MedCath Corp. Reports Operating Results (10-Q)
Medcath Corp. has a market cap of $274.4 million; its shares were traded at around $13.57 with and P/S ratio of 0.6. Hedge Fund Gurus that owns MDTH: David Nierenberg of D3 Family of Funds, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: Excluding HMMC from both the first quarter of fiscal 2011 and 2010 (same facility basis), inpatient net revenue decreased $2.4 million, or 4.1%, and outpatient net revenue increased $1.1 million, or 5.0%, for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. Our same facility inpatient net revenue decrease is due to the mix of procedures performed. We performed fewer procedures with higher reimbursement during the first quarter of fiscal 2011 compared to the same period of the prior year. Our same facility outpatient revenue increase is due to a 7.1% increase in same facility outpatient cases, particularly emergency department cases, due to the expansion at several of our facilities and more procedures being performed in an outpatient setting.
Personnel expense. Personnel expense increased 2.6%, or $0.9 million, to $32.5 million for the first quarter of fiscal 2011 from $31.6 million for the first quarter of fiscal 2010.
The increase in personnel expense was primarily due to a $1.3 million increase in stock based compensation expense. As part of the strategic options process, the compensation committee of our Board of Directors waived the performance vesting criteria for certain executive managements restricted stock shares during the first quarter of fiscal 2011 to ensure the deductibility of the compensation expense for federal corporate income tax purposes. The waiver caused all future stock based compensation expense related to the shares that would have vested over time as performance criteria were met to be recognized during the first quarter of fiscal 2011. The shares subject to the waiver of vesting criteria contain transfer restrictions that will remain in place until a change in control of the Company. In addition, management updated the estimate on the restricted share forfeiture rate since it is anticipated that the rate of employee turnover will decline as we continue to progress with our strategic options process. We experienced a $0.5 million increase in expense related to hospital employee healthcare claims. This expense is directly attributed to the number of claims reported during the period. These increases were offset by a $0.9 million decline in salaries and wages and related benefits as we continue to monitor costs to better align these costs with net revenues and as the result of a reduction in management positions within hospital division as we sell our hospital assets.
Medical supplies expense. Medical supplies expense decreased 13.1%, or $2.9 million, to $19.2 million for the first quarter of fiscal 2011 from $22.1 million for the first quarter of fiscal 2010. This decline is due to $2.9 million in sales tax refunds at two of our hospitals. Absent the refunds, medical supplies expense was flat year over year. Medical supplies expense increased $0.7 million at HMMC which began operations in the second month of the first quarter of fiscal 2010 resulting in higher supply expense for the first quarter of fiscal 2011. This increase was offset by a decline in ICD expense as the result of a 7.6% decline in ICD procedures for the first quarter of fiscal 2011 compared to the same period of the prior year.
Bad debt expense. Bad debt expense increased 29.3%, or $2.2 million, to $9.7 million for the first quarter of fiscal 2011 from $7.5 million for the first quarter of fiscal 2010. As a percentage of net revenue, bad debt expense increased to 10.9% for the first quarter of fiscal 2011 as compared to 8.5% for the comparable period of fiscal 2010. This increase is due to a 68.8%, or $3.2 million, increase in self-pay net revenue for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. We reserve for the estimated bad debt on self-pay net revenue at the time of recognition based on our historical collection experience related to self-pay patients. This increase was offset by lower bad debt expense in certain markets due to lower net revenue for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010.
Other operating expenses. Other operating expenses increased 7.9%, or $1.8 million, to $24.1 million for the first quarter of fiscal 2011 from $22.3 million for the first quarter of fiscal 2010. The material and notable increases (decreases) in operating expenses were as reflected below (in millions):
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