FOR IMMEDIATE RELEASE

Gentiva^® Announces Third Quarter and Nine-Month 2006 Results

Melville, N.Y., November 2, 2006 -- Gentiva Health Services, Inc. (NASDAQ: GTIV), the nation's largest provider of comprehensive home health and related services, today reported financial results for the third quarter and nine months ended October 1, 2006, including results generated by The Healthfield Group, Inc., which was acquired by Gentiva on February 28, 2006. The Company also announced a revised outlook for fiscal 2006 and a preview of 2007.

Gentiva reported the following results for the third quarter of 2006:

• Net revenues were $286.2 million, up 30% compared to $219.6 million reported for the third quarter of 2005.
• Net income was $5.3 million, or $0.19 per diluted share, versus net income of $4.3 million, or $0.17 per diluted share, for the third quarter of 2005. The figures are based on average diluted shares outstanding of 28.0 million for the third quarter of 2006 and 25.1 million for the prior year period.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) were $17.8 million versus $9.0 million for the third quarter of 2005. (See Supplemental Information for a reconciliation between EBITDA and “Net Income – As Reported.”)
• EBITDA and net income per diluted share for the 2006 third quarter included restructuring and integration costs of $1.7 million, or $0.04 per share.
• Net income per diluted share, excluding restructuring and integration costs, was $0.23 for the third quarter of 2006 versus $0.17 for the third quarter of 2005. Results for the 2006 third quarter included a charge of $0.04 per diluted share due to the impact of a new accounting rule for equity-based compensation. (See Supplemental Information for a reconciliation between “Net Income per diluted share – As Adjusted” and “Net Income per diluted share – As Reported.”)

Gentiva reported the following results for the nine months ended October 1, 2006 :

• Net revenues were $813.5 million, up 26% compared to $646.8 million reported for the prior year period.
• Net income was $15.3 million, or $0.56 per diluted share. For the comparable period of 2005, net income was $17.0 million, or $0.68 per diluted share, including a second quarter tax benefit of $4.2 million, or $0.17 per diluted share, due to a favorable resolution of tax audit issues relating to fiscal 1997 through 2000.
• EBITDA was $50.3 million versus $26.0 million for the first nine months of 2005. (See Supplemental Information for a reconciliation between EBITDA and “Net Income – As Reported.”)
• EBITDA and net income per diluted share for the first nine months of 2006 included incremental operating income of $1.9 million relating to the settlement of Gentiva's appeal with the U.S. Provider Reimbursement Review Board (PRRB) on the reopening of the Company's 1999 Medicare cost reports; restructuring and integration costs of $4.4 million; and a charge of $3.0 million due to the new accounting rule for equity-based compensation. The impact of these items represented a net charge of $0.16 per diluted share.
• The Company generated operating cash flow of over $45 million and made prepayments of $17 million on its term loan, resulting in a long-term debt balance of $353 million at October 1, 2006.

Segment Results

Home Health – Third quarter 2006 net revenues were $192.3 million, up 40% from $137.7 million in the prior year period. Operating contribution was $23.6 million, an increase of 83% from $12.9 million in the third quarter of 2005. Nine-month 2006 net revenues were $549.8 million, up 35% from $405.9 million in the prior year period. Operating contribution was $68.6 million for the nine-month period, an increase of 90% from $36.1 million in the first nine months of 2005. The improvements in the 2006 periods were due primarily to Healthfield's contribution to the Company's performance and continued Medicare revenue growth over the prior year periods.

CareCentrix – Third quarter 2006 net revenues were $64.8 million, a decline of 23% from $84.6 million reported in the prior year period. Operating contribution was $5.7 million, a decline of 10% from $6.3 million in the third quarter of 2005. Nine-month 2006 net revenues were $199.4 million, a 20% decline from the $250.6 million reported in the prior year period. Operating contribution for the nine-month period was $18.3 million, a decrease of 10% from $20.3 million for the comparable period of 2005. The anticipated declines in net revenues and operating contribution in the 2006 periods were due to previously disclosed changes in certain commercial relationships.

Other Related Services – Third quarter 2006 net revenues for this segment, which includes hospice, respiratory therapy, home medical equipment, infusion services and consulting, were $32.0 million compared to $1.4 million in the prior year period due primarily to businesses related to the Healthfield acquisition. Operating contribution was $6.3 million compared to $0.2 million in the third quarter of 2005. Nine-month 2006 net revenues were $74.1 million compared to $4.0 million in the prior year period. Operating contribution was $13.8 million compared to $0.7 million in the first nine months of 2005.

“We have continued to make progress on our priorities, including the Healthfield integration and the focus on new business opportunities,” said Gentiva Chairman and CEO Ron Malone. “We've accelerated our work to review the mix and improve the performance of our home health and hospice businesses and we are launching new relationships within CareCentrix. As a result, 2006 is a year in which Gentiva has concentrated on strategies to transform and reposition the Company for the future.”

2006 and 2007 Information

Gentiva announced a revised 2006 revenue outlook in a range between $1.09 billion and $1.11 billion. The Company also noted that, based on current revenue trends, clarity on equity compensation expense and various other items, it anticipates 2006 financial results at the lower end of its previously announced ranges of $0.84 to $0.90 for diluted earnings per share and $75 million to $80 million in EBITDA. The 2006 outlook excludes the impact of restructuring charges and Healthfield integration costs.

The 2006 financial outlook has been revised to reflect the additional time necessary for Gentiva to fully benefit from its growth strategies for home health, hospice and CareCentrix. The Company believes that Medicare revenues in the home health and hospice businesses, as well as CareCentrix revenues, will achieve a double-digit percentage growth rate for 2007.

In this regard, the Company announced a preview of 2007, based on existing Medicare reimbursement rates, that anticipates full year net revenues in a range between $1.23 billion and $1.27 billion. The Company also indicated that it expects 2007 EBITDA margins to increase as compared to the current year, and will provide a profitability outlook once 2007 Medicare reimbursement rates and other factors, such as 2007 equity compensation expense, are determined. Gentiva plans to offer additional commentary on tomorrow's conference call and live web cast.

Non-GAAP Financial Measures

The info rmation provided in the following tables includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental info rmation and the footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.

Conference Call and Web Cast Details

The Company will comment further on its third quarter 2006 results during its conference call and live web cast to be held Friday, November 3, 2006, at 10:00 a.m. Eastern Time. To participate in the call from the United States , Canada or an international location, dial (973) 935-8599 and reference call #7959069. The web cast is an audio only, one-way event. Web cast listeners who wish to ask questions must participate in the conference call. Log onto http://www.gentiva.com/investors/FinancialEvents.asp to hear the web cast. This press release is accessible at http://www.gentiva.com/investors/PressReleases.asp , and a transcript of the conference call is expected to be available on the site within 36 hours after the call.

About Gentiva Health Services, Inc.
Gentiva Health Services, Inc. is the nation's largest provider of comprehensive home health and related services. Gentiva serves patients through more than 500 direct service delivery units within over 400 locations in 35 states, and through CareCentrix ® , which manages home health services for major managed care organizations throughout the United States and delivers them in all 50 states through a network of more than 3,000 third-party provider locations, as well as Gentiva locations. The Company is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; respiratory therapy and home medical equipment; infusion therapy services ; and other therapies and services. Gentiva's revenues are generated from federal and state government programs, commercial insurance and individual consumers. For more information, visit Gentiva's web site, www.gentiva.com, and its investor relations section at http://www.gentiva.com/investors. GTIV-E

(tables and notes follow)

    (in 000's, except per share data)
                                          3rd Quarter         Nine Months
                                         2006      2005      2006      2005
    Statements of Income
      Net revenues                     $286,169  $219,559  $813,470  $646,801
      Cost of services sold (excluding
       depreciation)                    167,360   138,544   472,760   404,401
      Gross profit                      118,809    81,015   340,710   242,400
      Selling, general and
       administrative expenses         (101,017)  (72,026) (290,413) (216,443)
      Depreciation and amortization      (4,393)   (2,291)  (11,391)   (5,938)
      Operating income                   13,399     6,698    38,906    20,019
      Interest expense                   (7,408)     (266)  (17,382)     (802)
      Interest income                       862       651     2,519     2,064
      Income before income taxes          6,853     7,083    24,043    21,281
      Income tax expense                 (1,539)   (2,832)   (8,779)   (4,255)
      Net income                         $5,314    $4,251   $15,264   $17,026

     Earnings per Share
      Net income:
         Basic                            $0.20     $0.18     $0.58     $0.73
         Diluted                          $0.19     $0.17     $0.56     $0.68

      Average shares outstanding:
         Basic                           27,178    23,329    26,207    23,349
         Diluted                         27,983    25,076    27,040    25,018



    Condensed Balance Sheets
     ASSETS                                     Oct 1, 2006       Jan 1, 2006
      Cash, cash equivalents and
       restricted cash                             $31,935           $38,617
      Short-term investments                        33,575            49,750
      Net receivables                              182,733           139,635
      Deferred tax assets                           25,893            15,974
      Prepaid expenses and other current
       assets                                       12,091             7,816
           Total current assets                    286,227           251,792

      Fixed assets, net                             47,133            24,969
      Deferred tax assets, net                         -              18,099
      Intangible assets, net                       202,406             5,831
      Goodwill                                     280,078             6,763
      Other assets                                  24,417            19,111
          Total assets                            $840,261          $326,565

     LIABILITIES AND SHAREHOLDERS' EQUITY
      Accounts payable                             $12,829           $13,870
      Payroll and related taxes                     29,236             9,777
      Deferred revenue                              20,268             7,455
      Medicare liabilities                          10,562             7,220
      Cost of claims incurred but not
       reported                                     23,238            25,276
      Obligations under insurance
       programs                                     35,067            32,883
      Other accrued expenses                        42,248            25,985
           Total current liabilities               173,448           122,466

      Long-term debt                               353,000               -
      Deferred tax liabilities, net                 28,942               -
      Other liabilities                             19,709            21,945
      Shareholders' equity                         265,162           182,154
           Total liabilities and
            shareholders' equity                  $840,261          $326,565

      Common shares outstanding                     27,275            23,035

    Note:  Cash, cash equivalents and restricted cash includes restricted
    cash of $22.0 million at October 1, 2006 and January 1, 2006,
    respectively.



      (in 000's)
                                                           Nine Months
    Condensed Statements of Cash Flows               2006              2005
     OPERATING ACTIVITIES:
     Net income                                    $15,264           $17,026
     Adjustments to reconcile net income
      to net cash provided by operating
      activities
      Depreciation and amortization                 11,391             5,938
      Provision for doubtful accounts                5,416             4,329
      Reversal of tax audit reserves                  (800)           (4,200)
      Equity-based compensation expense              2,951               -
      Windfall tax benefits associated
       with equity-based compensation               (1,729)              -
      Deferred income taxes                          8,180             4,408
     Changes in assets and liabilities:
      Accounts receivable                              855           (14,666)
      Prepaid expenses and other current
       assets                                       (1,474)           (1,856)
      Current liabilities                            6,236            (1,902)
     Other, net                                       (944)              178
     Net cash provided by operating
      activities                                    45,346             9,255

     INVESTING ACTIVITIES:
     Purchase of fixed assets                      (16,286)           (6,043)
     Acquisition of businesses                    (212,422)          (12,059)
     Purchases of short-term investments
      available-for-sale                          (143,095)         (125,000)
     Maturities of short-term investments
      available-for-sale                           159,270           153,950
     Maturities of short-term investments              -              10,000
     Net cash (used in) provided by
      investing activities                        (212,533)           20,848

     FINANCING ACTIVITIES:
     Proceeds from issuance of common
      stock                                          9,742             5,650
     Windfall tax benefits associated
      with equity-based compensation                 1,729               -
     Proceeds from issuance of debt                370,000               -
     Healthfield debt repayments                  (195,305)              -
     Other debt repayments                         (17,000)              -
     Changes in book overdrafts                     (1,395)           (1,635)
     Debt issuance costs                            (6,930)              -
     Repurchases of common stock                       -             (13,514)
     Repayment of capital lease
      obligations                                     (336)             (294)
     Net cash provided by (used in)
      financing activities                         160,505            (9,793)

     Net change in cash, cash equivalents
      and restricted cash                           (6,682)           20,310
     Cash, cash equivalents and
      restricted cash at beginning of
      period                                        38,617            31,924
     Cash, cash equivalents and
      restricted cash at end of period             $31,935           $52,234



    SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
    AND FINANCING ACTIVITIES:
     During the nine months ended October 1, 2006, the Company issued
     3,194,137 shares of common stock in connection with the acquisition
     of The Healthfield Group, Inc. on February 28, 2006.

      (in 000's, except per share data)

     Supplemental Information               3rd Quarter         Nine Months
                                          2006      2005      2006      2005
    Segment Information
     Net revenues (1)
      Home Health (2)                  $192,343  $137,740  $549,791  $405,898
      CareCentrix                        64,829    84,569   199,411   250,572
      Other Related Services             32,048     1,388    74,071     3,980
      Intersegment revenues              (3,051)   (4,138)   (9,803)  (13,649)
     Total net revenues                $286,169  $219,559  $813,470  $646,801

     Operating contribution (1)
      Home Health                       $23,567   $12,865   $68,648   $36,085
      CareCentrix                         5,661     6,314    18,346    20,321
      Other Related Services              6,333       208    13,839       705
     Total operating contribution        35,561    19,387   100,833    57,111
     Corporate expenses                 (17,769)  (10,398)  (50,536)  (31,154)
     Depreciation and amortization       (4,393)   (2,291)  (11,391)   (5,938)
     Interest (expense) income, net      (6,546)      385   (14,863)    1,262
     Income before income taxes          $6,853    $7,083   $24,043   $21,281


                                            3rd Quarter         Nine Months
                                          2006      2005      2006      2005
     Net Revenues by Major Payer
      Source:
      Medicare (2)                     $136,129   $67,329  $367,940  $194,381
      Medicaid and local government      45,456    37,610   132,363   112,039
      Commercial insurance and other    104,584   114,620   313,167   340,381
           Total net revenues          $286,169  $219,559  $813,470  $646,801



    A reconciliation of EBITDA to Net
     income - As Reported
     amounts follows: (3)                   3rd Quarter         Nine Months
                                          2006      2005      2006      2005
      EBITDA (4)                        $17,792    $8,989   $50,297   $25,957
      Depreciation and amortization (5)  (4,393)   (2,291)  (11,391)   (5,938)
      Interest (expense) income, net (6) (6,546)      385   (14,863)    1,262
      Income before income taxes          6,853     7,083    24,043    21,281
      Income tax expense                 (1,539)   (2,832)   (8,779)   (4,255)
      Net income - As Reported           $5,314    $4,251   $15,264   $17,026




    A reconciliation of Net income per
     diluted share - As Adjusted
     and Net income per diluted share
      - As Reported follows:                 3rd Quarter         Nine Months
                                           2006      2005      2006      2005
     Net income per diluted share:
      As Adjusted                         $0.27     $0.17     $0.72     $0.51
      Equity-based compensation (4A)      (0.04)      -       (0.10)      -
      Restructuring and integration
       costs (4B)                         (0.04)      -       (0.10)      -
      Medicare cost report settlement (4C)    -       -        0.04       -
      Resolution of tax audit issue (7)       -       -          -       0.17
      As Reported                         $0.19     $0.17     $0.56     $0.68


    Notes:
    1) The Company's senior management evaluates performance and allocates
       resources based on operating contributions of the reportable segments,
       which exclude corporate expenses, depreciation, amortization, and
       interest income (expense), but include revenues and all other costs
       directly attributable to the specific segment.  Results for the 2006
       periods include the operating results of The Healthfield Group, Inc.
       for periods subsequent to its acquisition date of February 28, 2006.

    2) Nine-month 2006 results included approximately $1.9 million recorded
       and received from the total settlement received of $5.5 million
       relating to the Company's appeal filed with the U.S. Provider
       Reimbursement Review Board ("PRRB") on the reopening of all of its 1999
       cost reports.

    3) EBITDA, a non-GAAP financial measure, is defined as income before
       interest expense (net of interest income), income taxes, depreciation
       and amortization.  Management uses EBITDA to evaluate overall
       performance and compare current operating results with other companies
       in the healthcare industry.  EBITDA should not be considered in
       isolation or as a substitute for net income, operating income or cash
       flow statement data determined in accordance with accounting principles
       generally accepted in the United States.  Because EBITDA is not a
       measure of financial performance under accounting principles generally
       accepted in the United States and is susceptible to varying
       calculations, it may not be comparable to similarly titled measures in
       other companies.

    4) Components of EBITDA included the following:
         A. Equity-based compensation expense of approximately $1.2 million in
            the third quarter of 2006 and $3.0 million in the first nine
            months of 2006 resulting from the adoption of Statement of
            Financial Accounting Standards No. 123 (Revised) "Share-Based
            Payment" as of January 2, 2006.

         B. Restructuring and integration costs of $1.7 million for the third
            quarter of 2006 and $3.6 million for the first nine months of 2006
            related to restructuring and integration activities for the
            Healthfield acquisition and $0.8 million for the first nine months
            of 2006 involving a restructuring plan associated with the
            Company's CareCentrix operations.

         C. A special item relating to a Medicare cost report settlement of
            $1.9 million for the first nine months of 2006 as further
            described in Note 2.

       Excluding the items described in Notes 4A, 4B and 4C above, EBITDA for
       the third quarter of 2006 and 2005 would have been $20.7 million and
       $9.0 million, respectively, and EBITDA for the first nine months of
       2006 and 2005 would have been $55.8 million and $26.0 million,
       respectively.

    5) Depreciation and amortization reflects amortization of identifiable
       intangible assets of $1.0 million and $2.4 million, respectively, in
       the third quarter and first nine months of 2006.

    6) Interest expense, net, includes interest expense on a term loan, fees
       associated with a $75 million revolving credit facility and
       amortization of debt financing costs, net of interest income.

    7) For the first nine months of 2005, the Company's income tax expense
       included a $4.2 million income tax benefit resulting from a favorable
       resolution of tax audit issues relating to fiscal 1997 through 2000.
       Management has excluded this nonrecurring item and has incorporated a
       normalized tax rate in its presentation of "Net Income per Diluted
       Share -- As Adjusted."

   

Forward-Looking Statement
Certain statements contained in this news release, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: the Company's ability to successfully integrate the operations of The Healthfield Group, Inc., acquired on February 28, 2006, and to achieve expected synergies and operating efficiencies within expected time frames or at all; the possibility that revenues may be lower than expected following the transaction; the possibility that difficulties in maintaining relationships with employees, customers, or suppliers may be greater than expected following the transaction; the Company's ability to service debt incurred as a result of the transaction; general economic and business conditions; demographic changes; changes in, or failure to comply with, existing governmental regulations; legislative proposals for healthcare reform; changes in Medicare and Medicaid reimbursement levels; effects of competition in the markets in which the Company operates; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; business disruption due to natural disasters or terrorist acts; a material shift in utilization within capitated agreements; and changes in estimates and judgments associated with critical accounting policies and estimates. For a detailed discussion of certain of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission (SEC), including the “Risk Factors” section contained in the Company's annual report on Form 10-K for the year ended January 1, 2006.

Last Updated: Monday, December 18, 2006 10:56 AM