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Healthways Reports 15.4% Growth in Third-Quarter Earnings Per Diluted Share to $0.30

^{Published on 2010-10-21 13:11:37 - Market Wire}
 

NASHVILLE, Tenn.--([ BUSINESS WIRE ])--Healthways, Inc. (NASDAQ: HWAY) today announced financial results for the third quarter ended September 30, 2010. Total revenues for the quarter were $170.5 million compared with $181.6 million for the third quarter of 2009. Net income for the third quarter of 2010 was $10.5 million, or $0.30 per diluted share, compared with $8.8 million, or $0.26 per diluted share, for the third quarter of 2009.

"Healthways met or exceeded its financial expectations during the third quarter of 2010"

aHealthways met or exceeded its financial expectations during the third quarter of 2010,a commented Ben R. Leedle, Jr., chief executive officer of Healthways. aAs anticipated, total revenues declined on a comparable-quarter basis due to previously discussed contract renegotiations and terminations in our domestic business, which were somewhat offset by comparable-quarter growth in international revenues. Despite the decline in total revenues, we achieved increased profitability, primarily due to effective expense management in our domestic business and improved margins in our international business. EBITDA as a percentage of revenues for the third quarter of 2010 increased to 19.6% from 17.2% for the third quarter last year, and earnings per diluted share increased 15.4% for the comparable quarters.

aThe Company also produced substantial net cash flows from operations of $41.8 million for the third quarter. In addition to third-quarter cash capital expenditures of $8.9 million, cash was used to fund debt reduction of approximately $24 million. The improvement in the ratio of total debt to total capitalization to 36.1% at the end of the latest quarter, from 39.1% at the end of the second quarter this year and 42.1% at the end of the third quarter of 2009 reflects our strong cash flows and increased financial flexibility. The ratio of long-term debt to EBITDA, as calculated under our credit agreement, was 1.7 at the end of the quarter compared with 1.9 at the end of the second quarter of 2010 and 2.0 at the end of the third quarter of 2009. We continue to expect 2010 net cash flows from operating activities in a range of $80 million to $100 million and total capital expenditures in the range of $45 million to $50 million. As a result, we are well positioned to fund share repurchases related to todaya™s announcement of our Board of Directorsa™ authorization of the repurchase over the next two years of up to $60 million of Healthwaysa™ common stock.

aDuring the third quarter, we continued to sign new, expanded and extended contracts with new and existing customers. Although our year-to-date RFP volume through September 30 has increased approximately 21% versus the same period last year, RFP volume just in the third quarter was lower by approximately 15% than the third quarter of 2009. We believe the recent slowing in RFP volume reflects several factors, including the increasing concern about both lethargic economic growth and the continuing high level of unemployment compared to the more optimistic sentiment this past spring. These concerns are being compounded by renewed uncertainty regarding both the implementation of recent healthcare legislation and the potential impact of the November elections.

aIn these challenging conditions, Healthways produced increased margins, strong cash flow, earnings growth and an improved financial position for the third quarter of 2010. While this performance supports our confidence with regard to our guidance for the full year, our visibility into 2011 is less clear. We are becoming more cautious that a soft economy with high unemployment, disruptive forces and market behavior related to the implementation of health care reform, and the turbulent political environment could continue to delay our customersa™ purchasing decisions and, thereby, limit our ability to achieve a growth inflection point during 2011. However, disruptive change also creates opportunities, and Healthways has already secured multiple strategic relationships necessary to provide alternative models for distributing and delivering our services and value proposition in a changing market.a

Revenue Guidance

Healthways today narrowed its guidance for 2010 revenues to a range of $695 million to $708 million. This range includes revenues from domestic operations in a range of $668 million to $675 million and from international revenues in a range of $27 million to $33 million.

Earnings Guidance

The Company today also narrowed its guidance for 2010 net income per diluted share to a range of $1.12 to $1.19. Guidance for 2010 adjusted net income per diluted share, which excludes the positive impact of $0.05 attributable to an earn-out adjustment and investment gain recorded in the second quarter of 2010, is in a new range of $1.07 to $1.14. The components of guidance for adjusted net income per diluted share include an increase in the low end of guidance for domestic operations to a new range of $1.12 to $1.16, reflecting performance through the first nine months of 2010. Also included is a reduction in guidance for international operations, solely as a result of anticipated fourth-quarter costs associated with the wind down of operations for the DAK contract, to an estimated net loss in a range of $0.02 to $0.05.

The Companya™s guidance for net income per diluted share for the fourth quarter of 2010 is in a range of $0.21 to $0.28. Guidance for domestic operations is for net income in a range of $0.26 to $0.30.

Summary

Mr. Leedle concluded, aNotwithstanding our concern about near-term growth dynamics, lifestyle health risks and disease incidence and prevalence are increasing around the world. Momentum continues to build toward addressing these increases, as well as the attendant unsustainable growth in healthcare costs, through comprehensive, integrated solutions that encompass whole populations, regardless of age, gender or health status. Healthways, with proven, scaled solutions that serve nearly 40 million people worldwide, remains best positioned to meet this growing demand. Through the demonstrated effectiveness of these solutions to improve performance by helping healthy people stay healthy, reducing health risks and optimizing care for those with chronic conditions, we expect to achieve our objectives for long-term growth in earnings and increased shareholder value.a

Conference Call

Healthways will hold a conference call to discuss this release today at 5:00 p.m. Eastern Time. Investors will have the opportunity to listen to the conference call live over the Internet by going to [ www.healthways.com ] and clicking Investor Relations, or by going to [ www.earnings.com ], at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a telephonic replay will be available for one week at 719-457-0820, code 6198482, and the replay will also be available on the Companya™s web site for the next 12 months.

Safe Harbor Provisions

This press release contains forward-looking statements, including our guidance and financial expectations for future periods, which are based upon current expectations and involve a number of risks and uncertainties. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company, including, without limitation, all statements regarding the Companya™s future earnings and results of operations. In order for the Company to utilize the asafe harbora provisions of the Private Securities Litigation Reform Act of 1995, investors are hereby cautioned that the following important factors, among others, may affect these forward-looking statements. Consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The important factors include but are not limited to:

• the Companya™s ability to sign and implement new contracts;
• the Companya™s ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation in order to provide forward-looking guidance;
• the Companya™s ability to reach mutual agreement with the Centers for Medicare and Medicaid Services (CMS) with respect to the Companya™s results under Phase I of Medicare Health Support;
• the Companya™s ability to accurately forecast the costs necessary to establish a presence in international markets;
• the Companya™s ability to accurately forecast the amount and timing of the costs associated with the wind down of the operations for the DAK contract;
• the risks associated with foreign currency exchange rate fluctuations;
• the ability of the Companya™s customers to provide timely and accurate data that is essential to the operation and measurement of the Companya™s performance;
• the risks associated with changes in macroeconomic conditions;
• the Companya™s ability to integrate acquired businesses or technologies into the Companya™s business;
• the Companya™s ability to renew and/or maintain contracts with its customers under existing terms or restructure these contracts on terms that would not have a material negative impact on the Companya™s results of operations;
• the impact of litigation involving the Company and/or its subsidiaries;
• the impact of future state, federal and international legislation and regulations applicable to our business, including the recently enacted Patient Protection and Affordable Care Act, on the Companya™s ability to deliver its services and on the financial health of the Companya™s customers and their willingness to purchase the Companya™s services; and
• other risks detailed in the Companya™s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and other filings with the Securities and Exchange Commission.

The Company undertakes no obligation to update or revise any such forward-looking statements.

About Healthways

Healthways is the leading provider of specialized, comprehensive solutions to help millions of people maintain or improve their health and well-being and, as a result, reduce overall costs. Healthways' solutions are designed to help healthy individuals stay healthy, mitigate or eliminate lifestyle risk factors that can lead to disease and optimize care for those with chronic illness. Our proven, evidence-based programs provide highly specific and personalized interventions for each individual in a population, irrespective of age or health status, and are delivered to consumers by phone, mail, internet and face-to-face interactions, both domestically and internationally. Healthways also provides a national, fully accredited complementary and alternative Health Provider Network and a national Fitness Center Network, offering convenient access to individuals who seek health services outside of, and in conjunction with, the traditional healthcare system. For more information, please visit [ www.healthways.com ].

(1) Domestic EPS excluding investment gain and lawsuit settlement costs is a non-GAAP financial measure. The Company excludes EPS (loss) attributable to investment gain and lawsuit settlement costs from this measure because of its comparability to the Company's historical operating results and EPS guidance. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider Domestic EPS excluding investment gain and lawsuit settlement costs in isolation or as a substitute for Domestic EPS determined in accordance with accounting principles generally accepted in the United States.

(2) Adjusted EPS is a non-GAAP financial measure. The Company excludes EPS (loss) attributable to investment gain and lawsuit settlement costs from this measure because of its comparability to the Company's historical operating results and EPS guidance. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider Adjusted EPS in isolation or as a substitute for EPS determined in accordance with accounting principles generally accepted in the United States.

(3) EPS attributable to investment gain consists of $2.6 million related to the January 2009 sale of a private company in which we held a preferred stock investment.

(4) EPS (loss) attributable to lawsuit settlement costs consists of pre-tax charges of $40 million related to the Companya™s settlement of a qui tam lawsuit.

(5) Figures do not add due to rounding.

(6) Domestic EPS guidance excluding earn-out adjustment and investment gain is a non-GAAP financial measure. The Company excludes EPS attributable to earn-out adjustment and investment gain from this measure because of its comparability to the Company's historical operating results. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider Domestic EPS guidance excluding earn-out adjustment and investment gain in isolation or as a substitute for Domestic EPS guidance determined in accordance with accounting principles generally accepted in the United States.

(7) Adjusted EPS guidance is a non-GAAP financial measure. The Company excludes EPS attributable to earn-out adjustment and investment gain from this measure because of its comparability to the Company's historical operating results. The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management. You should not consider Adjusted EPS guidance in isolation or as a substitute for EPS guidance determined in accordance with accounting principles generally accepted in the United States.

(8) EPS attributable to earn-out adjustment and investment gain includes income of $1.5 million attributable to an adjustment to the estimated earn-out liability from the 2009 HealthHonors acquisition and a $1.2 million gain attributable to a final escrow release related to the January 2009 sale of a private company in which we held a preferred stock investment.

(9) EBITDA is a non-GAAP financial measure. The Company excludes interest, taxes, depreciation and amortization from this measure and provides EBITDA to enhance investors' understanding of the Company's operating performance and its capacity to fund capital expenditures and working capital requirements. The Company believes it is useful to investors to provide disclosures of its operating results on the same basis as that used by management. You should not consider EBITDA in isolation or as a substitute for net income determined in accordance with accounting principles generally accepted in the United States.