Rotech Upbeat about Q2 Results, Round 1 Chances

ORLANDO, Fla. — Rotech Healthcare announced financial results Aug. 4 for the
three and six months ended June 30. Philip Carter, president and
CEO, said the company was pleased with its Q2 results, and was also
pleased with its award of 17 contracts in the Round 1 rebid of
competitive bidding.

“We look forward to considerable growth and expansion of our
existing presence in these initial cities that we believe will more
than offset the reduction in reimbursement rates over time,” Carter
said in a release. The company announced in July it had accepted
six Round 1 contracts for oxygen, six for enteral nutrients, three
for CPAP and two for standard power wheelchairs.

“Although we believe changes relating to the establishment of
new reimbursement rates, as well as other related changes, should
be evaluated prior to the further expansion of the competitive
bidding program,” Carter continued, “we believe that CMS will
achieve cost savings for the Medicare program and reduce the risk
of fraud and abuse. We believe that both the company and CMS will
gain valuable additional insight from the Round 1 rebid that can
serve to improve the competitive bidding process prior to further
expansion.”

Here are some highlights the company reported on its Q2 and
first-half financials:

• Net revenues of $124.3 million versus $115.5 million in 2009’s
  second quarter; net earnings of $3.3 million versus a net loss of
  $5.5 million in the year-ago quarter.
• Product lines of oxygen and CPAP grew 10 percent compared to
  June 30, 2009.
• Adjusted EBITDA increased to $29.2 million for the three months
  from $22.1 million for the same quarter in 2009, and to $54.4
  million for the six months from $43.3 million last year.
• In April, the company settled a commercial arbitration
  proceeding related to previously unpaid claims and related costs.
  The net amount received as a result of the settlement was
  approximately $2.9 million.
• As of June 30, the company had $54 million in cash. It also had
  $513.2 million in long-term debt, including $225.8 million payable
  under its senior credit facility, which matures in September 2011,
  and $287 million of senior subordinated notes that mature in April
  2012.

“We continue to evaluate options and timing for addressing our
upcoming debt maturities,” Carter said. “We intend to refinance
part or all of our debt prior to maturity, subject, of course, to
continued favorable performance and market conditions.”

If the company continues to be profitable on the same rate as
Q2, “the year could have a profit of $3-4 million on sales of about
$500 million, or a net profit margin of 0.8 percent (about 10
percent of what it should be),” one industry-watcher commented.

Rotech has approximately 450 locations in 48 states.