Arcadia Resources first-quarter net revenues decrease to $25.8 million

Arcadia Resources, Inc. (NYSE Amex: KAD), a leading provider of innovative consumer health care services under the Arcadia HealthCare(SM) brand, today announced fiscal 2011 first quarter net revenues of $25.8 million and a net loss of $4.0 million, or $0.02 per share, which compares to net revenue of $26.4 million and a net loss of $4.6 million, or $0.03 per share for the same period in the fiscal 2010.

"During our first quarter we continued to make substantial progress across both of our businesses," said Marvin R. Richardson, President and Chief Executive Officer of Arcadia.  "DailyMed generated solid top line growth, improved gross margins, due in part to our new prime vendor agreement with H.D. Smith and improved overall operations.  Most recently, we moved our corporate headquarters and DailyMed central fill pharmacy operations in Indianapolis which sets the stage for future growth and improved efficiency.  Our new agreement with WellPoint is further validation of the value proposition DailyMed offers our partners and patients. Our Services segment showed continued signs of stabilization, steady gross margins and strong positive operating contribution cash flow."

First-Quarter and Recent Highlights

• Extended DailyMed agreement with WellPoint State Sponsored Business for three years
• Pharmacy revenues increased 57.1% over prior year quarter and 14.3% sequentially
• Pharmacy gross margins increased to 13.1% from 11.0% in the first quarter of fiscal 2010
• Services revenues of $20.4 million, gross margins of 30.0% and segment operating contribution of $1.1 million
• Opened new corporate headquarters and DailyMed Pharmacy operations in Indianapolis
• CK Cooper & Company initiated research coverage
• Awarded accreditation status by the ACHC for homecare services Arcadia provides across its 11 Michigan locations

For the first quarter of fiscal 2011, Arcadia reported net revenues of $25.8 million, compared with net revenues of $26.4 million for the same period last year.  In its Pharmacy segment, Arcadia reported net revenues of $5.1 million, or a 57.1% increase for its DailyMed medication management system for the fiscal 2011 first quarter, compared with the same period a year ago.  Net revenue in the Services segment was $20.4 million, a decrease of $2.3 million, or 10.2%, compared to the same quarter last year.

Arcadia reported a net loss from continuing operations of $4.8 million, or $0.03 per share, in the first quarter of fiscal 2011, compared to a net loss from continuing operations of $3.6 million, or $0.02 per share, in the same period in fiscal 2010.  The consolidated net loss, including discontinued operations, was $4.0 million, or $0.02, in the fiscal first quarter in 2011 compared to a net loss of $4.6 million, or $0.03 in the fiscal first quarter in 2010.  

Fiscal 2011 First Quarter Results

Arcadia reported $25.8 million in revenue from continuing operations during the quarter, down slightly from $26.4 million during the same period a year ago.  The Company's gross margin from continuing operations was 26.8% during the first quarter, a decline of 1.4% from the same period a year ago.  The reduction in gross margin was driven by a shift in mix towards Pharmacy revenue, which has lower margins than the Company's Services segment.    

Pharmacy: Pharmacy segment revenues increased to $5.1 million for the first quarter of fiscal 2011, compared to $3.2 million in revenues for the first quarter of fiscal 2010, an increase of 57.1%.  This growth was driven by the Company's DailyMed program and the continued roll-out of the program to high-risk Medicaid members in California, South Carolina and Virginia. The program was launched in Virginia in August, and the Company began recognizing revenue from these patients in September.  The program was rolled out to California patients during fiscal fourth quarter 2010, and in South Carolina in April 2010 and this roll-out continues in both States.  Pharmacy gross margin increased to 13.1% in the first quarter of fiscal 2011 from 11.0% in the first quarter of fiscal 2010.  The Company said margins would continue to improve in future quarters under its new prime vendor agreement with H.D. Smith and other purchasing and operational improvement being implemented.

Services: The Company's Services segment, which includes Arcadia's home care and medical staffing business, reported net revenues of $20.4 million in the first quarter of fiscal 2011 compared to net revenues of $22.7 million for the first quarter a year ago.  Within the Services segment, home care revenues decreased by $1.3 million, or 7.1%, to $16.4 million from $17.7 million in the same period last year.  Medical staffing and travel staffing declined $1.1 million to $3.9 million in the first quarter of fiscal 2011 compared to $5.0 million in the same period last year.  Gross margin within the Services segment was 30.0% in the first quarter of fiscal 2011 compared to 30.5% in the same period last year.

Capital Resources and Liquidity

At June 30, 2010, the Company had total cash plus line-of-credit available of $5.3 million.

Arcadia reported negative cash flow from total operations of $4.9 million during the first quarter of fiscal 2011, compared to negative cash flow of $1.6 million during the same period of fiscal 2010.  The increase in negative cash flow was primarily due to working capital changes.  Specifically, during the current year quarter, the Pharmacy segment transitioned to a new prime vendor for its drug purchases.  As part of this conversion, the payment terms changed from semi-monthly with the former vendor to one-week prepayment with the new vendor.  This transition and the increase in the California pharmacy's volume resulted in additional cash used for inventory.  Additionally, during the prior year quarter, the Company collected more cash from receivables than during the current year quarter due to two factors: 1.) significant Home Care and Medical Staffing collections compared to new billings during a period of declining revenue; and 2.) the collection of retained receivables subsequent to certain business divestures.