SunLink Health Systems, Inc. Announces Fiscal 2022 First Quarter Results and COVID-19 Update

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ATLANTASunLink Health Systems, Inc. (NYSE American: SSY) today announced earnings from continuing operations of $2,006,000 ($0.28 per fully diluted share) for its first fiscal quarter ended September 30, 2021 compared to a loss from continuing operations of $291,000 (or a loss of $0.04 per fully diluted share) for the first fiscal quarter ended September 30, 2020. Net income for the quarter ended September 30, 2021 was $1,939,000 ($0.27 per fully diluted share) compared to a net loss of $340,000 (or a loss of $0.05 per fully diluted share) for the quarter ended September 30, 2020. The Company’s earnings for the quarter resulted from its recognition of income of $3,010,000 (pre-tax) from forgiveness by the Small Business Administration of the Company’s remaining loans and accrued interest under the Paycheck Protection Program (“PPP”) received as a result of the Coronavirus Aid Relief and Economic Security Act. (“CARES Act”).

Consolidated net revenues for the quarters ended September 30, 2021 and 2020 were $10,525,000 and $10,422,000, respectively, an increase of 1.0% in the current year’s quarter compared to the comparable quarter of the prior fiscal year. Net revenues increased slightly in the current fiscal quarter, primarily due to an increase in Healthcare Facilities hospital net revenue and increased Pharmacy Segment durable medical equipment revenues.

SunLink reported an operating loss for the quarter ended September 30, 2021 of $993,000 compared to an operating loss for the quarter ended September 30, 2020 of $323,000, due primarily to increased cost of salaries, wages and benefits, supplies, purchased services and other operating expenses.

Loss from discontinued operations was $67,000 (or a loss of $0.01 per fully diluted share) for the quarter ended September 30, 2021 compared to a loss from discontinued operations of $49,000 (or a loss of $0.01 per fully diluted share) for the quarter ended September 30, 2020.

COVID-19 Pandemic

COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. We have been monitoring the COVID-19 pandemic and its impact on our operations, and we have taken significant steps intended to minimize the risk to our employees and patients. Certain employees have been working remotely, but we believe these remote work arrangements have not materially affected our ability to maintain critical business operations, which are being conducted substantially in accordance with our understanding of applicable government health and safety protocols and guidance issued in response to the COVID-19 pandemic. Such protocols and guidance are recent, rapidly changing and at times, unclear. As in many healthcare environments, we have experienced COVID-19 illness, including deaths, and some employees have tested positive and have been placed on leave or in quarantine. We believe the effect of the COVID-19 pandemic and public and governmental responses to it have negatively affected our last seven fiscal quarters results.

In late December 2020, we began receiving allotments of COVID-19 vaccine and have vaccinated patients, providers, employees, and staff in accordance with the protocols and guidelines in the states where we operate. Not all such individuals have been vaccinated to date and some individuals have not consented to vaccination. The Company and its subsidiaries are currently developing and will implement plans to vaccinate employees to the extent required by the final rules issued by OSHA and CMS. The Company believes the vaccine mandates may result in the loss of certain staff, including clinical staff, which may impact the Company’s ability to maintain its current levels of service.

In our Healthcare businesses, we have experienced material reductions in demand and net revenues due to the COVID-19 outbreak. There continues to be reduced current demand for certain hospital services, and for extended care, rehabilitation center and nursing home admissions, and clinic visits. The availability and cost of medical supplies have adversely affected our Healthcare businesses, and we continue to monitor supplies and seek additional sources of many supply items. A reduction in the availability of qualified employees has also occurred, and, despite good faith efforts to do so, we have not yet been able to rehire or fully replace staff which were previously furloughed, laid off or retired.

Since the beginning of the COVID-19 pandemic, our Pharmacy business has experienced reduced sales trends in certain areas, increased costs and reduced staff. Many of our primary physician referral sources have operated at reduced capacity, and until these referral sources are at full capacity, we believe the COVID-19 pandemic will continue to affect the demand for DME products and Retail and Institutional Pharmacy drugs and products. Reductions in employee hours have been made in response to the lower demand. Extended care facilities and rehabilitation centers, nursing homes and other customers of our Institutional Pharmacy services continue to be adversely affected by the COVID-19 pandemic. Our Institutional Pharmacy services have experienced increased costs and operational inefficiencies due to measures taken to protect our employees and by access controls and other restrictions implemented by our institutional customers. The impact of the COVID-19 pandemic has negatively affected our supply processes, especially with respect to access to respiratory equipment and certain personal protective equipment and cleaning products.

Our Healthcare and Pharmacy segments have received approximately $5,446,000 in general and targeted Provider Relief Funds (“PRF”) during the period April 1, 2020 through September 30, 2021 under the CARES Act, which was enacted in March 2020 in response to the COVID-19 pandemic. The PRF distributions have been accounted for as government grants, and a total of $4,933,000 have been recognized since April 1, 2020 as other income under the gain contingency recognition method.

During the quarter ended June 30, 2020, our Healthcare and Pharmacy segments received $3,234,000 in PPP loans provided under the CARES Act. These loans were forgivable upon compliance with conditions specified under the PPP loan program. As of September 30, 2021, all our PPP loans have been forgiven.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to employer retention tax credits previously made available under the CARES Act, including modifying and extending the Employee Retention Credit (“ERC”) for the six calendar months ending June 30, 2021. As a result of such legislation, the Company qualified for ERC for the first and second calendar quarters of 2021 due to the decrease in its gross receipts and has applied for ERC of $3,586,000 through amended quarterly payroll tax filings for the applicable quarters.

PRF distributions are not subject to repayment provided we are able to attest to and comply with the terms and conditions of the funding, including demonstrating that the funds received have been used for designated, allowable healthcare-related expenses and capital expenditures attributable to COVID-19 and for “Lost Revenues” as defined by HHS. We continue to monitor compliance with the terms and conditions of the PRF and the impact of the pandemic on our revenues and expenses. If we are unable to attest to or comply with current or future terms and conditions, and there is no assurance we will be able to do so, our ability to retain some or all of the PRF received may be impacted, and we may have to return the unutilized portion of those funds, if any, in the future.

Going forward, the Company is unable to determine the extent to which the COVID-19 pandemic will continue to affect its assets and operations. Our ability to make estimates of the effect of the COVID-19 pandemic on revenues, expenses or changes in accounting judgments that have had or are reasonably likely to have a material effect on our financial statements is currently limited. The nature and extent of the effect of the COVID-19 pandemic on our balance sheet and results of operations will depend on the severity and length of the pandemic; government actions to mitigate the pandemic’s effect; regulatory changes in response to the pandemic, especially those that affect our hospital, extended care, rehabilitation center and nursing home and clinics, and our pharmacy operations; existing and potential government assistance that may be provided; and the requirements of PRF receipts, including our ability to retain such PRF received.

SunLink Health Systems, Inc. is the parent company of subsidiaries that own and operate healthcare properties and businesses in the Southeast. Each of the Company’s businesses is operated locally with a strategy of linking patients’ needs with healthcare professionals. For additional information on SunLink Health Systems, Inc., please visit the Company’s website.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the company’s business strategy. These forward-looking statements are subject to certain risks, uncertainties, and other factors, which could cause actual results, performance, and achievements to differ materially from those anticipated. Certain of those risks, uncertainties and other factors are disclosed in more detail in the company’s Annual Report on Form 10-K for the year ended June 30, 2021 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES
FISCAL 2022 FIRST QUARTER AND COVID-19 UPDATE
Amounts in 000's, except per share and volume statistics
 
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

Three Months Ended September 30,

2021

 

2020

 

 

% of Net

 

 

 

% of Net

Amount

 

Revenues

 

Amount

 

Revenues

Net Revenues

$

10,525

 

 

100.0

%

$

10,422

 

100.0

%

Costs and Expenses:
Cost of goods sold

 

4,073

 

 

38.7

%

 

4,070

 

39.1

%

Salaries, wages and benefits

 

4,698

 

 

44.6

%

 

4,385

 

42.1

%

Supplies

 

300

 

 

2.9

%

 

224

 

2.1

%

Purchased services

 

862

 

 

8.2

%

 

647

 

6.2

%

Other operating expenses

 

1,082

 

 

10.3

%

 

949

 

9.1

%

Rents and leases

 

170

 

 

1.6

%

 

170

 

1.6

%

Depreciation and amortization

 

333

 

 

3.2

%

 

300

 

2.9

%

Operating loss

 

(993

)

 

-9.4

%

 

(323

)

-3.1

%

 
Forgiveness of PPP loans and accrued interest

 

3,010

 

 

28.6

%

 

0

 

0.0

%

Interest Expense - net

 

(14

)

 

-0.1

%

 

(7

)

-0.1

%

Federal pandemic stimulus- provider relief funds

 

0

 

 

0.0

%

 

31

 

0.3

%

Gain on sale of assets

 

5

 

 

0.0

%

 

8

 

0.1

%

 
Earnings (Loss) from Continuing Operations before
Income Taxes

 

2,008

 

 

19.1

%

 

(291

)

-2.8

%

Income Tax expense

 

2

 

 

0.0

%

 

0

 

0.0

%

Earnings (Loss) from Continuing Operations

 

2,006

 

 

19.1

%

 

(291

)

-2.8

%

Loss from Discontinued Operations, net of tax

 

(67

)

 

-0.6

%

 

(49

)

-0.5

%

Net Earnings (Loss)

$

1,939

 

 

18.4

%

$

(340

)

-3.3

%

Earnings (Loss) Per Share from Continuing Operations:
Basic

$

0.29

 

$

(0.04

)

Diluted

$

0.28

 

$

(0.04

)

Earnings (Loss) Per Share from Discontinued Operations:
Basic

$

(0.01

)

$

(0.01

)

Diluted

$

(0.01

)

$

(0.01

)

Net Earnings (Loss) Per Share:
Basic

$

0.28

 

$

(0.05

)

Diluted

$

0.27

 

$

(0.05

)

Weighted Average Common Shares Outstanding:
Basic

 

6,924

 

 

6,899

 

Diluted

 

7,095

 

 

6,899

 

 
 
SUMMARY BALANCE SHEETS

September 30,

 

June 30,

2021

 

2021

ASSETS
Cash and Cash Equivalents

$

8,933

 

$

9,962

 

Accounts Receivable - net

 

4,687

 

 

4,189

 

Other Current Assets

 

7,794

 

 

7,790

 

Property Plant and Equipment, net

 

6,920

 

 

6,554

 

Long-term Assets

 

3,034

 

 

3,069

 

$

31,368

 

$

31,564

 

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities

$

7,545

 

$

9,665

 

Long-term Debt and Other Noncurrent Liabilities

 

1,074

 

 

1,089

 

Shareholders' Equity

 

22,749

 

 

20,810

 

$

31,368

 

$

31,564

 

 

Robert M. Thornton, Jr.
Chief Executive Officer
(770) 933-7004

Source: SunLink Health Systems, Inc.