SunLink Health Systems, Inc. (NYSE American: SSY) today announced a loss from continuing operations of $407,000 (or a loss of $0.06 per fully diluted share) for its second fiscal quarter ended December 31, 2023 compared to earnings from continuing operations of $2,277,000 (or $0.32 per fully diluted share) for the second fiscal quarter ended December 31, 2022.

Net loss for the quarter ended December 31, 2023 was $3,075,000 (or a loss of $0.44 per fully diluted share) compared to net earnings of $1,951,000 (or $0.28 per fully diluted share) for the quarter ended December 31, 2022. The net loss for the quarter included a loss from discontinued operations of $2,668,000 (or a loss of $0.38 per fully diluted share), which includes an impairment charge of $1,974,000 on the sale of Trace Regional Hospital, a vacant medical office building and three (3) patient clinics (“Trace”) discussed below, for the quarter ended December 31, 2023 compared to a loss from discontinued operations of $326,000 (or a loss of $0.05 per fully diluted share) for the quarter ended December 31, 2022, 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 vacant 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 personal and intangible property to Progressive for $500,000 pursuant to an asset purchase agreement (“Sale”), entered into a six-month net lease 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. Pursuant to the revised agreements, Southern’s agreement with Progressive dated November 10, 2023, was terminated. 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 of $1,974,000 to write down the net assets being sold pursuant to the asset purchase agreement and the real estate purchase agreement. The Company is currently marketing for sale its Trace Extended Care & Rehabilitation, a skilled care nursing facility adjacent to the campus of Trace, which Southern retained. 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 fiscal quarters ended December 31, 2023 and 2022 were $8,510,000 and $10,640,000. Pharmacy net revenues for the quarter ended December 31, 2022 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 quarter ended December 31, 2023 includes $59 of prior period sales tax credits relating to such sales tax refund claims.

SunLink reported an operating loss for the quarter ended December 31, 2023 of $433,000 compared to an operating profit for the quarter ended December 31, 2022 of $2,270,000. The operating profit last year resulted primarily from the reversal of accrued sales tax reserves.

SunLink reported a loss from continuing operations of $835,000 (or a loss of $0.12 per fully diluted share) for its six months ended December 31, 2023 compared to earnings from continuing operations of $1,672,000 (or $0.24 per fully diluted share) for the six months ended December 31, 2023. Net loss for the six months ended December 31, 2023 was $4,419,000 (or a loss of $0.63 per fully diluted share) compared to net earnings of $393,000 (or $0.06 per fully diluted share) for the six months ended December 31, 2022. The net loss for the six months ended December 31, 2023 included a loss from discontinued operations of $3,584,000 (or a loss of $0.51 per fully diluted share), compared to a loss from discontinued operations of $1,279 (or a loss of $0.18 per fully diluted share) for the six months ended December 31, 2022.

Consolidated net revenues for each of the six months ended December 31, 2023 and 2022 were $17,065,000 and $18,089,000, respectively. Pharmacy net revenues for the six months ended December 31, 2022 included $2,615,000 from the reversal of reserves for certain sales taxes previously accrued. The six months ended December 31, 2023 includes $380 of prior period sales tax refunds. Excluding the effect of the sales tax refunds and reversal of sales tax accruals, net revenues increased 7% in the six months ended December 31, 2023 compared to the prior year due primarily to increased volume of Retail and Institutional pharmacy scripts filled.

SunLink reported an operating loss for the six months ended December 31, 2023 of $883,000 compared to an operating profit for the six months ended December 31, 2022 of $1,653,000. The operating profit during the comparable six 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 December 31, 2023 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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