Allied Healthcare International Inc. (Nasdaq: AHCI; AIM: AHI), a leading provider of flexible healthcare staffing services in the United Kingdom, has announced the financial results of its fiscal 2006 fourth quarter and year-end.
For the fiscal year ended September 30, 2006, the Company generated revenues of $294.6 million, compared with $351.2 million reported in 2005. The $56.6 million decline was mainly due to a reduction in NHS business, which was again driven by a decrease in expenditures and the NHS’s downward price pressure on the cost of agency nurses. Revenues were also impacted by the unfavorable effect of changes in foreign exchange of $8.0 million. Net income for the year, before impairment charges, totaled $7.7 million, or $0.17 per diluted share, compared with net income, before charges, of $20.2 million, or $0.45 per diluted share for the comparable period last year. With the addition of impairment charges, which reduced 2006 results by $131.4 million, or $2.92 per diluted share, the Company reported a net loss of $123.8 million, or $2.75 per diluted share, compared with earnings after charges in 2005 of $18.7 million, or $0.41 per diluted share.
The Companyâ€™s 2006 fourth quarter and year-end results were negatively impacted by a total of $131.4 million of impairment charges, net of taxes, resulting from charges for goodwill and long-lived assets of $120.1 million and $11.3 million, respectively, which were determined after the company completed its annual impairment testing in the fourth quarter. The long-lived asset impairment charge represents $4.3 million for cylinders, redundant plant and software related to the transfer of the Companyâ€™s historical oxygen distribution business, $6.3 million associated with the decision to discontinue the implementation of the Oracle front-office operating system, and $0.7 million related to impairment of other intangibles.
Gross profit margins for the year, as adjusted, remained strong and increased to 30.4%, compared with 29.5% reported in 2005. The increase in gross margin resulted from the Companyâ€™s continued emphasis on its higher-margin, Social Services business, and a decreased emphasis on its lower-margin, NHS business. The Company’s reported gross profit mix for the year, as adjusted, is as follows: 65% Social Services, 16% Nursing homes, 14% NHS, and 5% Oxygen.
For the fourth quarter ended September 30, 2006, the Company generated revenue of $74.5 million, compared with $84.3 million reported for the comparable quarter last year. Net income for the quarter, before impairment charges, reached $0.3 million, or $0.01 per diluted share, compared with net income before charges of $5.7 million, or $0.13 per diluted share for the comparable period in 2005. Net loss in the fourth quarter, after impairment charges, was $131.1 million, or $2.92 per diluted share, compared with net income after charges of $4.2 million, or $0.09 per diluted share for the fourth quarter of 2005.
Gross profit margins for the fourth quarter, as adjusted, remained strong at 29.8%, absorbing the full impact of the lower respiratory margins, compared to 30.9% reported for the comparable quarter last year. The strong gross margin resulted from the Companyâ€™s continued emphasis on its higher-margin, Social Services business, and a decreased emphasis on its lower-margin, NHS business. The Companyâ€™s reported gross profit mix for the fourth quarter, as adjusted, is as follows: 69% Social Services, 15% Nursing Homes, 11% NHS, and 5% Oxygen.
The Company reported selling, general and administration (SG&A) costs for the year of $75.6 million, compared with $74.0 million last year. The increase was a result of significant investments in its Allied Respiratory division where patient numbers more than doubled from that which was originally anticipated, and the Company is now servicing over 12,500 individuals. As a result, the Company had a disproportionate increase in SG&A expenses of $3.6 million, and anticipates costs relative to the oxygen business to significantly decrease going forward. Additional costs were also related to increased levels of IT depreciation and maintenance costs of $2.7 million, and stock based compensation costs of $0.7 million. These costs were partially offset by savings in the Companyâ€™s flexible staffing division of $3.6 million, and the effects of foreign exchange.
The Company reported selling, general and administration (SG&A) costs for the fourth quarter of $20.7 million, compared with $20.4 million last year. Similarly, the increase was a result of costs associated with the investment in the respiratory business, and an increased level of IT depreciation and maintenance costs associated with the implementation of the Oracle accounting and payroll systems.
The Company will maintain its emphasis on growing the Social Services business and is poised to continue to deliver services at home.
â€œThe positive results in our core social services business were obscured by the contraction in the nursing market and the investment in the Oxygen business,â€ said Timothy Aitken, Chairman and Chief Executive Officer. “Despite these challenges, the Company successfully transitioned the flexible staffing business to homecare services and the emerging complex care market, which is the foundation for our future growth.â€
Mr. Aitken concluded: â€œDuring 2006, management focused on improving the operating structure of the Company, rationalizing the branch network and reducing costs relative to the NHS business. In 2007, the Company is poised to leverage our branch network to deliver Community Care in partnership with Local Government and achieve improved operating results.â€
Allied Healthcare invites all those interested in hearing management’s discussion of the results to join the call by dialing 877-407-9205 for domestic participants and 201-689-8054 for international participants at 10:00 AM EST on Thursday, December 14, 2006. A replay will be available for one week following the call by dialing 877-660-6853 for domestic participants and 201-612-7415 for international participants, and entering account number 286 and conference ID number 223788 when prompted. Participants may also access a live Webcast of the conference call through the “Investors” section of Allied Healthcare’s Website, www.alliedhealthcare.com. The presentation will be available and archived for 90 days.
In addition to disclosing results of operations that are determined in accordance with generally accepted accounting principles (”GAAP”), this press release also discloses non-GAAP results of operations that exclude or include certain charges. These non-GAAP measures adjust for charges that are unusual. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding the Company’s results of operations, as these non-GAAP measures allow investors to better evaluate ongoing business performance. Management also uses these non-GAAP measures internally to assess the performance of its business and to establish operational goals. Investors should consider non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
About Allied Healthcare International
Allied Healthcare International Inc. (http://www.alliedhealthcare.com) is a leading provider of flexible healthcare staffing services in the United Kingdom. Allied operates a community-based network of approximately 100 branches with the capacity to provide carers (known as home health aides in the U.S.), nurses, and specialized medical personnel to locations covering approximately 90% of the U.K. population. Allied meets the needs of Private Patients, Community Care, Nursing Homes and Hospitals. The Company also supplies medical-grade oxygen in the form of cylinders and concentrators to patients in the U.K.