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SunLink Health Systems, Inc. Announces Fiscal 2021 Fourth Quarter and Annual Results and COVID-19 Update

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ATLANTA, September 28, 2021--(BUSINESS WIRE)--SunLink Health Systems, Inc. (NYSE American: SSY) today announced earnings from continuing operations of $4,555,000 ($0.64 per fully diluted share) for its fourth fiscal quarter ended June 30, 2021 compared to a loss from continuing operations of $600,000 (or a loss of $0.09 per fully diluted share) for the quarter ended June 30, 2020. Net income for the quarter ended June 30, 2021 was $4,687,000 ($0.66 per fully diluted share) compared to a net loss of $679,000 (or a loss of $0.10 per fully diluted share) for the quarter ended June 30, 2020. The Company’s earnings for the quarter resulted from its recognition of income of $3,586,000 (pre-tax) for Employee Retention Credits ("ERC") and income of $1,421,000 (pre-tax) of Provider Relief Funds ("PRF") received under the Coronavirus Aid Relief and Economic Security ("CARES") Act.

For the fiscal year ended June 30, 2021, SunLink reported earnings from continuing operations of $6,937,000 ($0.99 per fully diluted share), which earnings resulted from the recognition of $4,880,000 (pre-tax) of PRF distributions and $3,586,000 (pre-tax), of ERC compared to a loss from continuing operations of $586,000, (or $0.08 per fully diluted share) for the fiscal year ended June 30, 2020.

Consolidated net revenues (exclusive of ERC and PRF) for the quarters ended June 30, 2021 and 2020 were $10,335,000 and $10,689,000, respectively, a decrease of 3.3% in the current fiscal year’s fourth quarter compared to the comparable quarter of the prior fiscal year. Net revenues decreased in the current fiscal quarter primarily due to decreased extended care and rehabilitation services net revenues and decreased Pharmacy segment revenues primarily due to the continuing COVID-19 pandemic.

SunLink reported an operating profit for the quarter ended June 30, 2021 of $2,988,000, compared to an operating loss for the quarter ended June 30, 2020 of $352,000. The operating profit for the quarter ended June 30, 2021, resulted from the recognition of $3,586,000 (pre-tax) of ERC.

Earnings from discontinued operations were $132,000 ($0.02 per fully diluted share) for the quarter ended June 30, 2021 compared to a loss from discontinued operations of $79,000 (or a loss of $0.01 per fully diluted share) for the quarter ended June 20, 2020. The earnings from discontinued operations for the quarter ended June 30, 2021 resulted from a positive cost report settlement for a sold hospital for periods when the Company owned the hospital.

Our Healthcare and Pharmacy segments have received approximately $5,370,000 in general and targeted PRF distributions during the period April 1, 2020 through June 30, 2021. The PRF funds were received under the CARES Act 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 $4,934,000 has been recognized since April 1, 2020 as other income under the gain contingency recognition method. In addition, during the quarter ended June 30, 2020, we received $3,234,000 in Paycheck Protection Program ("PPP") loans provided for by the CARES Act and administered by the SBA. These loans are forgivable upon compliance with conditions specified under the PPP loan program. During the quarter ended June 30, 2021, $261,000 of our PPP loans and $3,000 of related accrued interest were forgiven by the SBA, and as a result, $264,000 was recorded as income relating to the PPP loan forgiveness. In July and August 2021, the Company received notification that the remaining outstanding $2,972,000 of PPP loans and $38,000 of related accrued interest was forgiven by the SBA. During the quarter ended September 30, 2021, we expect to record $3,010,000 (pre-tax) of income for PPP loan forgiveness.

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 eligible employers may claim a refundable tax credit against the employer share of Social Security taxes equal to 70% of the qualified wages they paid to employees from January 1 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. The Company qualified for ERC for the first and second calendar quarter of 2021 due to the decrease in its gross receipts and is applying for ERC through amended quarterly payroll tax filings for the applicable quarters.

Net earnings for the fiscal year ended June 30, 2021 were $6,890,000 ($0.99 per fully diluted share) compared to a net loss of $1,140,000 (or a loss of $0.16 per fully diluted share) for the fiscal year ended June 30, 2020. Net earnings for the fiscal year ended June 30, 2021 resulted from the recognition of $8,466,000 (pre-tax) of ERC and PRF.

Consolidated net revenues (exclusive of ERC and PRF) for the fiscal years ended June 30, 2021 and 2020 were $40,685,000 and $47,183,000, respectively, a decrease of 14.8% in the current fiscal year compared to the comparable period of the prior fiscal year. SunLink reported operating profit for the fiscal year ended June 30, 2021 of $1,871,000 compared to an operating loss for the fiscal year ended June 30, 2020 of $329,000. The operating profit for the fiscal year ended June 30,2021 resulted from the recognition of $3,586,000 (pre-tax) of ERC.

Loss from discontinued operations was $47,000 (or a loss of $0.01 per fully diluted share) for the fiscal year ended June 20, 2021 compared to a loss from discontinued operations of $554,000 (or a loss of $0.08 per fully diluted share) for the fiscal year ended June 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, although such protocols and guidance are recent, rapidly changing and at times, unclear. Nevertheless, as in many healthcare environments, we have experienced COVID-19 illness, including deaths, and some employees have tested positive and were placed on leave or in quarantine.

In late December 2020, we began receiving allotments of COVID-19 vaccine, and we 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.

In our Healthcare businesses, we have experienced material reductions in demand and net revenues due to the COVID-19 outbreak. 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 reductions which were previously furloughed, laid off or retired. There appears to be minimal current demand for extended care and rehabilitation center admissions and clinic visits, and hospital services have substantially decreased, all as a result of the effects of the pandemic. The availability and cost of labor and medical supplies have adversely affected our Healthcare businesses, especially with respect to access to personal protective equipment, cleaning supplies and COVID-19 testing materials. We continue to monitor supplies and seek additional sources of many supply items.

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 been operating at substantially reduced capacity. Until these referral sources are able to return to 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 and rehabilitation centers and other customers of such Institutional Pharmacy services are currently being adversely affected by the spreading of the COVID-19 pandemic, and this may be expected to have a further negative effect on such demand. 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. We believe the effect of the COVID–19 pandemic and public and governmental responses to it negatively affected our last six fiscal quarters results but the adverse effect of such responses was offset in such quarters by financial assistance provided by programs enacted by the CARES Act.

During the period April 1, 2020 through June 30, 2021, our Healthcare and Pharmacy segments received approximately $5,370,000 in general and targeted PRF distributions. During the quarter ended June 30, 2020, we also received $3,234,000 in Paycheck Protection Program ("PPP") loans administered by the SBA. Both the PRF and PPP funds are provided for under the CARES Act and we have received a total of $8,604,000 of such funding.

The distributions from the PRF 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. Such PRF are accounted for as government grants and are recognized on a systematic and rational basis once there is reasonable assurance that the applicable terms and conditions required to retain the funds have been met. Of the $5,370,000 of PRF received during the period April 1, 2020 through June 30, 2021, we are reporting $4,933,000 of PRF as other income in our consolidated statement of operations for our fiscal year ended June 30, 2021 related to COVID-19 related expenses and Lost Revenues. The unrecognized amount of the PRF is recorded under the caption "Unearned CARES Act Funds" in our consolidated balance sheets. We will 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.

PPP loan forgiveness is available if the loans were used to pay wages, rent, utilities and interest on certain debt during the 24-week period following receipt of the loan proceeds, subject to Federally-established terms and conditions. During the quarter ended June 30, 2021, $261,000 of our PPP loans and $3,000 of related accrued interest were forgiven by the SBA and as a result $264,000 was recorded as income relating to the PPP loan forgiveness in the quarter ended June 30, 2021.

Effective January 1, 2021, employers were eligible for ERC if they operate a trade or business during January 1, 2021, through June 30, 2021, and experience either (1) full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or (2) decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019. The Company qualified for ERC for the first and second calendar quarter of 2021 due to the decrease in gross receipts and is applying for ERC through amended quarterly payroll tax filings for the applicable quarters.

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 and rehabilitation center and 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, 2020 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES

FISCAL 2021 FOURTH QUARTER AND ANNUAL RESULTS

AND COVID-19 UPDATE

Amounts in 000's, except per share and volume statistics

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

Three Months Ended June 30,

Twelve Months Ended June 30,

2021

2020

2021

2020

% of Net

% of Net

% of Net

% of Net

Amount

Revenues

Amount

Revenues

Amount

Revenues

Amount

Revenues

Net Revenues

$

10,335

100.0

%

$

10,689

100.0

%

$

40,685

100.0

%

$

47,813

100.0

%

Costs and Expenses:

Cost of goods sold

3,944

38.2

%

4,212

39.4

%

15,614

38.4

%

19,023

39.8

%

Salaries, wages and benefits

983

9.5

%

4,912

46.0

%

13,797

33.9

%

19,563

40.9

%

Supplies

248

2.4

%

245

2.3

%

989

2.4

%

1,215

2.5

%

Purchased services

635

6.1

%

677

6.3

%

2,471

6.1

%

2,924

6.1

%

Other operating expenses

1,006

9.7

%

463

4.3

%

4,029

9.9

%

3,366

7.0

%

Rents and leases

127

1.2

%

138

1.3

%

553

1.4

%

601

1.3

%

Depreciation and amortization

404

3.9

%

394

3.7

%

1,361

3.3

%

1,450

3.0

%

Operating profit (loss)

2,988

28.9

%

(352

)

-3.3

%

1,871

4.6

%

(329

)

-0.7

%

Federal pandemic stimulus- provider relief funds

1,421

13.7

%

54

0.5

%

4,880

12.0

%

54

0.1

%

Interest Expense - net

(7

)

-0.1

%

(5

)

0.0

%

(28

)

-0.1

%

(29

)

-0.1

%

Forgiveness of PPP loans and accrued interest

264

2.6

%

0

0.0

%

264

0.6

%

0

0.0

%

Loss on extinguishment of debt, net

0

0.0

%

0

0.0

%

0

0.0

%

(178

)

-0.4

%

Gain (loss) on sale of assets

(1

)

0.0

%

(1

)

0.0

%

13

0.0

%

192

0.4

%

Earnings (Loss) from Continuing Operations before

Income Taxes

4,665

45.1

%

(304

)

-2.8

%

7,000

17.2

%

(290

)

-0.6

%

Income Tax expense

110

1.1

%

296

2.8

%

63

0.2

%

296

0.6

%

Earnings (Loss) from Continuing Operations

4,555

44.1

%

(600

)

-5.6

%

6,937

17.1

%

(586

)

-1.2

%

Earnings (Loss) from Discontinued Operations, net of tax

132

1.3

%

(79

)

-0.7

%

(47

)

-0.1

%

(554

)

-1.2

%

Net Earnings (Loss)

$

4,687

45.4

%

$

(679

)

-6.4

%

$

6,890

16.9

%

$

(1,140

)

-2.4

%

Earnings (Loss) Per Share from Continuing Operations:

Basic

$

0.66

$

(0.09

)

$

1.00

$

(0.08

)

Diluted

$

0.64

$

(0.09

)

$

0.99

$

(0.08

)

Earnings (Loss) Per Share from Discontinued Operations:

Basic

$

0.02

$

(0.01

)

$

(0.01

)

$

(0.08

)

Diluted

$

0.02

$

(0.01

)

$

(0.01

)

$

(0.08

)

Net Earnings (Loss) Per Share:

Basic

$

0.68

$

(0.10

)

$

1.00

$

(0.16

)

Diluted

$

0.66

$

(0.10

)

$

0.99

$

(0.16

)

Weighted Average Common Shares Outstanding:

Basic

6,922

6,899

6,907

6,957

Diluted

7,112

6,899

6,989

6,957

HEALTHCARE FACILITIES VOLUME STATISTICS

Hospital and Nursing Home Admissions

66

69

281

393

Hospital and Nursing Home Patient Days

4,954

5,302

19,577

25,946

SUMMARY BALANCE SHEETS

June 30,

June 30,

2021

2020

ASSETS

Cash and Cash Equivalents

$

9,962

$

11,184

Accounts Receivable - net

4,189

4,315

Other Current Assets

7,790

4,424

Property Plant and Equipment, net

6,554

5,324

Long-term Assets

3,069

2,724

$

31,564

$

27,971

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

$

9,665

$

11,416

Long-term Debt and Other Noncurrent Liabilities

1,089

2,812

Shareholders' Equity

20,810

13,743

$

31,564

$

27,971

View source version on businesswire.com: https://www.businesswire.com/news/home/20210928005823/en/

Contacts

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

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