ATLANTA--(BUSINESS WIRE)--SunLink Health Systems, Inc. (NYSE American: SSY) today announced earnings from continuing operations of $3,146,000 ($0.46 per fully diluted share) for its second fiscal quarter ended December 31, 2020 compared to earnings of $203,000 ($0.03 per fully diluted share) for the quarter ended December 31, 2019. Net earnings for the quarter ended December 31, 2020 were $3,074,000 ($0.45 per fully diluted share) compared to a net loss of $42,000 (a loss of $0.01 per fully diluted share) for the quarter ended December 31, 2019. The current fiscal year’s quarter included pre-tax income of $3,417,000 related to Provider Relief Funds received between April 1 and December 31, 2020.

Our Healthcare and Pharmacy segments received approximately $5,008,000 in general and targeted Provider Relief Fund (“PRF”) distributions during the period April 1 through December 31, 2020. The PRF funds were received under the Coronavirus Aid Relief and Economic Security (“CARES”) Act enacted in March 2020 in response to COVID-19 pandemic. The PRF distributions have been accounted for as government grants and recognized as other income. The grants of $3,417,000 (pre-tax) reported in the quarter ended December 31, 2020 are related to the general and specific distribution grants received by Trace Regional Hospital.

Consolidated net revenues from continuing operations for the quarters ended December 31, 2020 and 2019 were $10,150,000 and $12,805,000, respectively, a decrease of 20.7% in the current fiscal year’s second quarter compared to the comparable quarter of the prior fiscal year. Net revenues decreased in the current fiscal quarter primarily due to decreased hospital and nursing home net revenues and decreased Pharmacy segment revenues primarily due to the COVID-19 pandemic.

SunLink reported an operating loss for the quarter ended December 31, 2020 of $254,000 (before recognition of PRF distributions which are reported in other income) compared to operating profit for the quarter ended December 31, 2019 of $281,000.

Loss from discontinued operations was $72,000 (or a loss of $0.01 per fully diluted share) for the quarter ended December 31, 2020 compared to a loss from discontinued operations of $245,000 (or a loss of $0.04 per fully diluted share) for the quarter ended December 31, 2019.

For the six months ended December 31, 2020, SunLink reported earnings from continuing operations of $2,855,000 ($0.41 per fully diluted share) compared to earnings of $60,000, ($0.01 per fully diluted share) for the six months ended December 31, 2019. Net earnings for the six months ended December 31, 2020 were $2,734,000 ($0.40 per fully diluted share) compared to a net loss of $303,000 (a loss of $0.04 per fully diluted share) for the six months ended December 31, 2019. During the six months ended December 31, 2020, SunLink reported $3,448,000 of other income (pre-tax) related to the CARES Act general and specific distributions.

Consolidated net revenues from continuing operations for the six months ended December 31, 2020 and 2019 were $20,572,000 and $24,457,000, respectively, a decrease of 15.9% in the current fiscal year’s six months compared to the comparable period of the prior fiscal year. SunLink reported an operating loss for the six months ended December 31, 2020 (before the recognition of PRF income) of $577,000 compared to operating profit for the six months ended December 31, 2019 of $61,000.

Loss from discontinued operations was $121,000 (or a loss of $0.02 per fully diluted share) for the six months ended December 31, 2020 compared to a loss from discontinued operations of $363,000 (or a loss of $0.05 per fully diluted share) for the six months ended December 31, 2019.

COVID-19 Pandemic

A novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization on March 11, 2020. As previously reported, 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 and the pandemic’s effect on our business. Since the beginning of the pandemic, our Healthcare and Pharmacy segments’ business have experienced reduced admissions and/or negative sales trends in certain areas as well as increased costs and operational inefficiencies due to measures taken to protect our employees and patients and by access controls and other restrictions implemented in response to the pandemic. The pandemic has not, however, 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. Nevertheless, as in many healthcare environments, we have experienced COVID-19 illness, including deaths, in our Healthcare Segment and some employees have tested positive and been placed on leave or in quarantine. In late December 2020, we began receiving allotments of COVID-19 vaccine and have begun to vaccinate 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.

From the fourth quarter of fiscal 2020 through December 31, 2020, our Healthcare and Pharmacy segments received approximately $5,008,000 in general and targeted PRF distributions. During the fourth quarter of fiscal 2020, we also received $3,234,000 in Paycheck Protection Program (“PPP”) loans, administered by the Small Business Administration (“SBA”). Both the PRF and PPP funds are provided for under the CARES Act, and we have received a total of $8,242,000 of such funding.

The PRF distributions are not subject to repayment provided we are able to attest to and comply with the terms and conditions of the funding. Such funds under the 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. We are reporting $3,417,000 and $3,448,000, respectively, of PRF in other income in our consolidated statement of operations for our fiscal quarter and six months ended December 31, 2020, for COVID-19 related 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 distributions received may be affected. We currently are uncertain if we will be able to utilize all of the PRF funds received under the currently existing interpretations by HHS and may have to return the unutilized portion of these funds, if any, in the future.

Forgiveness of PPP loans may be available if the loans are used to pay wages, rent, utilities and interest on certain debt during the eight-week period following receipt of the loan proceeds, subject to Federally-established terms and conditions. There can be no assurance, however, that any of the PPP loans received will be forgiven, or if forgiven, the amount of such forgiveness. Loan proceeds not forgiven are payable over two years at a 1% annual interest rate. The Company has not yet applied for forgiveness of any of its PPP loans and has recorded no income relating to the PPP loans through December 31, 2020.

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, nursing home and pharmacy operations; and existing and potential government assistance that may be provided, including the requirements applicable to PRF receipts and PPP loans.