Gentiva Beats, Top-Line Soars - Analyst Blog

Gentiva Health Services Inc. (GTIV) reported its third-quarter adjusted earnings of $22.2 million or 73 cents per share, well ahead of the Zacks Consensus Estimate of 63 cents. This also compares favorably with the income of $15.8 million or 53 cents in the year-ago quarter. Earnings ramped up due to strong growth in Hospice and Home Health Episodic volumes as well as progressive operating margins.

Gentiva's adjusted earnings exclude pre-tax restructuring, acquisition and integration costs of $22.8 million or 44 cents per share in the reported quarter and $0.9 million or 2 cents per share of restructuring and merger & acquisition costs in the prior-year quarter. The results, however, include the impact of the acquisition of Odyssey Healthcare Inc. results, which was completed in August 17, 2010.

Discontinued operations represent results of the respiratory therapy and home medical equipment and infusion therapy businesses of Gentiva, sold on February 1, 2010. Gentiva incurred after-tax losses on discontinuing operations of $0.7 million or 2 cents per share in the reported, far above $0.2 million or 1 cent per share in the prior-year quarter.

Including one-time charges for restructuring, legal settlements and acquisition and integration activities along with gains on sales of assets and discontinuing operations, Gentiva reported a net income of $8.1 million or 27 cents per share as opposed to $15.4 million or 52 cents per share in the prior-year quarter.

Behind the Headlines

Gentiva's total net revenues for the quarter climbed 38.0% year over year to $387.8 million, exceeding the Zacks Consensus Estimate of $359.0 million. Revenues from the Home Health Episodic segment increased 8% year over year to $227.4 million in the reported quarter.

Revenues in the Hospice segment came in at $115.7 million, which reflected a year-over-year increase of approximately 15% from Gentiva's existing hospice business as well as $94.2 million in revenues from the Odyssey acquisition.

Gentiva witnessed selling, general and administrative expenses of $171.7 million in the reported quarter from $119.7 million in the year-ago quarter. Gentiva's gross profit for the reported quarter climbed 36.5% year over year to $197.9 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to continuing operations increased 80.0% to $54.9 million from $30.4 million in the prior-year quarter. Adjusted EBITDA as a percentage of net revenues improved to 14.1% as against 10.8% in the prior-year period. Adjusted EBITDA excludes charges associated with restructuring, merger and acquisition activities.

Gentiva exited the quarter with cash and cash equivalents of approximately $81.7 million and outstanding debt under its credit agreement of $1.075 billion. The company repaid $30.0 million out of the $1.105 billion borrowed in connection with the financing of the Odyssey acquisition.

As of October 3, 2010, Gentiva had total assets of $2.12 billion and shareholders' equity of $618.2 million.

Outlook for Fiscal 2010

Gentiva expects net revenues to be in range of $1.42 billion−$1.45 billion and adjusted income from continuing operations − excluding the costs of restructuring, legal settlements and acquisition and integration activities, the results of discontinued operations and the impact of any future acquisitions − to be in the range of $2.75−$2.80 per share for fiscal 2010. The results include the impact of the closing of the Odyssey transaction.

Our Take

Gentiva's diversified product portfolio is impressive and its history of generating significant leverage on acquisitions and modestly strong fundamentals inspire our optimism about the stock.

In addition, the health care providing industry is consolidating through a flood of mergers and acquisitions of home health and hospice providers. Apart from the acquisition of Odyssey, Gentiva also acquired the assets of United Home Care Group, a Medicare certified home health services business, in May to expand its presence in Louisiana, particularly after the reimbursement rate cuts that are being introduced under health care reforms.

The acquisition of Odyssey has made Gentiva a leading hospice care provider in the U.S. Gentiva now projects a collective average daily patient census of approximately 14,000 by expanding its operations in about 30 states. Gentiva expects to bring its innovative specialty home health programs and other services to patients by broadening its scope of operations.