Novacare Announces $.16 Per Share For Third Quarter, A 45 Percent Increase On Adjusted Prior
Period Earnings
Strategic Acquisitions Strengthen Rehab and PEO Businesses
KING OF PRUSSIA, Pa., April 30 /PRNewswire/ -- NovaCare, Inc. (NYSE: NOV),
a national provider of physical rehabilitation and employee services,
announced today net income for the three months ended March 31, 1997, of
$10.1 million or $.16 per share. This compared with a loss of $8.6 million or
($.13) per share for the three months ended March 31, 1996, which included a
restructuring charge and a charge to increase accounts receivable reserves.
Excluding these charges, net income for the prior year period was $6.9 million
or $.11 per share. On this basis, net income and earnings per share increased
46 percent and 45 percent, respectively, compared with the third quarter of
fiscal 1996.
"Rehabilitation services grew substantially during the third quarter,
contributing to the significant increase in earnings," said John H. Foster,
chairman of NovaCare. "Changes in the U.S. health care system favor cost-
effective settings and outcomes-oriented clinical programs for the
rehabilitation care that returns injured and disabled individuals to their
highest possible level of independence. These are the settings where NovaCare
provides its care.
"We expect strong growth in our rehabilitation services and in our new
employee services business, which provides outsourced human resources services
to small and medium-size employers," continued Foster. "The obvious advantage
to an employer is our ability to control the cost of health care, particularly
rehabilitation and workers' compensation, and NovaCare's expertise in
outsourcing and managing large employee groups in dispersed locations. The
employee services, or professional employer organization, business offers
substantial opportunities to leverage our strengths to create shareholder
value in a related field."
NovaCare's net revenues for the third quarter were $290 million,
representing a 52 percent increase from $191 million in the third quarter of
fiscal 1996, due primarily to NovaCare's entry into the professional employer
organization (PEO) industry in October 1996 and growth in the company's
outpatient and long-term care services businesses. For the quarter, operating
income increased to $21.2 million, compared with charge-adjusted operating
income of $14.3 million in the prior year period.
Acquisitions of outpatient and PEO companies contributed significantly to
the growth. NovaCare previously announced acquisitions during the third
quarter of three PEO companies, 20 outpatient services and two occupational
health companies. Positive developments during the third quarter also
included improved profit margins in outpatient services due to successful cost
containment programs, growth in new signed contracts as well as enhanced
clinician productivity and pricing in long-term care services.
The company also announced that in March, the government agency
responsible for administering the Medicare program published its proposal for
"salary equivalency" rates, which will have an impact on the company's long-
term care services business. The rules provide for a 60-day industry comment
period, which is now underway.
"We are pleased that the government is close to resolution on the long-
awaited salary equivalency rates that govern how long-term care facilities
will be reimbursed for contracted rehabilitation services for their patients,"
said Timothy E. Foster, chief executive officer of NovaCare. "However, the
proposal that has been released for discussion is based on flawed data and
does not reflect the realities of health care in the nursing home setting.
NovaCare is working with a number of interested trade organizations to provide
accurate data and analysis for review, and we are confident that a reasonable
rate structure will result. As a result of NovaCare's substantial investments
in clinical programs and systems support for our clinicians, successful cost-
cutting initiatives a year ago, and scale economies, NovaCare is well
positioned to continue serving our long-term care patients with the highest
quality care."
NovaCare's year-to-date net revenues were $735 million, a 25 percent
increase compared with $590 million for the nine months ended March 31, 1996.
Net income was $26.9 million or $.43 per share for the first nine months of
fiscal 1997, compared with $6.9 million or $.11 per share for the comparable
period in fiscal 1996 ($.35 per share before charges for restructuring and
accounts receivable reserves in fiscal 1996.).
NovaCare, Inc. is the nation's clinical leader in physical rehabilitation,
operating 750 outpatient rehabilitation, orthotics and prosthetics, and
occupational health centers nationwide; and managing rehabilitation programs
in 1,900 long-term care facilities. NovaCare is the nation's largest employer
of rehabilitation clinicians with 17,000 employees across 43 states, treating
35,000 patients per day. NovaCare is also the nation's second largest
professional employer organization (PEO), providing expert employee services
to small and medium-sized businesses.
Cautionary Statement
Except for historical information, matters discussed above are forward-
looking statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include the timing and nature of
reimbursement changes (including imposition of, and changes in, salary
equivalency rates for Medicare, changes in workers' compensation and other
governmental rate and reimbursement system changes), the number and
productivity of clinicians, decisions by chain customers as to whether to take
therapy and other services in-house, pricing of managed care and other third
party contracts, the direction and success of competitors, management
retention and development, management's success integrating acquired
businesses and in developing and introducing new products and lines of
business, adverse Internal Revenue Service rulings with respect to the
employer status of PEOs, state legislative and regulatory efforts to control
PEOs, and unanticipated market changes.
NovaCare, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
March 31, December 31, March 31,
1997 1996 (A) 1996 1997 1996 (A)
Net revenues
Rehabilitation services $238,710 $191,393 $224,677 $672,817 $590,487
Professional employer
organization 159,306 --- 10,335 169,641 ---
Elimination (107,562) --- --- (107,562) ---
290,454 191,393 235,012 734,896 590,487
Cost of services 218,705 146,284 171,980 542,115 431,255
Gross profit
Rehabilitation services 68,380 45,109 62,574 188,954 159,232
Professional employer
organization 5,475 --- 458 5,933 ---
Elimination (2,106) --- --- (2,106) ---
71,749 45,109 63,032 192,781 159,232
Selling, general and
administrative expenses+
6
Rehabilitation services 38,797 33,548 35,295 108,446 101,510
Professional employer
organization 4,011 --- 291 4,302 ---
Elimination (2,106) --- --- (2,106) ---
40,702 33,548 35,586 110,642 101,510
Earnings before interest,
taxes, depreciation and amortization
Rehabilitation services 29,583 11,561 27,279 80,508 57,722
Professional employer
organization 1,464 --- 167 1,631 ---
31,047 11,561 27,446 82,139 57,722
Depreciation 6,173 5,236 5,724 17,831 15,825
Amortization of excess cost
of net assets acquired 3,652 2,504 2,927 9,273 7,456
Provision for restructure
and other special charges --- 13,370 --- --- 13,370
Income from operations 21,222 (9,549) 18,795 55,035 21,071
Investment income 167 816 286 1,543 3,912
Interest expense (3,776) (2,986) (3,280) (10,224) (9,551)
Minority interest (93) (22) (48) (185) (67)
Income before income taxes 17,520 (11,741) 15,753 46,169 15,365
Income taxes 7,427 (3,161) 6,537 19,316 8,495
Net income $10,093 $(8,580) $9,216 $26,853 $6,870
Net income per share $0.16 $(0.13) $0.15 $0.43 $0.11
Weighted average shares
outstanding 63,103 63,813 62,725 63,017 64,560
(A) Net revenues include a $10.5 million pre-tax charge to increase
accounts receivable reserves.
SOURCE NovaCare, Inc.
CONTACT: Susan J. Campbell of NovaCare, 610-992-7425 |
