Gentiva(R) Announces Third Quarter and Nine-Month Results

MELVILLE, N.Y., Nov. 1 /PRNewswire-FirstCall/ -- Gentiva Health Services, Inc. (NASDAQ: GTIV) , the nation's leading provider of comprehensive home health and related services, today reported the following financial results for the third quarter ended September 30, 2007:

"Gentiva continued to build momentum in the third quarter, a period of traditionally lower demand, and we benefited from expansion in Home Health and additional business in CareCentrix(R)," said Chairman and CEO Ron Malone. Malone noted these performance highlights for the 2007 third quarter:

    -- In the Home Health segment, Medicare revenues were up 15%, driven by
       solid performances in both the expanding specialty programs and in
       traditional home health services.  Overall segment revenues increased
       6% versus the prior year period, while operating contribution rose 31%.
       Operating contribution margin was 15.1% versus 12.3% reported in the
       third quarter of 2006.
    -- CareCentrix revenues increased 16%, while operating contribution rose
       23%.  Operating contribution margin was 9.2% versus 8.7% in the third
       quarter of 2006. CareCentrix has continued to benefit from increased
       managed care membership enrollment.

Malone added that quarterly performance in the Other Related Services segment declined and reflected ongoing efforts to position those businesses for accelerated growth.

Gentiva reported the following results for the nine months ended September 30, 2007 and October 1, 2006, including the results of The Healthfield Group, Inc., which was acquired on February 28, 2006:

    -- Net revenues increased 13% to $915.9 million versus the prior year
       period.
    -- Net income rose 57% to $24.0 million, or $0.84 per diluted share,
       versus $15.3 million, or $0.56 per diluted share, for the prior year
       period.
    -- EBITDA for the first nine months of 2007 increased 48% to $74.4 million
       versus $50.3 million in the first nine months of 2006.  EBITDA for each
       period included net charges for special items and restructuring and
       integration costs of $2.2 million and $2.5 million, respectively.
    -- EBITDA and net income per diluted share for the first nine months of
       2007, excluding special items and restructuring and integration costs,
       were $76.6 million and $0.89 versus $52.8 million and $0.62 for the
       comparable period of 2006.
    -- The Company generated operating cash flow of approximately $42.4
       million and made voluntary prepayments of $26.0 million on its term
       loan, resulting in a long-term debt balance of $316.0 million at
       September 30, 2007.

2007 and 2008 Information

Gentiva has reaffirmed its 2007 outlook with respect to EBITDA in a range between $101 million and $105 million, and earnings per diluted share in a range between $1.15 and $1.22.

The Company has revised its 2007 revenue outlook to a range between $1.22 billion and $1.24 billion (versus the previous range of $1.24 billion to $1.27 billion) due to its continued success in eliminating low- margin business, and as a result of lower revenues in its Other Related Services segment.

Gentiva also announced an operating preview of 2008 with full-year net revenues in a range of $1.25 billion to $1.29 billion and diluted earnings per share in a range between $1.25 and $1.35, based upon the following assumptions:

    -- Continued focus on increasing the business mix toward Medicare and away
       from business that does not meet the Company's standard for
       profitability.
    -- Implementation of the Medicare Prospective Payment System (PPS)
       refinements on January 1, 2008 as published in the Centers for Medicare
       & Medicaid Services' final rule.
    -- Implementation of the full 3% market basket increase for fiscal 2008
       Medicare home health reimbursement.

"We approach 2008 with both optimism and caution. While underlying demand is strong, our industry faces reimbursement uncertainties," Malone said. "We understand the final PPS rule and believe we are well-positioned to adapt to the significant changes it presents. While we support the continued modernization of the home health benefit, we vigorously oppose the reductions under the so-called 'case mix creep.'

"We are working to make sure members of Congress understand the critical role that our industry can play in meeting the challenges ahead for our health care system," he added. "We will strive to implement the new rule in the best interests of our patients and the exceptional care they have come to expect from Gentiva."

Non-GAAP Financial Measures

The information provided in this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.

Conference Call and Web Cast Details

The Company will comment further on its third quarter 2007 results during its conference call and live web cast to be held Thursday, November 1, 2007, at 11:00 a.m. Eastern Time. To participate in the call from the United States, Canada or an international location, dial (973) 935-2408 and reference call #9343150. The web cast is an audio-only, one-way event. Web cast listeners who wish to ask questions must participate in the conference call. Log onto http://investors.gentiva.com/events.cfm to hear the web cast. This press release is accessible at http://investors.gentiva.com/releases.cfm and a transcript of the conference call is expected to be available on the site within 36 hours after the call.

About Gentiva Health Services, Inc.

Gentiva Health Services, Inc. is the nation's leading provider of comprehensive home health and related services. The Company serves patients across the United States, through its direct service delivery units or through CareCentrix(R), which manages home health services for major managed care organizations. Gentiva is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; respiratory therapy and home medical equipment; infusion therapy services; and other therapies and services. Gentiva's revenues are generated from federal and state government programs, commercial insurance and individual consumers. For more information, visit Gentiva's web site, http://www.gentiva.com, and its investor relations section at http://investors.gentiva.com. GTIV-E

    (in 000's, except per share data)

                                          3rd Quarter         Nine Months
                                         2007      2006      2007      2006
    Statements of Income
      Net revenues                     $309,082  $286,169  $915,901  $813,470
      Cost of services and goods sold   179,041   168,250   525,438   474,764
      Gross profit                      130,041   117,919   390,463   338,706
      Selling, general and
       administrative expenses          110,299   104,520   330,795   299,800
      Operating income                   19,742    13,399    59,668    38,906
      Interest expense                   (6,564)   (7,408)  (20,649)  (17,382)
      Interest income                       810       862     2,436     2,519
      Income before income taxes         13,988     6,853    41,455    24,043
      Income tax expense                  5,797     1,539    17,473     8,779
      Net income                         $8,191    $5,314   $23,982   $15,264

     Earnings per Share
      Net income:
         Basic                            $0.29     $0.20     $0.86     $0.58
         Diluted                          $0.28     $0.19     $0.84     $0.56

      Average shares outstanding:
         Basic                           27,955    27,178    27,729    26,207
         Diluted                         28,802    27,983    28,564    27,040

    Condensed Balance Sheets
     ASSETS                            Sept 30,   Dec 31,
                                         2007      2006
      Cash, cash equivalents and
       restricted cash (A)              $33,720   $32,910
      Short-term investments             23,400    24,325
      Accounts receivable, net (B)      214,510   181,549
      Deferred tax assets                21,562    30,443
      Prepaid expenses and other
       current assets                    15,031    11,933
           Total current assets         308,223   281,160

      Fixed assets, net                  57,481    49,684
      Intangible assets, net            212,604   213,280
      Goodwill                          276,100   274,959
      Other assets                       26,518    24,799
          Total assets                 $880,926  $843,882

     LIABILITIES AND SHAREHOLDERS' EQUITY
      Current portion of long-term
       debt                              $1,577      $-
      Accounts payable                   20,360    19,580
      Payroll and related taxes          24,090    16,085
      Deferred revenue                   28,118    20,122
      Medicare liabilities                9,619     9,232
      Cost of claims incurred but not
       reported                          21,175    19,462
      Obligations under insurance
       programs                          37,607    35,910
      Other accrued expenses             42,472    45,020
           Total current liabilities    185,018   165,411

      Long-term debt                    314,423   342,000
      Deferred tax liabilities, net      46,101    41,065
      Other liabilities                  23,530    21,081
      Shareholders' equity              311,854   274,325
           Total liabilities and
            shareholders' equity       $880,926  $843,882

      Common shares outstanding          27,975    27,436

    (A) Cash, cash equivalents and restricted cash included restricted cash of
        $22.0 million at September 30, 2007 and December 31, 2006.
    (B) Accounts receivable, net, included an allowance for doubtful accounts
        of $10.1 million and $9.8 million at September 30, 2007 and December
        31, 2006, respectively.



    (in 000's)                                             Nine Months
    Condensed Statements of Cash Flows               2007               2006
     OPERATING ACTIVITIES:
     Net income                                    $23,982            $15,264
     Adjustments to reconcile net income
      to net cash provided by operating
      activities:
        Depreciation and amortization               14,705             11,391
        Amortization of debt issuance costs            763                759
        Provision for doubtful accounts              6,644              5,416
        Reversal of tax audit reserves                 -                 (800)
        Equity-based compensation expense            5,085              2,951
        Windfall tax benefits associated
         with equity-based compensation               (788)            (1,729)
        Deferred income taxes                       15,725              8,909
     Changes in assets and liabilities:
        Accounts receivable                        (39,837)               855
        Prepaid expenses and other current
         assets                                     (3,847)            (2,233)
        Current liabilities                         18,268              4,362
     Other, net                                      1,677                201
     Net cash provided by operating activities      42,377             45,346

     INVESTING ACTIVITIES:
     Purchase of fixed assets                      (19,534)           (16,286)
     Acquisition of businesses                      (3,820)          (212,422)
     Purchases of short-term investments
      available-for-sale                           (58,850)          (143,095)
     Maturities of short-term investments
      available-for-sale                            59,775            159,270
     Net cash used in investing activities         (22,429)          (212,533)

     FINANCING ACTIVITIES:
     Proceeds from issuance of common stock          7,010              9,742
     Windfall tax benefits associated
      with equity-based compensation                   788              1,729
     Proceeds from issuance of debt                    -              370,000
     Healthfield debt repayments                       -             (195,305)
     Other debt repayments                         (26,000)           (17,000)
     Changes in book overdrafts                        -               (1,395)
     Debt issuance costs                               -               (6,930)
     Repayment of capital lease obligations           (936)              (336)
     Net cash (used in) provided by
      financing activities                         (19,138)           160,505

     Net change in cash, cash equivalents
      and restricted cash                              810             (6,682)
     Cash, cash equivalents and
      restricted cash at beginning of
      period                                        32,910             38,617
     Cash, cash equivalents and
      restricted cash at end of period             $33,720            $31,935

     SUPPLEMENTAL DISCLOSURES OF CASH
      FLOW INFORMATION:

     Interest paid                                 $22,258             $7,680
     Income taxes paid, net of refunds              $1,648             $2,400



    (in 000's, except per share data)

     Supplemental Information             3rd Quarter         Nine Months
                                         2007      2006      2007      2006
    Segment Information
      Net revenues (1)(5)
        Home Health (2)                $204,410  $192,343  $614,335  $549,791
        CareCentrix                      75,295    64,829   214,511   199,411
        Other Related Services           30,327    32,048    91,222    74,071
        Intersegment revenues              (950)   (3,051)   (4,167)   (9,803)
      Total net revenues               $309,082  $286,169  $915,901  $813,470

     Operating contribution (1)(4)(5)
       Home Health                      $30,895   $23,567   $91,984   $68,996
       CareCentrix                        6,949     5,661    21,890    18,346
       Other Related Services             2,762     6,333    10,228    13,839
     Total operating contribution        40,606    35,561   124,102   101,181
     Corporate expenses                 (15,857)  (17,769)  (49,729)  (50,884)
     Depreciation and amortization       (5,007)   (4,393)  (14,705)  (11,391)
     Interest expense, net               (5,754)   (6,546)  (18,213)  (14,863)
     Income before income taxes         $13,988    $6,853   $41,455   $24,043



                                            3rd Quarter         Nine Months
                                           2007      2006      2007      2006
     Net Revenues by Major Payer Source:
       Medicare (2)
         Home Health                   $137,067  $119,076  $409,151  $329,949
         Other                           14,613    17,053    44,759    37,991
         Total Medicare                 151,680   136,129   453,910   367,940
       Medicaid and local government     37,883    45,456   116,541   132,363
       Commercial insurance and other   119,519   104,584   345,450   313,167
           Total net revenues          $309,082  $286,169  $915,901  $813,470



    A reconciliation of EBITDA to Net
     income - As Reported amounts
     follows: (3)                           3rd Quarter         Nine Months
                                           2007      2006      2007      2006
      EBITDA (4) (5)                    $24,749   $17,792   $74,373   $50,297
      Depreciation and amortization (6)  (5,007)   (4,393)  (14,705)  (11,391)
      Interest expense, net (7)          (5,754)   (6,546)  (18,213)  (14,863)
      Income before income taxes         13,988     6,853    41,455    24,043
      Income tax expense (8)             (5,797)   (1,539)  (17,473)   (8,779)
      Net income - As Reported           $8,191    $5,314   $23,982   $15,264




    A reconciliation of Net income per
     diluted share - As Adjusted
     and Net income per diluted share
     - As Reported follows:                 3rd Quarter         Nine Months
                                           2007      2006      2007      2006
     Net income per diluted share:
      As Adjusted                         $0.33     $0.27     $1.02     $0.72
      Equity-based compensation (4)       (0.03)    (0.04)    (0.13)    (0.10)
      Excluding special items and
       restructuring and integration
       costs                               0.30      0.23      0.89      0.62
      Restructuring and integration
       costs (5A)                         (0.02)    (0.04)    (0.05)    (0.10)
      Medicare cost report settlement
       (5B)                                 -         -         -        0.04
      As Reported                         $0.28     $0.19     $0.84     $0.56



    Notes:
    1) The Company's senior management evaluates performance and allocates
       resources based on operating contributions of the reportable segments,
       which exclude corporate expenses, depreciation, amortization, and
       interest expense (net), but include revenues and all other costs
       directly attributable to the specific segment.

    2) Nine-month 2006 results included approximately $1.9 million recorded
       and received from the total settlement of $5.5 million relating to the
       Company's appeal filed with the U.S. Provider Reimbursement Review
       Board ("PRRB") on the reopening of all of its 1999 cost reports.

    3) EBITDA, a non-GAAP financial measure, is defined as income before
       interest expense (net of interest income), income taxes, depreciation
       and amortization.  Management uses EBITDA to evaluate overall
       performance and compare current operating results with other companies
       in the healthcare industry.  EBITDA should not be considered in
       isolation or as a substitute for net income, operating income or cash
       flow statement data determined in accordance with accounting principles
       generally accepted in the United States.  Because EBITDA is not a
       measure of financial performance under accounting principles generally
       accepted in the United States and is susceptible to varying
       calculations, it may not be comparable to similarly titled measures in
       other companies.

    4) EBITDA included equity-based compensation expense for the third
       quarters of 2007 and 2006 of approximately $1.6 million and $1.2
       million, respectively, resulting from the adoption of Statement of
       Financial Accounting Standards No. 123 (Revised) "Share-Based Payment"
       (SFAS 123 R ) as of January 2, 2006. Corresponding amounts for the
       first nine months of 2007 and 2006 were $5.1 million and $3.0 million,
       respectively.  Such amounts were reflected in corporate expenses.

    5) Components of EBITDA included the following:

        A) Restructuring and integration costs for the third quarter and first
           nine months of 2007 of $0.6 million and $2.2 million, respectively,
           and for the third quarter and first nine months of 2006 of $1.7
           million and $4.4 million, respectively.  These costs included the
           following items: (i) $0.6 million and $1.7 million for the third
           quarters of 2007 and 2006, respectively, and $2.1 million and $3.7
           million for the first nine months of 2007 and 2006, respectively,
           resulting from restructuring and integration activities relating to
           the Healthfield acquisition; (ii) $0.1 million for the first nine
           months of 2007 in connection with a restructuring plan associated
           with its hospice operations; and (iii) $0.7 million for the first
           nine months of 2006 resulting from a restructuring plan associated
           with the Company's CareCentrix operations.

           Restructuring and integration costs for the third quarters and
           first nine months of 2007 and 2006 were reflected as follows for
           segment reporting purposes (dollars in millions):


                                            3rd Quarter       Nine Months
                                           2007     2006     2007     2006
           Home Health                     $0.1     $0.6     $0.6     $1.7
           CareCentrix                      -        -        -        0.7
           Other Related Services           -        -        0.1      -
           Corporate expenses               0.5      1.1      1.5      2.0
           Total                           $0.6     $1.7     $2.2     $4.4


        B) A special item -- further described in Note 2 -- relating to a
           Medicare cost report settlement of $1.9 million for the first nine
           months of 2006 which was reflected in the Home Health segment.

       Excluding the items described in Notes 5A and 5B above, EBITDA for the
       third quarters of 2007 and 2006 would have been $25.3 million and $19.5
       million, respectively, and for the first nine months of 2007 and 2006
       would have been $76.6 million and $52.8 million, respectively.

    6) Depreciation and amortization reflected amortization of identifiable
       intangible assets of $1.0 million and $2.9 million, respectively, for
       the third quarter and first nine months of 2007, and $1.0 million and
       $2.4 million, respectively, for the third quarter and first nine months
       of 2006.  For the first nine months of 2007, depreciation expense also
       included an incremental $0.4 million relating to a change in the
       estimated useful lives of certain home medical equipment.

    7) Interest expense, net, included interest expense on a term loan, fees
       associated with a $75 million revolving credit facility and
       amortization of debt financing costs, net of interest income.

    8) The Company's effective tax rate was 41.7% and 42.2%, respectively, for
       the third quarter and first nine months of 2007, and 22.5% and 36.5%,
       respectively, for the third quarter and first nine months of 2006.  The
       impact of the adoption of SFAS 123(R) resulted in an increase in the
       Company's effective tax rate of 2.2% and 2.4%, respectively, in the
       third quarter and first nine months of 2007, and 4.8% and 3.4%,
       respectively, in the third quarter and first nine months of 2006. In
       addition, for the third quarter and first nine months of 2006, the
       effective tax rate was reduced by 21.6% and 6.1%, respectively, due to
       the recognition of additional state net operating loss carryforwards
       and the release of certain tax reserves.

Forward-Looking Statement

Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: the Company's ability to successfully execute its growth strategy; the impact of significant indebtedness on the Company's liquidity and its ability to meet the requirements of its creditors; general economic and business conditions; demographic changes; changes in, or failure to comply with, existing governmental regulations; legislative proposals for healthcare reform; changes in Medicare and Medicaid reimbursement levels; effects of competition in the markets in which the Company operates; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; business disruption due to implementation of new business systems, or due to natural disasters or terrorist acts; a material shift in utilization within capitated agreements; and changes in estimates and judgments associated with critical accounting policies and estimates. For a detailed discussion of certain of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission (SEC), including the "Risk Factors" section contained in the Company's annual report on Form 10-K for the year ended December 31, 2006.

     Financial and Investor Contact:  John R. Potapchuk
                                      631-501-7035
                                      john.potapchuk@gentiva.com

     Media Contact:                   David Fluhrer
                                      631-501-7102, 516-589-0778
                                      david.fluhrer@gentiva.com