VistaCare: Restructuring initiatives, cost savings don't preclude possible sale of the company

By Lisa Kerner

Charlotte, N.C., June 28 - VistaCare, Inc.'s board of directors approved a restructuring plan aimed at generating annual net savings of approximately $29 million by the fiscal fourth quarter ending Sept. 30, 2008, but at a cost of $5 million over the next five to six quarters.

The plan was created with help from RA Capital Advisors and includes rationalization of sites, cost reductions, process improvements and organizational streamlining. Several growth initiatives have also been identified, such as more aggressive marketing plans focused on key doctor groups, differentiated service offerings and a restructured bonus plan.

In addition to the restructuring, VistaCare also continues to "aggressively pursue strategic alternatives," according to chairman and chief executive officer Richard R. Slager. Despite a strong financial position, with more than $40 million in cash, a sale or merger of the company can't be ruled out. RA Capital will contact interested parties over the next several weeks.

"Including the benefit from cost-cutting measures implemented in the first two quarters of this fiscal year, we expect the restructuring to result in approximately $45 million in annualized gross cost savings," Slager said in a company news release. "These will be partially offset by an expected $16 million annualized reduction in revenue due to site consolidations, closures, or sales, resulting in annual net savings of approximately $29 million."

VistaCare has already achieved some $6 million in annualized net cost savings through the first half of fiscal 2007, according to the release.

The company expects to consolidate, close or sell nine of its 51 hospice programs and one of its four in-patient units. In addition, it will focus on headcount reductions, patient care expense and a modified organizational structure.

"Our restructuring plan is designed to bring the company to a projected 10% EBITDA margin, even without any growth in admissions or average daily census," Slager said. "As such, any growth achieved is expected to provide incremental upside to profitability."

"We anticipate implementing restructuring initiatives that will generate additional annualized net savings in the second half of fiscal 2007, with the remainder expected in fiscal 2008," Slager added.

Despite restructuring benefits, VistaCare's fiscal third quarter continues to be challenging with an expected net loss. According to Slager, the fiscal fourth quarter will more fully reflect the company's recent initiatives.

VistaCare is a hospice service provider based in Scottsdale, Ariz.

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