Sun Healthcare Group, Inc. Announces Third-Quarter 2005 Earnings; Reports Net Income of $7.3 Million and Stockholder Approval of Peak Acquisition

Market Wire, October, 2005

Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the third quarter ended Sept. 30, 2005.

Earnings

For the quarter ended Sept. 30, 2005, Sun reported total net revenues of $216.3 million and net income of $7.3 million (net income of $0.48 per fully-diluted share), which included income of $8.3 million on discontinued operations. For the comparable quarter ended Sept. 30, 2004, total net revenues were $200.9 million with a net loss of $11.1 million (a net loss of $0.72 per fully-diluted share), which included a $7.8 million loss on discontinued operations. Net revenues for the quarter ended Sept. 30, 2005, increased $15.4 million, or 7.7 percent, as compared to net revenues for the quarter ended Sept. 30, 2004.

For the quarter ended Sept. 30, 2005, Sun reported a loss from continuing operations of $0.9 million (a loss of $0.06 per fully-diluted share), as compared to a loss from continuing operations of $3.2 million (a loss of $0.21 per fully-diluted share), for the same period in 2004. The 2005 third quarter EBITDAR from continuing operations was $14.4 million as compared to $13.5 million from continuing operations for the same period in 2004, an improvement of $0.9 million, or 6.7 percent. EBITDA from continuing operations for the third quarter of 2005 was $4.5 million as compared to $3.9 million for the same period in 2004, an improvement of $0.6 million, or 15.4 percent.

"The current growth reflects well on the execution of the Company's initiatives while at the same time preparing for the close of the acquisition of Peak Medical Corporation, the Company's first meaningful acquisition since its reorganization," said Richard K. Matros, Sun's chairman and chief executive officer. "The Company has established a strong platform for continued growth," Matros continued.

For the nine months ended Sept. 30, 2005, Sun reported total net revenues of $636.2 million and net income of $13.1 million (net income of $0.85 per fully-diluted share), which included income of $13.8 million on discontinued operations, compared with total net revenues of $608.7 million and a net loss of $14.2 million (a net loss of $1.00 per fully-diluted share), for the nine months ended Sept. 30, 2004, which included a loss of $18.6 million on discontinued operations. Net revenues for the nine months ended Sept. 30, 2005, increased $27.5 million or 4.5 percent as compared to the nine months ended Sept. 30, 2004.

For the nine months ended Sept. 30, 2005, Sun reported a loss from continuing operations of $0.7 million (a loss of $0.05 per fully-diluted share), as compared to income from continuing operations of $4.4 million (income of $0.31 per fully-diluted share), for the same period in 2004. EBITDAR from continuing operations for the nine months ended Sept. 30, 2005, decreased $3.5 million, or 7.2 percent, to $44.8 million from $48.3 million for the same period in 2004, and EBITDA from continuing operations for the nine months ended Sept. 30, 2005, decreased $3.4 million, or 18.2 percent, to $15.3 million from $18.7 million for the same period in 2004. The 2004 net income, EBITDAR and EBITDA from continuing operations included the forgiveness of $3.7 million of debt related to the refinancing of six inpatient facility mortgages, $0.5 million of restructuring-related vendor discounts, and other items discussed in previous quarters such as general and professional, workers' compensation and health insurances.

Inpatient Business

Net revenues from inpatient services operations, which comprised 71.0 percent of Sun's third quarter total net revenue, increased 5.4 percent to $153.5 million for the third quarter of 2005 from $145.7 million for the same period in 2004. The revenue gain was primarily attributable to: (i) an 80 basis point improvement, or $3.4 million improvement, in Medicare patient mix, to 13.3 percent from 12.5 percent of total occupancy; (ii) a $3.6 million increase in Medicaid revenues due to higher rates, including $1.2 million for increased California Medicaid rates; and (iii) an increase of $1.0 million in commercial and private insurance rates. Net segment income increased $4.3 million, or 107.5 percent, to $8.3 million for the quarter from $4.0 million for the comparable quarter in the prior year. Net segment EBITDAR increased $3.7 million, or 21.8 percent, to $20.7 million for the quarter ended Sept. 30, 2005, from $17.0 million for the same period in 2004, and net segment EBITDA increased $3.4 million, or 41.5 percent, to $11.6 million for the quarter ended Sept. 30, 2005, from $8.2 million for the same period in 2004.

Ancillary Business

Net revenues from Sun's ancillary business operations, which included SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $7.6 million, or 13.8 percent, to $62.8 million for the quarter ended Sept. 30, 2005, from $55.2 million for the same period in 2004. Net segment income decreased $0.4 million, or 10.8 percent, to $3.3 million for the quarter from $3.7 million for the comparable quarter in the prior year. Net segment EBITDAR for the ancillary operations for the quarter ended Sept. 30, 2005, decreased $0.2 million, or 4.2 percent, over the same period in 2004, to $4.6 million from $4.8 million, and net segment EBITDA decreased $0.2 million, or 5.0 percent, to $3.8 million for the quarter ended Sept. 30, 2005, from $4.0 million for the same period in 2004.