Arcadia Resources, Inc. (NYSE Amex: KAD), a leading provider of home care, medical staffing, and pharmacy services under the Arcadia HealthCare(SM) brand, today announced results for its fiscal first quarter ended June 30, 2009.
For the first quarter of fiscal 2010, Arcadia reported net revenues of $26.4 million compared with $26.8 million for the same period last year. Arcadia reported a net loss from continuing operations of $3.6 million, or $0.02 per share, in the current quarter compared to a net loss from continuing operations of $4.0 million, or $0.03 per share, for the fiscal 2009 first quarter. The consolidated net loss, including discontinued operations, was $4.6 million in the current quarter, or $0.03 per share, compared to a net loss of $3.3 million, or $0.03 per share, for the same period a year ago.
In its Pharmacy segment, Arcadia reported a $2.1 million increase in sales for its DailyMed(TM) medication management system in the quarter compared to the same period a year ago, and a $1.0 million, or 48.2% increase, over the fourth quarter of fiscal 2009. In its Services segment, the Company reported an increase in home care sales of 4.7% over the same period a year ago and a 1.6% increase over the prior quarter.
"This quarter marked our first under our new business structure focused on two core businesses," said Marvin R. Richardson, President and Chief Executive Officer of Arcadia. "During the past six months, our management team efforts have centered around the sale of non-core assets and restructuring our long-term debt, and we have emerged as a much more streamlined and focused company with an improved balance sheet and stronger growth prospects. Now we are concentrating on operational improvements in our Pharmacy and Home Care/Medical Staffing businesses to ensure our sales growth translates to solid margins and profitability."
Arcadia said it has commenced the DailyMed enrollment of high risk patients under its new agreement with WellPoint, which was announced during the first quarter. "Our rollout of the five-state program with WellPoint has started in the State of Virginia, and we are reaching out to more than 12,000 high-risk members that WellPoint has identified will most benefit from our DailyMed medication management program," Richardson said. "We are excited to introduce DailyMed to WellPoint's Medicaid members and believe the result will help improve member care and lower healthcare costs by more effectively managing chronic medication utilization and reducing unnecessary hospitalizations for their Medicaid members."
Fiscal 2010 First Quarter Results
Arcadia reported $26.4 million in revenue from continuing operations during the quarter, down slightly from $26.8 million during the same period a year ago. The Company's gross margin was 28.2% during the first quarter, a 2.1% decline from the same period a year ago. The reduction in gross margin occurred principally in the Pharmacy segment.
- Pharmacy: Pharmacy segment revenues increased 191% to $3.2 million for the first quarter of fiscal 2010, compared to $1.1 million in revenues for the same quarter of fiscal 2009. Gross margins declined from 17.4% in the first quarter of fiscal 2009 to 11.0% in the most recent quarter. The Company said that first quarter margins were negatively impacted by certain one-time costs and expenses, including an inventory adjustment in its Minneapolis pharmacy. The Company said it has implemented purchasing and other margin improvement actions that will increase margins in the second quarter and subsequent periods.
- Services: The Company's Services segment, which includes its home health care and medical staffing business, reported net revenues of $22.7 million for the quarter compared to net revenues of $25.0 million for the same period a year ago. Within the Services segment, home health care revenues increased by $0.8 million, or 4.7%, to $17.7 million, compared to net revenue of $16.9 million the same period last year. This increase was offset by the decline in medical staffing revenue to $5.0 million in the current quarter, compared with $8.1 million during the first quarter of fiscal 2009. Per diem staffing revenue and travel nurse staffing revenue declined 35% and 45%, respectively, compared to the same period a year ago. Gross margins remained constant at 30.5% compared with 30.4% for the same period last year.
"Our management team is focused on improving our operational performance in four key areas," said Steven Zeller, Arcadia's Chief Operating Officer. "These are growth in our Services revenue despite difficult medical staffing market conditions; enrolling and servicing our increasing population of DailyMed customers; improving our Pharmacy segment gross margins; and aligning our selling, general and administrative (SG&A) expenses with our current business focus and lower revenue base. While our first quarter results were mixed in these areas, we are making measurable progress and are confident we have the right plans in place to achieve our objectives during the course of the year."
In its Services segment, Arcadia is projecting that its fiscal 2010 revenue will range from $90 to $100 million, depending significantly on market conditions for medical staffing.
"We continue to see growth in our home care business despite overall economic conditions," Zeller said. "At the same time, we do see challenges in this segment, particularly in state-funded Medicaid programs, which are under severe budget pressures. Like others in the medical staffing industry, we experienced further declines in our medical staffing business during the first quarter, particularly in our travel nursing division. We expect to see some stabilization in this market over the next few quarters, although we do not expect any significant improvement in demand."
Commenting on the Pharmacy segment, Richardson said: "We continue to bring new payers and partners into the DailyMed program, and are also expanding the program organically with existing payers and partners. However, the fact that DailyMed represents a new and unique approach to managing medication compliance and health care costs makes it more difficult to project our sales in the Pharmacy segment versus our more traditional markets."
Arcadia said there are several key variables that will influence the timing of DailyMed revenue growth. These include the timing of new program roll-outs, the number of high-risk patients targeted and the rate of converting that targeted population into DailyMed enrollees.
"We currently expect that our second quarter DailyMed sales will grow in the range of 20% over the first quarter. Our revenue will accelerate starting later in the second quarter and into the third quarter as we ramp up our programs with WellPoint and others. Based on our current experience, we are projecting that our fiscal 2010 DailyMed sales will range between $25 and $35 million," Richardson said. "We should have better visibility after the second quarter as we expand our patient population and resulting data, and we look forward to updating our expectations at that time."
Arcadia said Pharmacy gross margins are a key operational focus area and it has already identified operational and purchasing improvements that are expected to result in sequential improvement in Pharmacy gross margin throughout the year.
Richardson continued: "We have invested significantly in the infrastructure and headcount to meet the increasing DailyMed demand over the past several quarters. We are now focused on driving the operational improvements and efficiency gains we know we can achieve. As a result, while we will add modestly to our Pharmacy SG&A expense as demand increases, we believe we will see SG&A as a percentage of sales decline significantly during the course of FY 2010.
"Likewise, in our corporate SG&A we continue to make progress on our cost reduction initiatives. After restructuring our business during the last six months, we have identified an additional $750,000 to $1 million in further cost reduction opportunities that we will implement over the course of the year."
Capital Resources and Liquidity
At June 30, 2009, the Company had $0.5 million in cash and cash equivalents on its balance sheet and had access to $2.5 million in additional line of credit availability, resulting in total cash and availability of $2.95 million, compared to total cash and availability of $4.5 million at March 31, 2009.
Arcadia reported negative cash flow from total operations of $1.6 million for the quarter, compared with cash generated from operations of $740,000 and $375,000 in the fourth quarter of fiscal 2009 and the same period a year ago, respectively.
"The reduction in operating cash flow quarter-over-quarter was primarily due to two factors. First, the ramp up of our Pharmacy operations and the higher operating loss in that segment resulted in negative operating cash flow," said Matthew Middendorf, Chief Financial Officer. "In addition, we include discontinued operations in our operating cash flow statement and our operating loss from discontinued operations was $1.2 million in the quarter, as compared with earnings of $0.7 million in the prior year quarter.
"During the quarter, we reached agreement with Comerica Bank to renew our existing senior credit facility, which was completed in July," added Middendorf. "We also significantly reduced our long-term indebtedness by more than $7 million during the quarter. We are actively working on a line of credit to support the growth of our Pharmacy segment and hope to complete that during the second quarter."