Irvine, Calif. (May 2, 2006) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the first quarter ended March 31, 2006.

Consolidated Earnings
     For the quarter ended March 31, 2006, Sun reported total net revenues of $287.0 million and net income of $1.7 million (net income of $0.06 per fully-diluted share). For the comparable quarter ended March 31, 2005, total net revenues were $206.3 million with a net loss of $1.2 million (a net loss of $0.08 per fully-diluted share). Net revenues for the quarter ended March 31, 2006, increased $80.7 million, or 39.1 percent, as compared to net revenues for the quarter ended March 31, 2005, primarily as a result of the Peak Medical Corporation acquisition in December 2005.
     For the quarter ended March 31, 2006, Sun reported income from continuing operations of $2.0 million (income from continuing operations of $0.06 per fully-diluted share), as compared to a loss from continuing operations of $1.6 million (a loss of $0.10 per fully-diluted share), for the same period in 2005. The 2006 first quarter EBITDAR from continuing operations was $22.6 million, or 7.9 percent of revenues, as compared to $12.8 million, or 6.2 percent of revenues, from continuing operations for the same period in 2005, an improvement of $9.8 million, or 76.6 percent. EBITDA from continuing operations for the first quarter of 2006 was $9.2 million, or 3.2 percent of revenues, as compared to $3.1 million, or 1.5 percent of revenues, for the same period in 2005, an improvement of $6.1 million, or 196.8 percent.
     "The acquisition of Peak and our equity offering in December 2005 transformed the Company, as evidenced by our reported results," said Richard K. Matros, Sun’s chairman and chief executive officer. "As a result, we are providing pro forma results for the quarter ended March 31, 2005, that show Peak’s historical first quarter 2005 operating results combined with our historical results for that period," continued Matros.
     On a pro forma basis, with the Peak results included for the first quarter of 2005, total net revenues would have been $267.0 million, income from continuing operations would have been $0.1 million (income of $0.00 per fully-diluted share), EBITDAR from continuing operations would have been $21.5 million, or 8.0 percent of revenues, and EBITDA from continuing operations would have been $8.1 million, or 3.0 percent of revenues. When compared to pro forma net revenues, net income from continuing operations, EBITDAR from continuing operations and EBITDA from continuing operations for the quarter ended March 31, 2005, net revenues for the quarter ended March 31, 2006, increased $20.0 million, or 7.5 percent, income from continuing operations increased $1.9 million, EBITDAR increased $1.1 million, or 5.1 percent, and EBITDA increased $1.1 million, or 13.6 percent.
     "Our focus in 2006 is improvement in consolidated margins, profitability and cash flow. Our initiatives are directed toward high acuity patients in our inpatient business, reductions in G&A and strategic evaluation of the Company’s ancillary businesses. Our quarterly results have us on track with our 2006 annual guidance," Matros said.

Inpatient Business
     Net revenues from inpatient services operations increased $72.0 million, or 48.4 percent, to $220.8 million for the quarter ended March 31, 2006, from $148.8 million for the same period in 2005. The revenue gain was due to the $62.8 million revenue attributable to Peak’s operations and $9.2 million improvement in Sun’s same store inpatient operations. This $9.2 million improvement was primarily attributable to (i) a 56-basis point improvement, or $1.8 million in revenue, in Medicare patient mix, to 14.4 percent from 13.9 percent of total occupancy, (ii) a 4.5 percent increase in our Medicare rates, or $1.9 million in revenue, and (iii) a 6.2 percent increase in our Medicaid rates or $4.3 million in revenues, and (iv) an increase in revenues from commercial insurance of $1.2 million.
     Net segment income increased $6.2 million, or 79.5 percent, to $14.0 million for the quarter ended March 31, 2006, from $7.8 million for the quarter ended March 31, 2005. Net segment EBITDAR increased $12.2 million, or 60.7 percent, to $32.3 million for the quarter ended March 31, 2006, from $20.1 million for the same period in 2005, and net segment EBITDA increased $8.5 million, or 75.9 percent, to $19.7 million for the quarter ended March 31, 2006, from $11.2 million for the same period in 2005. Net segment EBITDAR margin increased to 14.6 percent for the quarter ended March 31, 2006, from 13.5 percent for the same period in 2005. Net segment EBITDA margin increased to 8.9 percent for the quarter ended March 31, 2006, from 7.5 percent for the same period in 2005.
     On a pro forma basis with Peak results included for the first quarter of 2005, net revenues from inpatient services operations would have been $209.6 million and the increase in net revenues in the first quarter of 2006 would have been $11.2 million, or 5.3 percent. The revenue gain of $11.2 million was primarily attributable to: (i) a 71-basis point improvement, or $2.9 million in revenues, in Medicare patient mix, to 14.2 percent from 13.4 percent of total occupancy, (ii) a 4.8 percent increase in our Medicare rates, or $2.8 million in revenues, and (iii) a 5.8 percent increase in our Medicaid rates or $5.6 million in revenues.
     On a pro forma basis with Peak results included for the first quarter of 2005, net segment income in the first quarter of 2005 would have been $11.1 million, net segment EBITDAR would have been $30.0 million and net segment EBITDA would have been $17.4 million. When compared to net segment income, net segment EBITDAR and net segment EBITDA for the quarter ended March 31, 2006, net segment income increased $2.9 million, or 26.1 percent, net segment EBITDAR increased $2.3 million, or 7.7 percent, and net segment EBITDA increased $2.3 million, or 13.2 percent. Pro forma net segment EBITDAR and EBITDA margins for the quarter ended March 31, 2005, would have been 14.3 percent and 8.3 percent, respectively.
     "Improvement of our inpatient margins on both an as reported and pro forma basis reflects the successful execution of our acuity-based strategies," said Matros.

Ancillary Business
     Net revenues from Sun’s ancillary business operations, which include SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc. and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $8.7 million, or 15.1 percent, to $66.2 million for the quarter ended March 31, 2006, from $57.5 million for the same period in 2005. Net segment income decreased $2.9 million, or 82.9 percent, to $0.6 million for 2006 from $3.5 million for 2005. Net segment EBITDAR for the ancillary operations for the quarter ended March 31, 2006, decreased $2.6 million, or 55.3 percent, over the same period in 2005, to $2.1 million from $4.7 million, and net segment EBITDA decreased $2.7 million, or 69.2 percent, to $1.2 million for the quarter ended March 31, 2006, from $3.9 million for the same period in 2005.
     "The downturn in combined earnings for our ancillary businesses was essentially all in the rehabilitation therapy services segment. We implemented a restructuring plan for that segment during the first quarter of 2006 which we expect should result in significant financial improvement in the second quarter," Matros reported.

Corporate General
     General and administrative expenses not directly attributed to operating segments decreased $0.2 million, or 1.7 percent, to $11.6 million for the quarter ended March 31, 2006, compared to $11.8 million for the same period in 2005. For the quarter ended March 31, 2006, as a percent of revenue, general and administrative expenses dropped to 4.0 percent from 5.7 percent for the same period in 2005.
     On a pro forma basis with Peak results included in the first quarter of 2005, general and administrative expenses not directly attributed to operating segments would have decreased $1.4 million, or 10.8 percent, to $11.6 million for the quarter ended March 31, 2006, compared to pro forma $13.0 million for the same period in 2005.
     "Our improvements in G&A are a reflection of the leverage we anticipated from the acquisition of Peak coupled with reductions related to our process improvement initiatives," said Matros.

Conference Call
     Sun’s senior management will hold a conference call to discuss the Company’s first quarter operating results on Wednesday, May 3, 2006, at 1 p.m. EDT / 10 a.m. PDT. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EDT on May 3 until midnight EDT on May 10 by calling (800) 642-1687 and using access code 8085839.

About Sun Healthcare Group, Inc.
     Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc. and home care through SunPlus Home Health Services, Inc.

First Quarter 2006 Earnings Tables

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