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    OTCBB Stock Watch – Rotech Healthcare (ROHI) Poised for Recovery on Good Initiatives and Medicare Policies

    Rotech Healthcare Inc. (ROHI.OB) is recovering from a 450% decline when the company’s stock price dropped from $3.45 on April 23 to $0.76 on July 8.  There were strong expectations that competitive bidding rounds organized by Centers for Medicare & Medicaid Services (CMS) would be delayed as it was a few years ago. The company is currently traded at $1.62 on solid profitability for the last quarter, new awarded contracts and the possibility of debt refinancing that could decrease the interest expenses.

    Rotech Healthcare Inc. is one of the largest providers of home medical equipment and related products and services in the United States, with a comprehensive offering of respiratory therapy and durable home medical equipment and related services. The company’s revenues are principally derived from respiratory equipment rental and related services, which accounted for 86.4% of net revenues for the six months ended June 30, 2010.  ROHI also generates revenues through the rental and sale of durable medical equipment, which accounted for 10.8% for the six months ended June 30, 2010, and 2009, respectively. The company derives its revenues principally from reimbursement by third-party payors, including Medicare, Medicaid, the Veterans Administration (VA) and private insurers.

    Total net revenues for the three months ended June 30, 2010, were $124.3 million, up 7.6% when compared to $115.5 million for the comparable period in 2009. Net earnings for the three months ended June 30, 2010, were $3.4 million compared to a net loss of $5.4 million for the comparable period in 2009. This improvement is attributable to the increase in revenue and better cost management for the period.

    In addition to strong revenue and profitability, ROHI was recently awarded 17 contracts by CMS in the Round 1 Rebid of the national Medicare Competitive Bidding Program. The new contracts awarded have a three-year term and are scheduled to take effect on January 1, 2011. ROHI has accepted six CBAs for oxygen supplies and equipment; six CBAs for enteral nutrients, equipment and supplies; three CBAs for continuous positive airway pressure, respiratory assist devices and related supplies and accessories; and two CBAs for standard power wheelchairs, scooters and related accessories.

    The company has also signed a non-exclusive national distribution agreement with ExpressMD™ Solutions for the Electronic House Call™ remote patient monitoring solution.  Initially, ROHI will be providing ExpressMD’s solution to chronically ill patients who have been referred by a national health plan. This agreement has the goal to provide additional revenue streams for ROHI and diversify its offering portfolio.

    As of June 30, 2010, the company had approximately $513.2 million of long-term debt outstanding consisting of $225.8 million payable under its senior credit facility, which matures in September 2011, and $287.0 million of senior subordinated notes, which mature in April 2012. The company’s CEO has stated several times that he will try to refinance part or all of the debt prior to maturity. If successful, the rates are significantly low right now and an eventual decline in interest payments could strengthen the company’s capacity to generate profitability. There are speculations that ROHI management has already agreed on debt refinancing and the announcement should be issued over the next days.

    Strong revenue, new contracts awarded by CMS, emerging profitability that could be further enhanced by a debt refinancing agreement and the distribution agreement to expand the product offering are indicative of a potential appreciation of the company’s stock price.

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