidity of the company) at SunLink’s Healthcare Facilities Segment in the first fiscal quarter decreased to $112,000 from $735,000 last year. Last year’s first quarter Adjusted EBITDA included $659,000 of electronic health records incentive payments while no incentive payments were received this year. Adjusted EBITDA for SunLink’s Specialty Pharmacy Segment was $80,000 in the first fiscal quarter compared to an Adjusted EBITDA loss of $46,000 in the comparable quarter a year ago.

SunLink Health Systems, Inc. is the parent company of subsidiaries that operate hospitals and related businesses in the Southeast and Midwest, and a specialty pharmacy company in Louisiana. Each hospital is the only hospital in its community and is operated locally with a strategy of linking patients’ needs with dedicated physicians and healthcare professionals to deliver quality efficient medical care. For additional information on SunLink Health Systems, Inc., please visit the company’s website at www.sunlinkhealth.com.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the company’s business strategy. These forward-looking statements are subject to certain risks, uncertainties and other factors, which could cause actual results, performance and achievements to differ materially from those anticipated. Certain of those risks, uncertainties and other factors are disclosed in more detail in the company’s Annual Report on Form 10-K for the year ended June 30, 2012 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

Adjusted earnings before income taxes, interest, depreciation and amortization

Earnings before income taxes, interest, depreciation and amortization (“EBITDA”) represent the sum of income before income taxes, interest, depreciation and amortization. We understand that certain industry analysts and investors generally consider EBITDA to be one measure of the liquidity of the company, and it is presented to assist analysts and investors in analyzing the ability of the company to generate cash, service debt and meet capital requirements. We believe increased EBITDA is an indicator of improved ability to service existing debt and to satisfy capital requirements. EBITDA, however, is not a measure of financial performance under accounting principles generally accepted in the United States of America and should not be considered an alternative to net income as a measure of operating performance or to cash liquidity. Because EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States of America and is thus susceptible to varying calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other corporations. Net cash provided by (used in) operations for the three months ended September 30, 2012 and 2011, respectively, is shown below. Healthcare Facilities Adjusted EBITDA and Specialty Pharmacy Adjusted EBITDA is the EBITDA for those facilities without any allocation of corporate overhead, impairment charges and gains on sale of businesses.

Three Months Ended
September 30, 2012
20122011

Healthcare Facilities Adjusted EBITDA

$ 112,000 $ 735,000
Specialty Pharmacy Adjusted EBITDA 80,000 (46,000 )
Corporate overhead costs (910,000 ) (1,099,000 )
Taxes and interest expense (502,000 ) (355,000 )
Other non-cash expenses and net change in
operating assets and liabilities (522,000 ) (583,000 )
Net cash provided by operations $ (1,742,000 ) $ (1,348,000 )
SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES
FISCAL 2013 FIRST QUARTER RESULTS
Amounts in 000's, except per share and volume amounts
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30,
20122011
% of Net% of Net
AmountRevenuesAmountRevenues
Operating revenues (net of contractual allowances) $ 29,172 113.6 % $ 29,556 112.9 %
Less provision for bad debts of Healthcare Facilities Segment 3,482 13.6 % 3,379 12.9 %
Net Revenues 25,690 100.0 % 26,177 100.0 %
Costs and Expenses:
Cost of goods sold 4,237 16.5 % 4,934 18.8 %
Salaries, wages and benefits 13,221 51.5 % 13,133 50.2 %
Provision for bad debts of Specialty Pharmacy Segment 80 0.3 % 270 1.0 %
Supplies 2,263 8.8 % 2,191 8.4 %
Purchased services 1,956 7.6 % 2,065 7.9 %
Other operating expenses 4,105 16.0 % 4,076 15.6 %
Rents and leases 546 2.1 % 577 2.2 %
Impairments of property, plant and equipment 789 3.1 % - 0.0 %
Depreciation and amortization 984 3.8 % 1,099 4.2 %
Electronic Health Records incentives - 0.0 % (659 ) -2.5 %
Operating Loss (2,491 ) -9.7 % (1,509 ) -5.8 %
Interest Expense (559 ) -2.2 % (1,303 ) -5.0 %
Interest Income - 0.0 % 2 0.0 %
Loss from Continuing Operations before
Income Taxes (3,050 ) -11.9 % (2,810 ) -10.7 %
Income Tax Benefit (1,428 ) -5.6 % (1,067 ) -4.1 %
Loss from Continuing Operations (1,622 ) -6.3 % (1,743 ) -6.7 %
Earnings from Discontinued Operations,
net of income taxes 198 0.8 % 188 0.7 %
Net Loss $ (1,424 ) -5.5 % $ (1,555 ) -5.9 %
Loss Per Share from Continuing Operations:
Basic $ (0.17 ) $ (0.20 )
Diluted $ (0.17 ) $ (0.20 )
Earnings Per Share from Discontinued Operations:
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
Net Loss Per Share:
Basic $ (0.15 ) $ (0.18 )
Diluted $ (0.15 ) $ (0.18 )
Weighted Average Common Shares Outstanding:
Basic 9,446 8,581
Diluted 9,446 8,581
HEALTHCARE FACILITIES VOLUME STATISTICS
Admissions 879 924
Equivalent Admissions 3,158 3,231
Surgeries 469 496
Net revenue per equivalent admission $ 5,987 $ 5,699
SUMMARY BALANCE SHEETSSeptember 30,June 30,
20122012
ASSETS
Cash and Cash Equivalents $ 1,350 $ 2,057
Accounts Receivable - net 14,334 13,228
Other Current Assets 13,820 15,333
Property Plant and Equipment, net 28,957 30,082
Long-term Assets 11,631 18,472
$ 70,092 $ 79,172
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ 21,893 $ 31,814
Long-term Debt and Other Noncurrent Liabilities 20,311 18,067
Shareholders' Equity 27,888 29,291
$ 70,092 $ 79,172

Contacts:

SunLink Health Systems, Inc.
Robert M. Thornton, Jr., 770-933-7004
Chief Executive Officer
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