SunLink Health Systems, Inc. Announces Fiscal 2024 Third Quarter Results

SunLink Health Systems, Inc. (NYSE American: SSY) today announced a loss from continuing operations of $824,000 (or a loss of $0.12 per fully diluted share) for its third fiscal quarter ended March 31, 2024 compared to a loss from continuing operations of $453,000 (or a loss of $0.06 per fully diluted share) for the third fiscal quarter ended March 31, 2023.

Net loss for the quarter ended March 31, 2024 was $1,396,000 (or a loss of $0.20 per fully diluted share) compared to a net loss of $762,000 (or a loss of $0.11 per fully diluted share) for the quarter ended March 31, 2023. The net loss for the third fiscal quarter of 2024 included a loss from discontinued operations of $572,000 (or a loss of $0.08 per fully diluted share), which includes for the quarter a loss of $613,000 on the sale of Trace Regional Hospital, an associated medical office building and three patient clinics as discussed below, compared to a loss from discontinued operations of $309,000 (or a loss of $0.04 per fully diluted share) for the quarter ended March 31, 2023, substantially all of which relates to Trace’s results.

On January 22, 2024, the Company's indirect subsidiary, Southern Health Corporation of Houston, Inc. (“Southern”), reached revised agreements for the sale of Trace Regional Hospital, a medical office building and three (3) patient clinics in Chickasaw County, MS, (collectively “Trace”) to Progressive Health of Houston, LLC (“Progressive”). Pursuant to the revised agreements, Southern sold certain intangible and personal property assets to Progressive for $500,000 pursuant to an asset purchase agreement (“Sale”), entered into a six-month net lease to Progressive of certain hospital real property for $20,000 per month and engaged Progressive under a management agreement to manage the operations of Trace until receipt of certain regulatory approvals. Southern also entered into a real estate purchase agreement with Progressive under which Progressive is to purchase certain real estate of Trace for $2,000,000 by July 31, 2024. As a result of the transactions, in the quarter ended December 31, 2023 SunLink reported an impairment charge (included in discontinued operations) of $1,974,000 to write down the net assets to be sold pursuant to the asset purchase agreement and the real estate purchase agreement. A loss of $613,000 on the sale was recorded in the quarter ended March 31, 2024 due to the net change in assets sold and liabilities assumed after the impairment charge calculation. The Company is currently marketing for sale its Trace Extended Care & Rehabilitation (“Trace Extended Care”), a skilled care nursing facility adjacent to the campus of Trace, which Southern continues to own. The results for Trace and Trace Extended Care are included in discontinued operations for the current fiscal year, and prior period financial information has been restated to include them in discontinued operations. There can be no assurance the Trace transactions will be completed or that Trace Extended Care will be sold.

Consolidated net revenues for each of the fiscal quarters ended March 31, 2024 and 2023 were $7,462,000 and $8,181,000, respectively, which consists primarily of pharmacy net revenues. Pharmacy net revenues for the quarter ended March 31, 2024 decreased $729,000, or 9%, from the same period last year which resulted from lower pharmacy scripts and durable medical equipment shipments. The quarter ended March 31, 2024 includes $57 of prior period sales tax credits relating to such sales tax refund claims.

SunLink reported an operating loss for the quarter ended March 31, 2024 of $853,000 compared to an operating loss for the quarter ended March 31, 2023 of $467,000. The operating loss this year resulted primarily from decreased net revenues.

SunLink reported a loss from continuing operations of $1,659,000 (or a loss of $0.24 per fully diluted share) for its nine months ended March 31, 2024 compared to earnings from continuing operations of $1,219,000 (or $0.17 per fully diluted share) for the nine months ended March 31, 2023. Net loss for the nine months ended March 31, 2024 was $5,815,000 (or a loss of $0.83 per fully diluted share) compared to a net loss of $369,000 (or $0.05 per fully diluted share) for the nine months ended March 31, 2023. The net loss for the nine months ended March 31, 2024 included a loss from discontinued operations of $4,156,000 (or a loss of $0.59 per fully diluted share), compared to a loss from discontinued operations of $1,588,000 (or a loss of $0.23 per fully diluted share) for the nine months ended March 31, 2023.

Consolidated net revenues for each of the nine months ended March 31, 2024 and 2023 were $24,527,000 and $26,270,000, respectively. Pharmacy net revenues for the nine months ended March 31, 2023 included $2,615,000 from the reversal of reserves for certain sales taxes previously accrued. The Company determined during that quarter that, based on discussions and correspondence from taxing authorities and consultation with external legal counsel, it was more likely than not that such accrued sales taxes would not be payable. The nine months ended March 31, 2024 includes $437 of prior period sales tax refunds. Excluding the effect of the sales tax refunds and reversal of sales tax accruals, net revenues increased 2% in the nine months ended March 31, 2024 compared to the prior year due primarily to increased volume of Retail and Institutional pharmacy scripts.

SunLink reported an operating loss for the nine months ended March 31, 2024 of $1,736,000 compared to operating profit for the nine months ended March 31, 2023 of $1,186,000. The operating profit during the comparable nine month period last year resulted primarily from the reversal of accrued sales tax reserves.

COVID-19 Pandemic

The Company continued to experience adverse after-effects of the COVID-19 pandemic in the quarter ended March 31, 2024 and believes such effects will likely continue to affect its assets and operations in the foreseeable future particularly from salaries and wages pressure, workforce shortages, supply chain disruption and broad inflationary pressures. Our ability to make estimates of any such continuing effects on future revenues, expenses or changes in accounting judgments that have had or are reasonably likely to have a material effect on our financial statements is very limited, depending as they do on the severity and length thereof; as well as any further government actions and/or regulatory changes intended to address such effects.

SunLink Health Systems, Inc. is the parent company of subsidiaries that own and operate a pharmacy business and an information technology business in the Southeast. 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, 2023 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

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