SunLink Health Systems, Inc. Announces Fiscal 2020 Third Quarter Results and COVID-19 Update

SunLink Health Systems, Inc. (NYSE American: SSY) today announced a loss from continuing operations of $46,000 (a loss of $0.01 per fully diluted share) for its third fiscal quarter ended March 31, 2020 compared to a loss of $325,000, (a loss of $0.05 per fully diluted share) for the quarter ended March 31, 2019. Net loss for the quarter ended March 31, 2020 was $158,000 (a loss of $0.02 per fully diluted share) compared to net earnings of $1,042,000 ($0.15 per fully diluted share) for the quarter ended March 31, 2019. Net earnings for the quarter ended March 31, 2019 includes a pre-tax gain of $2,136,000 on the sale of a subsidiary's nursing home and related property.

Consolidated net revenues from continuing operations for the quarters ended March 31, 2020 and 2019 were $12,667,000 and $12,361,000, respectively, an increase of 2.5% in the current fiscal year's third quarter compared to the comparable quarter of the prior fiscal year. Net revenues increased in the current fiscal quarter primarily due to increased nursing home net revenues and increased Pharmacy segment revenues resulting from increased Retail Pharmacy and Durable Medical Equipment sales.

SunLink reported an operating loss for the quarter ended March 31, 2020 of $38,000, compared to an operating loss for the quarter ended March 31, 2019 of $488,000.

Loss from discontinued operations was $112,000 (or a loss of $0.02 per fully diluted share) for the quarter ended March 31, 2020 compared to earnings from discontinued operations of $1,367,000 ($0.15 per fully diluted share) for the quarter ended March 31, 2019. Results from discontinued operations in the current year include expenses incurred in connection with retained professional liability claims of hospitals previously sold. Results from discontinued operations last year included the afore mentioned gain on sale of a subsidiary's nursing home and related property.

For the nine months ended March 31, 2020, SunLink reported earnings from continuing operations of $14,000 ($0.00 per fully diluted share) compared to a loss from continuing operations of $853,000 (or a loss of $0.12 per fully diluted share) for the nine months ended March 31, 2019. For the nine months ended March 31, 2020, SunLink reported a net loss of $461,000 (or a loss of $0.07 per fully diluted share) compared to net earnings of $467,000 (or $0.06 per fully diluted share) for the nine months ended March 31, 2019. Loss from discontinued operations were $475,000 (or a loss of $0.07 per fully diluted share) for the nine months ended March 31, 2020 compared to earnings from discontinued operations of $1,320,000 ($0.18 per fully diluted share) for the nine months ended March 31, 2019.

SunLink had approximately 3% fewer fully diluted weighted average common shares outstanding for the nine months ended March 31, 2020 compared to the comparable period last year due to share repurchases in November 2019-December 2019 and December 2018.

COVID-19 pandemic

A novel strain of coronavirus ("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 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 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 very 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 been placed on leave or in quarantine.

Since the beginning of the COVID-19 pandemic, our Pharmacy business has experienced negative sales trends, increased costs and reduced staff. Retail Pharmacy and DME locations are operating with curbside or drive-through services only and many of our primary physician referral sources have been closed or are operating at substantially reduced capacity. Until these referral sources are open and fully-staffed, we believe the COVID-19 pandemic will continue to affect the demand for DME products and Pharmacy drugs and products. Reductions in employee hours have been made in response to the lower demand. Demand for our Institutional Pharmacy services has been less affected to date. Nursing homes 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. The impact of the COVID-19 pandemic has negatively affected our supply processes, especially with respect to access to respiratory equipment and certain protective equipment and cleaning products. The effect of the COVID?19 pandemic and public and governmental responses to it negatively affected our third fiscal quarter results, principally in the last two weeks of March 2020.

In our Healthcare businesses, we have experienced material reductions in demand due to the COVID-19 outbreak. There appears to be no current demand for nursing home admissions, and clinic visits and hospital services have substantially decreased as well. The availability and cost of medical supplies have adversely affected our Healthcare businesses, especially with respect to access to protective equipment, cleaning supplies and COVID-19 testing materials. We continue to monitor supplies and seek additional sources of many supply items. A reduction of the availability of qualified employees has also occurred. Although the Healthcare and Pharmacy segments received Paycheck Protection Program ("PPP") loans totaling approximately $3,234,000 in April and May despite good faith efforts to do so, they have not yet been able to rehire or fully replace staff reductions which were previously furloughed or laid off.

We believe that existing funds, cash generated from operations and additional sources of and access to financing from COVID-19 related government loans and grants will likely be adequate to satisfy our needs for working capital and capital expenditures in the near term. However, if the COVID-19 pandemic continues for an extended period, we expect to experience significant losses and additional financial assistance will likely be required. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was enacted by the U.S. government on March 27, 2020. As part of CARES, the PPP loan program was established. The PPP is administered by the U.S. Small Business Administration. In April and May 2020, the Company and five subsidiaries received approximately $3,234,000 of PPP loans. 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. There can be no assurance, however, that any of the PPP loans we 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. Also, as part of CARES, two subsidiaries of the Company received total payments of approximately $4,082,000 under the Relief Fund Payments ("RFP"). These RFP funds were allocated to Medicare facilities and providers affected by COVID-19 based on eligible providers net patient revenues and are required to be used for COVID-19 related costs and to offset the effect of COVID-19, including reduced revenues.

Going forward, the Company is unable to determine the extent to which the COVID-19 pandemic will continue to affect its assets. Our ability to make estimates of the effect 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.

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, 2019 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.