Sun Healthcare

     Irvine, Calif. (May 2, 2007) - Sun Healthcare Group, Inc. (NASDAQ GM: SUNH) today announced results for the first quarter ended March 31, 2007.

Consolidated Earnings
     For the quarter ended March 31, 2007, Sun reported total net revenues of $273.6 million and net income of $3.9 million or $0.09 per fully-diluted share, based on 44.0 million weighted-average shares outstanding. For the comparable quarter ended March 31, 2006, total net revenues were $256.8 million and net income was $1.1 million or $0.04 per fully-diluted share, based on 31.2 million weighted-average shares outstanding.
     From continuing operations for the quarter ended March 31, 2007, Sun reported income of $4.4 million or $0.10 per fully-diluted share, as compared to income from continuing operations of $0.8 million or $0.03 per fully-diluted share for the same period in 2006. Sun’s results included approximately $0.1 million of integration costs associated with its acquisition of Harborside Healthcare Corporation, which closed on April 19, 2007. Sun expects to incur further costs over the next several quarters as the operations of Harborside and Sun are integrated.
     Comparing the quarter ended March 31, 2007, to the same period in 2006, Sun reported:

revenue increased $16.8 million, or 6.5 percent, to $273.6 million from $256.8 million;

EBITDAR increased $6.4 million, or 30.9 percent, to $27.1 million from $20.7 million;

EBITDAR margin for 2007 was 9.9 percent compared to 8.1 percent in 2006;

EBITDA increased $5.4 million, or 74.0 percent, to $12.7 million from $7.3 million;

EBITDA margin for 2007 was 4.6 percent compared to 2.9 percent in 2006;

pre-tax income increased $6.6 million to $6.7 million from $0.1 million; and

income from continuing operations increased $3.6 million to $4.4 million from $0.8 million.
"I am pleased with the continued strength of our operating results as shown by our first-quarter numbers. For the quarter, we have met the expectations established with our initial 2007 guidance and are encouraged by what we are seeing in the industry environment for the remainder of 2007," said Richard K. Matros, Sun’s chairman and chief executive officer. "Our acquisition of Harborside last month was completed as planned. We are now in the integration process and look forward to the rest of 2007 as we operate the combined company," Matros continued.

Inpatient Business
Comparing the quarter ended March 31, 2007, to the same period in 2006, Sun reported:

revenue increased $13.7 million, or 6.4 percent, to $229.1 million from $215.4 million;

net segment EBITDAR increased $4.1 million, or 12.6 percent, to $36.6 million from $32.5 million;

net segment EBITDAR margin for 2007 was 16.0 percent compared to 15.1 percent in 2006;

net segment EBITDA increased $3.1 million, or 15.9 percent, to $22.5 million from $19.4 million;

net segment EBITDA margin for 2007 was 9.8 percent compared to 9.0 percent in 2006; and

net segment income increased $3.1 million, or 22.6 percent, to $16.8 million from $13.7 million.
The revenue gain of $13.7 million was primarily attributable to:

an increase of $4.3 million in commercial revenue driven by higher rates and higher customer base which drove $3.4 million and $0.9 of the increase, respectively;

a 7.6 percent increase in our LTC Part A Medicare rates from $338.03 in the first quarter 2006 to $363.87 in the first quarter 2007, or $4.1 million in revenues;

a 4.2 percent increase in Medicaid rates or $4.2 million in revenue; and

a $1.1 million increase in Medicare part B revenue.
"The margin in our core business continued to expand primarily as a result of the increase in the acuity of the patients admitted to our facilities. Although the Medicare census increase was moderate, the increase in our rates was significant, resulting in an 80 basis-point improvement in Medicare revenues as a percent of total revenues. In addition, we are seeing positive movement in our commercial census and rates as well, reflecting the increasing acuity in that population. Those factors, along with an increase in the private pay category, improved our quality mix by 130 basis points. Sun on a stand-alone basis has opened 12 short-term rehabilitation units with eight more in development. Inclusive of Harborside, Sun has opened 29 short-term rehabilitation units with 11 more scheduled to open this year expanding our opportunity to improve mix going forward," said Matros.

Updated 2007 Guidance
The table below represents full year 2007 guidance for Sun. Sun has updated its 2007 guidance to incorporate the acquisition of Harborside in April 2007. The updated guidance is based on (1) Sun’s previous guidance for 2007 results combined with (2) the anticipated results from the nine months of Harborside operations for 2007. Sun’s updated guidance includes expected realization of approximately $6 million in synergies over the remaining nine months of 2007. Sun expects to realize synergies in the first 12 months after the acquisition of approximately $10 million, and synergies in the first 24 months of approximately $12 million to $15 million.

Guidance

Low

High

Revenue

Sun

$ 1,100.0

$ 1,110.0

Harborside

505.0

509.0

Total

1,605.0

1,619.0

EBITDAR

Sun

110.0

114.0

Harborside

71.0

73.0

Synergies

6.0

6.0

Total

187.0

193.0

EBITDA

Sun

54.0

58.0

Harborside

51.0

53.0

Synergies

6.0

6.0

Total

111.0

117.0

Depreciation and amortization

33.0

34.0

Interest expense, net

44.0

45.0

Pre-tax

34.0

38.0

Income taxes @ 35%

11.9

13.3

Net Income

$ 22.1

$ 24.7

Diluted weighted-average shares

44.0

44.0

Diluted earnings per share

$ 0.50

$ 0.56

EBITDAR Margin

11.7%

11.9%

EBITDA Margin

6.9%

7.2%

     As stated above, Sun’s 2007 full-year guidance includes only nine months of impact from the Harborside acquisition. As such, Sun anticipates annual 12-month run rates for depreciation and amortization to be approximately $39 to $41 million and annual 12-month run rates for net interest expense to be approximately $56 to $59 million.

Conference Call
     Sun’s senior management will hold a conference call to discuss the Company’s 2007 first-quarter operating results on Thursday, May 3, 2007, 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, 2007, until midnight EDT on May 10, 2007, by calling (800) 642-1687 and using access code 5416821.

About Sun HealthCare Group Inc.
     Sun Healthcare Group, Inc., with executive offices 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, hospice services through SolAmor Hospice and medical staffing through CareerStaff Unlimited, Inc.

     Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business and pay interest and other costs of the indebtedness incurred in our acquisition of Harborside Healthcare Corporation; our ability to integrate the operations of Harborside; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun’s web site, www.sunh.com.
     The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by Sun are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
     EBITDA and EBITDAR as used in this press release, and EBITDAM and EBITDARM as used in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.
     Any documents filed by Sun with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun’s investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc. 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC’s web site for further information.

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First Quarter 2007 Earnings Tables