8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 29, 2009 (October 29, 2009)

HEALTHSPRING, INC.
(Exact name of registrant as specified in its charter)

Delaware	001-32739	20-1821898
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

9009 Carothers Parkway Suite 501 Franklin, Tennessee	37067
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 291-7000

Not Applicable

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On October 29, 2009, HealthSpring, Inc., a Delaware corporation (the “Company”), issued a press release announcing its results of operations and financial condition for and as of the quarter and nine months ended September 30, 2009. A copy of the press release is attached hereto as Exhibit 99.1.

The attached press release includes a presentation of certain financial measures not computed in accordance with United States generally accepted accounting principles (“GAAP”). The Company believes that the non-GAAP measures used in the release, when presented in conjunction with comparable GAAP measures, are useful to both management and investors in analyzing the Company’s ongoing business and operating performance. These non-GAAP measures should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in the release. A reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measure has also been provided in the release.

The information furnished pursuant to this Item 2.02 of Form 8-K shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and Section 11 of the Securities Act of 1933, as amended, or otherwise subject to the liabilities of those sections.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit 99.1 Press Release issued by HealthSpring, Inc. dated October 29, 2009.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

HEALTHSPRING, INC.

By: /s/ J. Gentry Barden                       
J. Gentry Barden
Senior Vice President

Date: October 29, 2009

EXHIBIT INDEX

No.	Exhibit
99.1	Press Release issued by HealthSpring, Inc. dated October 29, 2009.

EX-99.1

Exhibit 99.1

Company Contact:	Lankford Wade
	Senior Vice President & Treasurer
	(615) 236-6200

HealthSpring, Inc. Reports 2009 Third Quarter Results

Increases 2009 Earnings Per Share Guidance to $2.30 to $2.40

NASHVILLE, Tenn. (October 29, 2009) — HealthSpring, Inc. (NYSE:HS) today announced its results for the third quarter and nine months ended September 30, 2009. Highlights for the 2009 third quarter include:

• Net income of $42.3 million, or $0.77 per diluted share, compared with $29.4 million, or $0.53 per diluted share, in the 2008 third quarter;

• Premium revenue of $649.8 million, up 26.0% over the 2008 third quarter; and

• Medicare Advantage membership of 186,635 at quarter-end, up 19.4% over the 2008 third quarter-end, and up 15.1% compared with 2008 year-end; stand-alone PDP membership of 303,975, up 11.6% over the 2008 third quarter-end.

Commenting on 2009 third quarter results, Herb Fritch, Chairman and Chief Executive Officer, said, “We are pleased with our strong performance in the third quarter of 2009. Performance in the quarter was driven by improvement in inpatient admissions in most of our markets that more than offset any higher trends we continue to experience in outpatient and professional costs. Our Florida and Part-D operations also continue to outperform our expectations for the year. These positive trends have caused us to increase our earnings per share guidance for 2009. We believe that our intense focus on physician engagement and the value proposition we offer to Medicare beneficiaries have led to the current year’s strong performance and position us well for a strong 2010 open enrollment season.”

Third Quarter Results
($ in thousands, except per share amounts)

	Three Months Ended
	September 30,				Percent
	2009		2008		Change
Premium revenue	$	649,795	$	515,892		26.0	%
Total revenue		659,780		527,899		25.0
Medical expense		519,478		411,703		26.2
Net income		42,314		29,360		44.1
Net income per common share — diluted (1)		0.77		0.53		45.3

(1) Weighted average shares outstanding used in the calculation of net income per common share - diluted, were 54,700,390 and 55,811,236, respectively, for the three months ended September 30, 2009 and 2008.

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HS Reports Third Quarter 2009 Results
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October 29, 2009

Operating Highlights

Revenue

• Medicare Advantage premiums (including the prescription drug component of HealthSpring’s Medicare Advantage plans, or “MA-PD”) were $580.0 million for the 2009 third quarter, reflecting an increase of 27.3% over the 2008 third quarter. The premium revenue increase is attributable to a 19.4% increase in membership and a 6.7% increase in premiums per member per month, or “PMPM.” Additionally, the 2009 third quarter included $6.4 million of premium revenue for changes in estimates for current-year retroactive risk settlements related to the first half of 2009. This change in estimate had a favorable impact on net income of $3.5 million, or $0.06 per diluted share, in the current quarter. By comparison, the change in estimate for the 2008 third quarter was insignificant.

• Medicare Advantage PMPM premiums were $1,043.09 in the 2009 third quarter, compared with $977.38 in the 2008 third quarter. The PMPM premium increase in the 2009 third quarter resulted from rate increases in CMS-calculated base rates as well as rate increases related to risk scores.

• Stand-alone PDP premium revenue was $69.0 million for the 2009 third quarter, an increase of 16.8% compared with the 2008 third quarter. The higher revenue resulted from an 11.6% increase in membership and a 4.7% increase in PDP premiums PMPM in the current quarter.

• Investment income decreased from the 2008 third quarter by $2.9 million, or 76.9%, to $0.9 million for the 2009 third quarter, primarily as a result of a lower average yield on invested and cash balances.

Medical Expense

• Medicare Advantage medical loss ratio, or “MLR,” was 79.7% for the 2009 third quarter, compared with 79.2% for the prior year’s third quarter. The impact from risk-adjustment payments relating to prior periods of 2009 was favorable by 0.7% on the 2009 third quarter. Higher outpatient expenses and increases in physician expenses in the Alabama, Tennessee, and Texas health plans resulted in an increase in the current period MLR, compared with the 2008 third quarter. Increasing pharmacy trends for the drug benefit component of the Company’s MA-PD plans during the current period also contributed to the increase in the MLR. These increases were partially offset by improvements in inpatient admissions across all markets and continued strong performance in the Florida plan. On a year-to-date basis, the MA MLR was 81.1%, compared with 79.2% for the prior year’s first nine months, as adjusted in both periods to exclude favorable final CMS settlement adjustments associated with prior years.

• PDP MLR was 81.5% for the 2009 third quarter, compared with 85.1% in the 2008 third quarter. On a year-to-date basis, the PDP MLR was 90.2%, compared with 93.3% for the prior year’s first nine months. The improvement in the PDP MLR was primarily attributable to higher PMPM premium revenue. Higher utilization of generic prescription drugs in the 2009 period also contributed to the improvement in the year-to-date PDP MLR.

Selling, General & Administrative (SG&A) Expense

• SG&A expense as a percentage of total revenue in the 2009 third quarter decreased 110 basis points to 10.0%, compared with 11.1% in the 2008 third quarter. The improvement in SG&A as a percentage of revenue resulted primarily from improvements in the Company’s operating model and revenue increases. The $7.2 million increase in the 2009 third quarter compared with the 2008 third quarter was primarily the result of additional personnel costs associated with membership increases. On a year-to-date basis, SG&A expense as a percentage of total revenue in 2009 was 10.1% compared with 10.8% for the prior year’s first nine months.

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HS Reports Third Quarter 2009 Results
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October 29, 2009

Interest Expense

• Interest expense in the 2009 third quarter decreased $0.8 million compared with the 2008 third quarter as a result of lower effective interest rates and lower average principal balances.

• The Company’s weighted average effective interest rate (exclusive of the amortization of deferred financing costs) for the three months ended September 30, 2009 was 4.7% compared with 5.3% for the three months ended September 30, 2008.

Income Tax Expense

• The effective income tax rate was adjusted in the 2009 third quarter to 34.9% for the nine months ended September 30, 2009. This lower tax rate resulted primarily from a favorable tax impact related to business combination accounting for the Florida health plan acquisition. This and other minor adjustments contributed $0.04 to diluted earnings per share for the 2009 third quarter. The Company currently expects the effective income tax rate for the full year will approximate 35.2%, which includes the items reported in the third quarter.

Balance Sheet Highlights

• At September 30, 2009, the Company’s cash and cash equivalents were $389.8 million, $75.3 million of which was held at unregulated subsidiaries, compared with cash and cash equivalents of $282.2 million at December 31, 2008, $31.4 million of which was held at unregulated subsidiaries.

• Total debt outstanding was $244.2 million at September 30, 2009, compared with $268.0 million at December 31, 2008, and $275.3 million at September 30, 2008. There were no borrowings outstanding under the Company’s $100 million revolving credit facility at September 30, 2009 or 2008.

• For the first nine months of 2009, net cash generated in operating activities was $115.5 million compared with $152.6 million generated in the same period of 2008. Operating cash flows on a year-to-date basis for 2009 included the receipt of approximately $31.8 million of prior-year CMS risk premium settlements compared with the settlement of $57.9 million received in the first nine months of 2008.

• Days in claims payable totaled 35 at the end of the 2009 third quarter, compared with 36 at the end of the 2009 second quarter.

Outlook

• EPS: The Company is increasing its expectations for diluted earnings per share for 2009 to be in the range of $2.30 to $2.40, on weighted average shares outstanding of approximately 55.4 million.

• Membership: The Company increases its estimate for Medicare Advantage membership from 186,000—188,000 to a range of 188,000—189,000 at the end of 2009. The Company also refines its estimate for PDP membership from 310,000—320,000 to a range of 311,000—313,000 at the end of 2009.

• Revenue: The Company now estimates that 2009 total revenue will be approximately $2.65 billion.

• MLRs: The Company is modifying its estimate for Medicare Advantage (including MA-PD) full-year MLR to be approximately 81.0% for 2009. The Company maintains its estimate for stand-alone PDP MLR to be in the range of 84.0% to 86.0% for the year.

• SG&A: The Company continues to estimate that selling, general and administrative expense will be approximately 10.5% of total revenue for 2009.

Conference Call

A live audio webcast of the conference call regarding third quarter results will begin at 10:00 a.m. ET on Thursday, October 29, 2009. The public may access the conference call through HealthSpring’s website, www.healthspring.com, under the Investor Relations tab. The conference call can also be accessed by dialing (913) 312-0643, confirmation number 6838864. An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days.

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HS Reports Third Quarter 2009 Results
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October 29, 2009

About HealthSpring

HealthSpring is based in Nashville, Tenn., and is one of the country’s largest coordinated care plans whose primary focus is the Medicare Advantage market. HealthSpring currently owns and operates Medicare Advantage plans in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas and also offers a national stand-alone Medicare prescription drug plan. For more information, visit www.healthspring.com.

Cautionary Statement Regarding Forward Looking Statements

Statements contained in this release that are not historical fact are forward-looking statements, which the Company intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend on or refer to future events or conditions, or that include words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions are forward-looking statements. Such statements include statements regarding 2010 open enrollment and 2009 guidance, including effective tax rates. The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause its actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Any projections or other forward-looking information in this release or made orally and related thereto are based on management’s beliefs and assumptions and on information available to HealthSpring at the time the statements were or are made, which is subject to change. Although any such projections and forward-looking information and the factors influencing them will likely change, HealthSpring will not necessarily update the information except as required by law, as HealthSpring will only provide guidance at certain points during the year. Information contained herein speaks only as of the date of this release.

The following factors, among others, could cause actual results to differ materially from those in the forward-looking statements: changes in membership enrollment and dis-enrollment patterns; legislative and regulatory actions or changes, including changes in Medicare funding and premium rates; changes in our members’ utilization of medical services; changes in medical and prescription drug cost trends; the Company’s ability to accurately estimate CMS retroactive risk adjustments to Medicare premiums; competition; the Company’s ability to accurately estimate incurred but not reported medical claims; negotiation of acceptable contracts with physicians, hospitals, and other providers; contractual disputes with providers; increases in costs or liabilities associated with litigation; costs associated with compliance with regulatory mandates and with responding to regulatory audits; management changes; substantial changes in interest rates over a prolonged period; and changes in tax estimates, assets, or liabilities and valuation allowances related thereto. The foregoing list of factors is not intended to be exhaustive. Additional information concerning these and other important risks and uncertainties can be found under the headings “Special Note Regarding Forward-Looking Statements” and “Item 1A. — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and in other public filings by the Company.

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HS Reports Third Quarter 2009 Results
Page 5
October 29, 2009

Supplemental Information

1. Membership

	Sept. 30,		June 30,		Percent			Dec. 31,		Percent			Sept. 30,		Percent
	2009		2009		Change			2008		Change			2008		Change
MA Membership:
Alabama		31,007		30,101		3.0			29,022		6.8			28,651		8.2
Florida		31,513		30,892		2.0			27,568		14.3			27,204		15.8
Illinois		11,077		10,821		2.4			9,245		19.8			9,005		23.0
Mississippi		4,473		4,152		7.7			2,425		84.5			2,183		104.9
Tennessee		57,240		55,917		2.4			49,933		14.6			49,366		16.0
Texas		51,325		50,348		1.9			43,889		16.9			39,896		28.6
Total		186,635		182,231		2.4			162,082		15.1			156,305		19.4
PDP Membership:		303,975		294,753		3.1			282,429		7.6			272,469		11.6
Commercial:		735		739		(0.5	)		895		(17.9	)		921		(20.2	)

2. Segment Information

Financial data by reportable segment for the three and nine months ended September 30 is as follows (in thousands):

	MA-PD		PDP		Commercial			Corporate			Total
Three months ended September 30, 2009
Revenue	$	589,966	$	69,044	$	754		$	16		$	659,780
EBITDA		71,983		10,644		(269	)		(7,907	)		74,451
Depreciation and amortization expense		6,330		20		—			1,432			7,782
Three months ended September 30, 2008
Revenue	$	466,916	$	59,917	$	960		$	106		$	527,899
EBITDA		57,477		6,429		670			(7,014	)		57,562
Depreciation and amortization expense		6,060		2		—			985			7,047
Nine months ended September 30, 2009
Revenue	$	1,736,970	$	249,158	$	2,269		$	42		$	1,988,439
EBITDA		183,866		18,557		(277	)		(21,596	)		180,550
Depreciation and amortization expense		19,052		60		—			3,836			22,948
Nine months ended September 30, 2008
Revenue	$	1,430,899	$	211,923	$	4,346		$	313		$	1,647,481
EBITDA		190,758		7,974		66			(20,871	)		177,927
Depreciation and amortization expense		18,261		5		—			3,014			21,280

As of January 1, 2009, the Company revised its methodology for allocating the selling, general, and administrative expenses within its prescription drug operations, which resulted in its allocating a greater share of such expenses to its MA-PD segment. As such, the MA-PD and PDP segment’s EBITDA amounts for the 2008 period include reclassification adjustments between segments such that the periods presented are comparable.

A reconciliation of reportable segment EBITDA to net income included in the consolidated statements of income for the three and nine months ended September 30 is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
EBITDA	$	74,451		$	57,562		$	180,550		$	177,927
Income tax expense		(20,593	)		(16,635	)		(50,772	)		(51,494	)
Interest expense		(3,762	)		(4,520	)		(12,014	)		(14,513	)
Depreciation and amortization		(7,782	)		(7,047	)		(22,948	)		(21,280	)
Net Income	$	42,314		$	29,360		$	94,816		$	90,640

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HS Reports Third Quarter 2009 Results
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October 29, 2009

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)

	September 30,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	389,766		$	282,240
Accounts receivable, net		71,546			74,398
Investment securities available for sale		6,066			3,259
Investment securities held to maturity		16,040			24,750
Funds due for the benefit of members		4,085			40,212
Deferred income taxes		3,458			4,198
Prepaid expenses and other		8,794			6,560
Total current assets		499,755			435,617
Investment securities available for sale		18,480			30,463
Investment securities held to maturity		41,924			20,086
Property and equipment, net		29,177			26,842
Goodwill		589,760			590,016
Intangible assets, net		207,739			221,227
Restricted investments		16,260			11,648
Risk corridor receivable from CMS		8,967			—
Other		7,176			8,878
Total assets	$	1,419,238		$	1,344,777
Liabilities and Stockholders’ Equity
Current liabilities:
Medical claims liability	$	200,372		$	190,144
Accounts payable, accrued expenses and other		28,305			35,050
Risk corridor payable to CMS		3,089			1,419
Current portion of long-term debt		35,729			32,277
Total current liabilities		267,495			258,890
Deferred income taxes		80,433			89,615
Long-term debt, less current portion		208,425			235,736
Other long-term liabilities		9,027			9,658
Total liabilities		565,380			593,899
Stockholders’ equity:
Common stock		581			578
Additional paid in capital		511,933			504,367
Retained earnings		389,986			295,170
Accumulated other comprehensive loss, net		(1,288	)		(1,955	)
Treasury stock		(47,354	)		(47,282	)
Total stockholders’ equity		853,858			750,878
Total liabilities and stockholders’ equity	$	1,419,238		$	1,344,777

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HS Reports Third Quarter 2009 Results
Page 7
October 29, 2009

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)

	Three Months Ended						Nine Moths Ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenue:
Premium revenue	$	649,795		$	515,892		$	1,955,842		$	1,611,450
Management and other fees		9,108			8,207			29,065			24,056
Investment income		877			3,800			3,532			11,975
Total revenue		659,780			527,899			1,988,439			1,647,481
Operating expenses:
Medical expense		519,478			411,703			1,607,481			1,292,042
Selling, general and administrative		65,851			58,634			200,408			177,512
Depreciation and amortization		7,782			7,047			22,948			21,280
Interest expense		3,762			4,520			12,014			14,513
Total operating expenses		596,873			481,904			1,842,851			1,505,347
Income before income taxes		62,907			45,995			145,588			142,134
Income taxes		(20,593	)		(16,635	)		(50,772	)		(51,494	)
Net income	$	42,314		$	29,360		$	94,816		$	90,640
Net Income per common share:
Basic	$	0.78		$	0.53		$	1.74		$	1.61
Diluted	$	0.77		$	0.53		$	1.73		$	1.61
Weighted average common shares outstanding:
Basic		54,518,162			55,693,943			54,502,081			56,137,029
Diluted		54,700,390			55,811,236			54,653,367			56,243,533

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HS Reports Third Quarter 2009 Results
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October 29, 2009

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Cash flows from operating activities:
Net income	$	42,314		$	29,360		$	94,816		$	90,640
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,782			7,047			22,948			21,280
Amortization of deferred financing cost		582			599			1,785			1,840
Equity in earnings of unconsolidated affiliate		(178	)		(156	)		(281	)		(357	)
Stock-based compensation		2,355			2,235			7,513			6,722
Deferred tax (benefit) expense		(2,209	)		4,148			(8,794	)		680
Increase (decrease) in cash due to:
Accounts receivable		78,605			126,810			3,446			3,997
Prepaid expenses and other current assets		503			(803	)		(2,231	)		(1,284	)
Medical claims liability		(21,087	)		(11,934	)		10,228			29,570
Accounts payable, accrued expenses and other current liabilities		2,480			(6,841	)		(6,766	)		9,029
Risk corridor payable to/ receivable from CMS		13,304			9,136			(7,298	)		(8,794	)
Other		(560	)		221			94			(772	)
Net cash provided by operating activities		123,891			159,822			115,460			152,551
Cash flows from investing activities:
Purchases of property and equipment		(6,018	)		(4,548	)		(11,519	)		(8,386	)
Purchases of investment securities		(11,079	)		(9,423	)		(39,766	)		(41,181	)
Maturities of investment securities		12,933			11,181			36,107			51,296
Deposit made for acquisition		—			(7,200	)		—			(7,200	)
Additional consideration paid on acquisition		—			—			(910	)		—
Proceeds received on disposition		297			—			297			—
Purchases of restricted investments		(5,892	)		(1,900	)		(16,015	)		(6,410	)
Maturities of restricted investments		5,011			1,906			11,403			5,857
Distributions from affiliates		196			185			196			309
Net cash (used in) investing activities		(4,552	)		(9,799	)		(20,207	)		(5,715	)
Cash flows from financing activities:
Funds received for the benefit of members		169,587			129,936			494,591			378,950
Funds withdrawn for the benefit of members		(186,989	)		(154,719	)		(458,465	)		(374,557	)
Payments on long-term debt		(7,181	)		(3,623	)		(23,859	)		(20,994	)
Proceeds from stock option exercises		—			923			6			1,210
Purchase of treasury stock		—			(3	)		—			(28,347	)
Net cash (used in) provided by financing activities		(24,583	)		(27,486	)		12,273			(43,738	)
Net increase in cash and cash equivalents		94,756			122,537			107,526			103,098
Cash and cash equivalents at beginning of period		295,010			304,651			282,240			324,090
Cash and cash equivalents at end of period	$	389,766		$	427,188		$	389,766		$	427,188

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