HORC Horizon Health Corp (MM)

Horizon Health Corporation (NASDAQ:HORC) today announced financial results for the quarter ended February 28, 2007. On December 20, 2006, Horizon entered into an Agreement and Plan of Merger with Psychiatric Solutions, Inc. (NASDAQ:PSYS) (�PSI�) pursuant to which Horizon will be acquired by PSI and Horizon stockholders will receive $20 cash for each share of Horizon common stock they hold (the �PSI Transaction�). As noted below, the financial results for the three months and six months ended February 28, 2007, were significantly affected by the expenses being incurred by Horizon in connection with the PSI Transaction, which has not yet been consummated. For the three months ended February 28, 2007, revenues increased 11.4% to $71.4 million compared with revenues of $64.1 million for the same quarter in the previous year. Income from continuing operations decreased to $55,000 compared with income from continuing operations of $1.64 million, or $0.11 per diluted share, for the same quarter in the previous year. Income from continuing operations for the current year quarter included $1.84 million (after tax) in expenses incurred in connection with the PSI Transaction. Income from continuing operations excluding transaction fees was $1.89 million, a 15.2% increase over the same quarter in the previous year, or $0.12 per diluted share. For the six months ended February 28, 2007, revenues increased 18.0% to $145.2 million compared with revenues of $123.0 million for the same period in the previous year. Income from continuing operations decreased to $3.4 million, or $0.22 per diluted share, compared with income from continuing operations of $4.88 million, or $0.32 per diluted share, for the same period in the previous fiscal year. Income from continuing operations for the current year to date included $1.97 million (after tax) in expenses incurred in connection with the PSI Transaction. Income from continuing operations excluding transaction fees was $5.36 million, a 9.8% increase over the same quarter in the previous year, or $0.35 per diluted share. With respect to the Horizon Service Groups (its reportable business segments), (a) EBITDA(1) for Hospital Services for the quarter was $4.53 million, an increase of 70% over the same period in the prior year, primarily as a result of acquisitions that were made in January and February 2006. Financial results for the quarter were materially affected by financial results at three facilities being below Horizon's expectations for the quarter. In addition, two facilities had a delay in the anticipated opening of additional beds. The additional beds for both of those facilities are expected to open in April 2007. Also, construction continues at an additional facility and an expansion of one existing facility. The additional facility is expected to open in July 2007 and the expansion is expected to open in November 2007. � (1) EBITDA is a presentation of "earnings before interest, taxes, depreciation and amortization." EBITDA may not be comparable to similarly titled measures reported by other companies. In addition, EBITDA is a non-GAAP financial measure and should not be considered an alternative to operating income or net income in measuring financial results. Attached is a reconciliation of income from continuing operations to EBITDA. � (b) EBITDA for Contract Management Services for the quarter was $6.27 million, a decrease of 8.1% from the same period in the prior year. Contract Management Services anticipates opening five additional contracts in the period April 1, 2007 to May 31, 2007 with anticipated annual margins of approximately $1.0 million in the aggregate. Of the 116 signed contracts Horizon had at August 31, 2006, five contracts have terminated however three new contracts have been signed. There were two contracts signed but unopened at August 31, 2006 that required Certificate of Need ("CON") approvals. One CON has been approved and the contract location is anticipated to open in December 2007. Of the 10 highest margin contracts up for renewal in fiscal 2007, nine have been renewed at margins in line with expectations, and the tenth is up for renewal in the fourth quarter. � (c) EBITDA for EAP Services for the quarter was $1.49 million, an increase of 40.2% over the same period in the prior year. Included in the second quarter results was $325,000 in legal expense accrued for a lawsuit settlement consummated in March 2007. Horizon further announced that, as a result of the proposed PSI Transaction and the expenses that have been incurred in connection with that transaction, its 2007 fiscal year earnings guidance is no longer applicable. As previously announced, Horizon stockholders adopted the merger agreement with PSI at a special meeting held on March 28, 2007. The closing of the transaction remains subject to certain regulatory approvals, including termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the �HSR Act�). Horizon Health and PSI received a request for additional information, commonly referred to as a �Second Request,� from the Federal Trade Commission (�FTC�) on February 12, 2007. Both parties are in the process of responding to the Second Request. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after Horizon Health and PSI have certified substantial compliance with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC. The closing of the transaction is also subject to satisfaction of other customary closing conditions. The transaction is expected to be completed in the second calendar quarter of 2007. About Horizon Health Horizon Health is an owner of behavioral health facilities and a leading manager of clinical services for acute care hospitals and employers. Horizon Health (i) operates freestanding behavioral health hospitals providing behavioral health care for children, adolescents and adults; (ii) provides contract management services for behavioral health and physical rehabilitation clinical programs offered by acute care hospitals; and (iii) provides employee assistance programs to employers. At February 28, 2007, Horizon Health owned/leased 15 behavioral health care facilities with approximately 1,571 licensed beds in 11 states. Additionally, Horizon Health had 91 behavioral health program management contracts and 23 physical rehabilitation program management contracts with acute care hospitals located in 36 states; 101 CQI+ mental health outcomes measurement contracts; and 847 contracts to provide employee assistance program services covering in excess of 5.0 million lives. Forward Looking Statements This press release includes �forward-looking� statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Horizon Health�s current views as to future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as �expect,� �will be,� �intend,� �believe,� �look to� and other words and terms of similar meaning in conjunction with a discussion of future expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These factors include, but are not limited to, (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (2) the inability to complete the merger due to the failure to satisfy one or more conditions to the completion of the merger, including the expiration or termination of the waiting period under the HSR Act and the receipt of other required regulatory approvals; (3) the failure by PSI to obtain the necessary debt financing arrangements set forth in the commitment letter received in connection with the merger; and (4) other risks that are set forth in the �Risk Factors� section and elsewhere in Horizon Health�s SEC filings, copies of which may be obtained by contacting Horizon Health�s investor relations department via its website www.horizonhealth.com. Many of the factors that will determine the outcome of the subject matter of this press release are beyond Horizon Health�s ability to control or predict. Forward-looking statements speak only as of the date made. Horizon Health undertakes no obligation to update any forward-looking statements, including prior forward-looking statements, to reflect the events or circumstances arising after the date as of which they were made. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, Horizon Health. HORIZON HEALTH CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) � Three Months Ended February 28, � Six Months Ended February 28, 2007� � 2006� � 2007� � 2006� (Unaudited) (Unaudited) Revenues $ 71,431� $ 64,123� $ 145,205� $ 123,034� � Cost of services 55,018� 50,705� 109,868� 96,355� Selling, general and administrative 6,104� 6,790� 12,965� 13,835� Cost associated with pending merger transaction 1,918� ---� 2,145� ---� Provision for doubtful accounts 3,244� 1,954� 5,605� 1,775� Depreciation and amortization 1,696� � 1,280� � 3,329� � 2,424� � Operating income 3,451� 3,394� 11,293� 8,645� � Interest expense (net of interest and other income) (2,252) � (677) � (4,511) � (695) � Income before income taxes, minority interest and discontinued operations 1,199� 2,717� 6,782� 7,950� Income tax provision 1,156� 1,087� 3,389� 3,128� Minority interest, net (12) � (5) � 4� � (54) � Income from continuing operations 55� 1,635� 3,389� 4,876� � Income (loss) from discontinued operations, net 361� � 29� � 381� � (18) � Net income $ 416� � $ 1,664� � $ 3,770� � $ 4,858� � Basic earnings per common share Continuing operations $ 0.00� $ 0.11� $ 0.22� $ 0.33� Discontinued operations 0.03� � 0.00� � 0.03� � 0.00� $ 0.03� � $ 0.11� � $ 0.25� � $ 0.33� � Diluted earnings per common share Continuing operations $ 0.00� $ 0.11� $ 0.22� $ 0.32� Discontinued operations 0.03� � 0.00� � 0.02� � 0.00� $ 0.03� � $ 0.11� � $ 0.24� � $ 0.32� � Weighted average shares outstanding Basic 15,085� � 14,943� � 15,073� � 14,928� Diluted 15,521� � 15,425� � 15,455� � 15,420� HORIZON HEALTH CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) � (Unaudited) February 28, 2007 � August 31, 2006 Cash $ 1,986� $ 3,043� Accounts receivable (net) 46,895� 40,856� Other current assets 15,524� � 20,524� Total current assets 64,405� 64,423� Property and equipment (net) 99,453� 100,189� Goodwill and other intangible assets (net) 153,130� 150,600� Other long-term assets 2,037� � 2,428� Total assets $ 319,025� � $ 317,640� � Current liabilities $ 33,537� $ 35,982� Other liabilities 3,920� 4,106� Long-term debt 102,998� 105,935� Deferred taxes 9,942� � 8,108� Total liabilities 150,397� 154,131� Minority interest 4,057� 4,053� Stockholders� equity 164,571� � 159,456� Total liabilities and stockholders� equity $ 319,025� � $ 317,640� HORIZON HEALTH RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA AND EBITDAR (Unaudited) (In thousands) � Three Months Ended February 28, � Six Months Ended February 28, 2007� � 2006� � 2007� � 2006� Income from continuing operations $ 55� $ 1,635� $ 3,389� $ 4,876� Minority interest (net) (12) (5) 4� (54) Provision for income taxes 1,156� 1,087� 3,389� 3,128� Interest expense (net of interest and other income) 2,252� 677� 4,511� 695� Depreciation and amortization 1,696� � 1,280� � 3,329� � 2,424� EBITDA 5,147� 4,674� 14,622� 11,069� Rents 1,177� � 654� � 2,331� � 1,252� EBITDAR $ 6,324� � $ 5,328� � $ 16,953� � $ 12,321� HORIZON HEALTH RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO INCOME FROM CONTINUING OPERATIONS EXCLUDING TRANSACTION FEES (Unaudited) (In thousands) � � Three Months Ended February 28, � Six Months Ended February 28, 2007� � 2006� � 2007� � 2006� Income from continuing operations $ 55� $ 1,635� $ 3,389� $ 4,876� Transaction fee, net of tax 1,836� � -� � 1,972� � -� Income from continuing operations excluding transaction fees $ 1,891� � $ 1,635� � $ 5,361� � $ 4,876� HORIZON HEALTH SUMMARY STATISTICAL DATA � Quarter Ended February 28, Quarter Ended November 30, Year Ended August 31, Year Ended August 31, Year Ended August 31, 2007� � 2006� � 2006 (1) � 2005 (2) � 2004 (3) Owned/Leased Freestanding Behavioral Health Hospitals: Total net revenues (in thousands) $ 45,974� $ 47,115� $ 158,333� $ 60,578� $ 10,069� Number of facilities in operation at period end 14� 14� 14� 5� 2� Licensed Beds 1,571� 1,571� 1,556� 833� 267� Weighted average available beds 1,419� 1,416� 1,108� 363� 177� Patient days 93,836� 94,659� 299,797� 100,396� 19,639� Admissions 5,676� 5,895� 18,984� 6,745� 1,041� Average length of stay 16.5� 16.1� 15.8� 14.9� 18.9� Revenue per patient day $ 490� $ 498� $ 528� $ 603� $ 513� % Occupancy based on weighted average available beds 73.0% 73.5% 74.1% 75.8% 72.5% EBITDA Margin (4) 10.4% 14.8% 13.1% 14.5% 19.4% EBITDAR Margin (4) 11.7% 16.0% 14.5% 16.2% 20.4% � Same Facility Results: Net revenues (in thousands) $ 27,091� $ 28,533� $ 36,162� $ 35,347� ---� Number of facilities at period end 5� 5� 2� 2� ---� Licensed beds 830� 830� 264� 264� ---� Available beds 739� 735� 241� 241� ---� Patient days 46,115� 47,200� 70,509� 70,282� ---� Admissions 3,178� 3,473� 3,288� 3,231� ---� Average length of stay 14.5� 13.6� 21.4� 21.8� ---� Revenue per patient day $ 587� $ 605� $ 513� $ 503� ---� Occupancy based on weighted average available beds 69.3% 69.8% 80.2% 79.9% ---� EBITDA Margin (4) 12.0% 18.8% 26.1% 19.7% ---� EBITDAR Margin (4) 13.4% 20.1% 26.6% 20.6% ---� � EAP Covered lives (in thousands) 5,032� 4,841� 4,860� 4,244� 3,569� � Number of Contract Locations (5): Contract locations in operation 102� 105� 107� 123� 132� Contract locations signed and unopened 12� � 10� � 9� � 12� � 8� Total contract locations 114� � 115� � 116� � 135� � 140� (1) During fiscal year 2006, the Company operated the Copper Hills Youth Center for eight months, Kingwood Pines Hospital for seven and a half months, six Focus/Lighthouse facilities for seven months, and the Focus Healthcare of Delaware facility for five months. All other facilities were operated for the full year. (2) During fiscal year 2005, the Company operated Michiana Behavioral Health Center and Poplar Springs Hospital for the full year, Laurelwood Hospital for eight months, Friends Hospital for two months, and River Park Hospital for one month. (3) During fiscal year 2004, the Company operated Michiana Behavioral Health Center for five months and Poplar Springs Hospital for three months. (4) EBITDA is a presentation of �earnings before interest, taxes, depreciation and amortization.� EBITDAR is a presentation of �earnings before interest, taxes, depreciation, amortization, and rent.� EBITDA and EBITDAR are important financial measures that are used by the Company�s operations management to compare the performance of our owned and leased facilities. The calculation of EBITDA and EBITDAR for the Hospital Services Division presented above does not include an allocation for corporate overhead expenses. For the periods presented above, EBITDA and EBITDAR for the Hospital Services Division are calculated as follows: Quarter Ended February 28, Quarter Ended November 30, For the Fiscal Years Ended August 31, 2007� � 2006� � 2006� � 2005� � 2004� Income before income taxes $ 1,132� $ 3,352� $ 9,647� $ 6,484� $ 1,598� Interest expense (net of interest and other income) 2,233� 2,001� 4,525� ---� ---� Depreciation and amortization 1,165� � 1,103� � 3,959� � 1,444� � 344� EBITDA 4,530� 6,456� 18,131� 7,928� 1,942� Hospital division overhead 266� � 494� � 2,617� � 883� � 11� Adjusted EBITDA 4,796� 6,950� 20,748� 8,811� 1,953� Rent 597� � 597� � 2,150� � 1,023� � 98� Adjusted EBITDAR $ 5,393� � $ 7,547� � $ 22,898� � $ 9,834� � $ 2,051� (5) Includes only the Company�s behavioral health and physical rehabilitation management contracts.