SunLink Health Systems, Inc. Announces Fiscal 2024 Third Quarter Results

Rhea-AI Summary

SunLink Health Systems (NYSE American: SSY) reported a significant increase in losses for its third fiscal quarter ended March 31, 2024. The loss from continuing operations was $824,000 (or $0.12 per share), up from $453,000 (or $0.06 per share) in the same period last year. Net loss for the quarter was $1,396,000 (or $0.20 per share), compared to $762,000 (or $0.11 per share) last year.

This quarter's results included a $572,000 loss from discontinued operations, primarily due to a $613,000 loss on the sale of Trace Regional Hospital and associated properties.

Consolidated net revenues dropped to $7,462,000 from $8,181,000, mainly due to a 9% decrease in pharmacy net revenues. Operating loss increased to $853,000 from $467,000. The nine months ended March 31, 2024, also showed a higher net loss of $5,815,000 (or $0.83 per share), compared to $369,000 (or $0.05 per share) last year.

SunLink also reported ongoing challenges from COVID-19, including workforce shortages and inflationary pressures.

Positive

• Consolidated net revenues for the nine months ended March 31, 2024 increased 2% compared to the prior year, excluding sales tax refunds and accruals.
• Asset sale agreements of Trace Regional Hospital and associated properties to Progressive Health of Houston, , including a $2 million real estate purchase agreement.
• Management agreement with Progressive Health to manage Trace operations until regulatory approvals are received.

Negative

• Loss from continuing operations for Q3 2024 was $824,000, up from $453,000 in Q3 2023.
• Net loss for Q3 2024 was $1,396,000, up from $762,000 in Q3 2023.
• Loss from discontinued operations for Q3 2024 was $572,000, an increase from $309,000 in Q3 2023.
• Loss on sale of Trace Regional Hospital and associated properties was $613,000.
• Consolidated net revenues for Q3 2024 decreased by 9% to $7,462,000 from $8,181,000 in Q3 2023.
• Operating loss for Q3 2024 was $853,000, up from $467,000 in Q3 2023.
• Net loss for the nine months ended March 31, 2024 was $5,815,000, a significant increase from $369,000 in the same period last year.
• Loss from discontinued operations for the nine months ended March 31, 2024 was $4,156,000, up from $1,588,000 in the same period last year.
• Ongoing COVID-19 related challenges, including workforce shortages and inflationary pressures.

Insights

Financial Analyst

SunLink Health Systems, Inc. reported a significant increase in its net loss for the third fiscal quarter ended March 31, 2024, compared to the same period last year. The net loss rose from $762,000 to $1,396,000, mainly due to a 9% decrease in revenues and a nearly 83% increase in losses from discontinued operations. This suggests potential challenges in revenue generation and cost management.

The sale of Trace Regional Hospital and associated properties resulted in a notable financial hit, contributing to overall losses. While the company secured $2.52 million from this transaction, it recorded an impairment charge of $1.974 million in the previous quarter and a loss of $613,000 this quarter, highlighting the financial strain of divesting underperforming assets.

Additionally, the company's pharmacy net revenues decreased due to lower script volumes and reduced durable medical equipment shipments. This decline in core business performance is concerning for investors, especially during a period of broader economic challenges, including the after-effects of the COVID-19 pandemic.

In the short term, investors should be wary of the company’s ability to stabilize its financials and manage operating losses. In the long term, the successful sale of remaining Trace assets and any strategic shifts in operations will be important indicators of recovery. Overall, the financial health and future strategic decisions are key areas to monitor.

Market Research Analyst

The pharmacy sector remains a core segment for SunLink, yet the reported 9% revenue decline in Q3 2024 indicates market struggles. Factors such as lower pharmacy scripts and decreased shipments of durable medical equipment reflect potential competition and operational inefficiencies.

Market analysts must consider the broader industry trends, including supply chain disruptions and inflationary pressures that could have magnified these results. It's worth noting that SunLink’s net revenues for the first nine months of fiscal 2024 included prior period sales tax refunds, which, excluding these, would have shown a modest 2% increase in pharmacy script volume, suggesting some underlying demand stability.

Looking forward, the company's ability to streamline operations and potentially pivot towards more resilient revenue streams will determine its market positioning. The ongoing marketing and potential sale of Trace Extended Care add an element of uncertainty but could also be a strategic move to offload non-core assets and focus on more profitable segments.

Investors need to keep an eye on SunLink’s strategic responses to market pressures and any further divestitures, alongside monitoring competitive dynamics within the pharmacy sector.

ATLANTA--(BUSINESS WIRE)-- SunLink Health Systems, Inc. (NYSE American: SSY) today announced a loss from continuing operations of $824,000 (or a loss of $0.12 per fully diluted share) for its third fiscal quarter ended March 31, 2024 compared to a loss from continuing operations of $453,000 (or a loss of $0.06 per fully diluted share) for the third fiscal quarter ended March 31, 2023.

Net loss for the quarter ended March 31, 2024 was $1,396,000 (or a loss of $0.20 per fully diluted share) compared to a net loss of $762,000 (or a loss of $0.11 per fully diluted share) for the quarter ended March 31, 2023. The net loss for the third fiscal quarter of 2024 included a loss from discontinued operations of $572,000 (or a loss of $0.08 per fully diluted share), which includes for the quarter a loss of $613,000 on the sale of Trace Regional Hospital, an associated medical office building and three patient clinics as discussed below, compared to a loss from discontinued operations of $309,000 (or a loss of $0.04 per fully diluted share) for the quarter ended March 31, 2023, substantially all of which relates to Trace’s results.

On January 22, 2024, the Company's indirect subsidiary, Southern Health Corporation of Houston, Inc. (“Southern”), reached revised agreements for the sale of Trace Regional Hospital, a medical office building and three (3) patient clinics in Chickasaw County, MS, (collectively “Trace”) to Progressive Health of Houston, LLC (“Progressive”). Pursuant to the revised agreements, Southern sold certain intangible and personal property assets to Progressive for $500,000 pursuant to an asset purchase agreement (“Sale”), entered into a six-month net lease to Progressive of certain hospital real property for $20,000 per month and engaged Progressive under a management agreement to manage the operations of Trace until receipt of certain regulatory approvals. Southern also entered into a real estate purchase agreement with Progressive under which Progressive is to purchase certain real estate of Trace for $2,000,000 by July 31, 2024. As a result of the transactions, in the quarter ended December 31, 2023 SunLink reported an impairment charge (included in discontinued operations) of $1,974,000 to write down the net assets to be sold pursuant to the asset purchase agreement and the real estate purchase agreement. A loss of $613,000 on the sale was recorded in the quarter ended March 31, 2024 due to the net change in assets sold and liabilities assumed after the impairment charge calculation. The Company is currently marketing for sale its Trace Extended Care & Rehabilitation (“Trace Extended Care”), a skilled care nursing facility adjacent to the campus of Trace, which Southern continues to own. The results for Trace and Trace Extended Care are included in discontinued operations for the current fiscal year, and prior period financial information has been restated to include them in discontinued operations. There can be no assurance the Trace transactions will be completed or that Trace Extended Care will be sold.

Consolidated net revenues for each of the fiscal quarters ended March 31, 2024 and 2023 were $7,462,000 and $8,181,000, respectively, which consists primarily of pharmacy net revenues. Pharmacy net revenues for the quarter ended March 31, 2024 decreased $729,000, or 9%, from the same period last year which resulted from lower pharmacy scripts and durable medical equipment shipments. The quarter ended March 31, 2024 includes $57 of prior period sales tax credits relating to such sales tax refund claims.

SunLink reported an operating loss for the quarter ended March 31, 2024 of $853,000 compared to an operating loss for the quarter ended March 31, 2023 of $467,000. The operating loss this year resulted primarily from decreased net revenues.

SunLink reported a loss from continuing operations of $1,659,000 (or a loss of $0.24 per fully diluted share) for its nine months ended March 31, 2024 compared to earnings from continuing operations of $1,219,000 (or $0.17 per fully diluted share) for the nine months ended March 31, 2023. Net loss for the nine months ended March 31, 2024 was $5,815,000 (or a loss of $0.83 per fully diluted share) compared to a net loss of $369,000 (or $0.05 per fully diluted share) for the nine months ended March 31, 2023. The net loss for the nine months ended March 31, 2024 included a loss from discontinued operations of $4,156,000 (or a loss of $0.59 per fully diluted share), compared to a loss from discontinued operations of $1,588,000 (or a loss of $0.23 per fully diluted share) for the nine months ended March 31, 2023.

Consolidated net revenues for each of the nine months ended March 31, 2024 and 2023 were $24,527,000 and $26,270,000, respectively. Pharmacy net revenues for the nine months ended March 31, 2023 included $2,615,000 from the reversal of reserves for certain sales taxes previously accrued. The Company determined during that quarter that, based on discussions and correspondence from taxing authorities and consultation with external legal counsel, it was more likely than not that such accrued sales taxes would not be payable. The nine months ended March 31, 2024 includes $437 of prior period sales tax refunds. Excluding the effect of the sales tax refunds and reversal of sales tax accruals, net revenues increased 2% in the nine months ended March 31, 2024 compared to the prior year due primarily to increased volume of Retail and Institutional pharmacy scripts.

SunLink reported an operating loss for the nine months ended March 31, 2024 of $1,736,000 compared to operating profit for the nine months ended March 31, 2023 of $1,186,000. The operating profit during the comparable nine month period last year resulted primarily from the reversal of accrued sales tax reserves.

COVID-19 Pandemic

The Company continued to experience adverse after-effects of the COVID-19 pandemic in the quarter ended March 31, 2024 and believes such effects will likely continue to affect its assets and operations in the foreseeable future particularly from salaries and wages pressure, workforce shortages, supply chain disruption and broad inflationary pressures. Our ability to make estimates of any such continuing effects on future revenues, expenses or changes in accounting judgments that have had or are reasonably likely to have a material effect on our financial statements is very limited, depending as they do on the severity and length thereof; as well as any further government actions and/or regulatory changes intended to address such effects.

SunLink Health Systems, Inc. is the parent company of subsidiaries that own and operate a pharmacy business and an information technology business in the Southeast. 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, 2023 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES
FISCAL 2024 THIRD QUARTER RESULTS
Amounts in 000's, except per share
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
	Three Months Ended March 31, 2024																Nine Months Ended March 31,,
		2024								2023							2024							2023
						% of Net								% of Net							% of Net							% of Net
		Amount				Revenues				Amount				Revenues			Amount				Revenues			Amount				Revenues
Net revenues		$	7,462				100.0	%		$	8,181			100.0	%		$	24,527			100.0	%		$	26,270			100.0	%
Costs and Expenses:
Cost of goods sold			4,339				58.1	%			4,755			58.1	%			13,871			56.6	%			13,642			51.9	%
Salaries, wages and benefits			2,652				35.5	%			2,543			31.1	%			7,937			32.4	%			7,547			28.7	%
Supplies			36				0.5	%			39			0.5	%			109			0.4	%			104			0.4	%
Purchased services			265				3.6	%			302			3.7	%			832			3.4	%			788			3.0	%
Other operating expenses			589				7.9	%			601			7.3	%			2,279			9.3	%			1,854			7.1	%
Rent and leases			92				1.2	%			92			1.1	%			275			1.1	%			276			1.1	%
Depreciation and amortization			342				4.6	%			316			3.9	%			960			3.9	%			873			3.3	%
Operating profit (loss)			(853	)			-11.4	%			(467	)		-5.7	%			(1,736	)		-7.1	%			1,186			4.5	%
Interest Income - net			19				0.3	%			8			0.1	%			70			0.3	%			13			0.0	%
Gain on sale of assets			0				0.0	%			0			0.0	%			2			0.0	%			13			0.0	%
Earnings (Loss) from Continuing Operations before
Income Taxes			(834	)			-11.2	%			(459	)		-5.6	%			(1,664	)		-6.8	%			1,212			4.6	%
Income Tax benefit			(10	)			-0.1	%			(6	)		-0.1	%			(5	)		0.0	%			(7	)		0.0	%
Earnings (Loss) from Continuing Operations			(824	)			-11.0	%			(453	)		-5.5	%			(1,659	)		-6.8	%			1,219			4.6	%
Loss from Discontinued Operations, net of tax			(572	)			-7.7	%			(309	)		-3.8	%			(4,156	)		-16.9	%			(1,588	)		-6.0	%
Net Loss		$	(1,396	)			-18.7	%		$	(762	)		-9.3	%		$	(5,815	)		-23.7	%		$	(369	)		-1.4	%
Earnings (Loss) Per Share from Continuing Operations:
Basic		$	(0.12	)						$	(0.06	)					$	(0.24	)					$	0.17
Diluted		$	(0.12	)						$	(0.06	)					$	(0.24	)					$	0.17
Loss Per Share from Discontinued Operations:
Basic		$	(0.08	)						$	(0.04	)					$	(0.59	)					$	(0.23	)
Diluted		$	(0.08	)						$	(0.04	)					$	(0.59	)					$	(0.23	)
Net Loss Per Share:
Basic		$	(0.20	)						$	(0.11	)					$	(0.83	)					$	(0.05	)
Diluted		$	(0.20	)						$	(0.11	)					$	(0.83	)					$	(0.05	)
Weighted Average Common Shares Outstanding:
Basic			7,041								7,032							7,038							7,015
Diluted			7,041								7,032							7,038							7,018
SUMMARY BALANCE SHEETS		March 31,				June 30,
		2024				2023
ASSETS
Cash and Cash Equivalents		$	1,211			$	4,486
Receivable - net			3,078				2,592
Current Assets Held for Sale			3,512				1,920
Other Current Assets			3,165				3,276
Property Plant and Equipment, net			2,903				2,717
Long-term Assets			2,275				8,277
		$	16,144			$	23,268
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities		$	3,959			$	4,869
Noncurrent Liabilities			577				982
Shareholders' Equity			11,608				17,417
		$	16,144			$	23,268

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240515541346/en/

Robert M. Thornton, Jr.

Chief Executive Officer

(770) 933-7004

Source: SunLink Health Systems, Inc.

FAQ

How much was SunLink Health Systems' (SSY) loss from continuing operations in Q3 2024?

SunLink Health Systems reported a loss of $824,000 from continuing operations in Q3 2024.

What was SunLink Health Systems' net loss for Q3 2024?

The net loss for Q3 2024 was $1,396,000.

What is the impact of the sale of Trace Regional Hospital on SunLink Health Systems' Q3 2024 results?

The sale resulted in a $613,000 loss, contributing to the overall loss from discontinued operations of $572,000 for Q3 2024.

How did SunLink Health Systems' consolidated net revenues change in Q3 2024 compared to Q3 2023?

Consolidated net revenues decreased by $729,000, or 9%, to $7,462,000 in Q3 2024.

What were SunLink Health Systems' operating losses in Q3 2024?

The operating loss for Q3 2024 was $853,000.

What was SunLink Health Systems' net loss for the nine months ended March 31, 2024?

The net loss for the nine months ended March 31, 2024 was $5,815,000.

How did SunLink Health Systems' net revenues perform over the nine months ended March 31, 2024?

Excluding sales tax refunds and accruals, net revenues increased by 2%.