EX-99.1 2 g01460exv99w1.txt EX-99.1 PRESS RELEASE 05/10/06 EXHIBIT 99.1 (HEALTHSPRING LOGO) Company Contact: J. Gentry Barden, Esq. Senior Vice President & General Counsel HealthSpring, Inc. (615) 401-4531 HEALTHSPRING, INC. REPORTS 2006 FIRST QUARTER RESULTS; INCREASES 2006 GAAP EPS GUIDANCE TO $1.05 TO $1.12 NASHVILLE, Tenn. (May 10, 2006) - HealthSpring, Inc. (NYSE:HS) today announced its results for the first quarter ended March 31, 2006. 2006 first quarter highlights included: o Medicare Advantage members increase to 104,106 at March 31, 2006; up 46.5% year over year; o 2006 first quarter total revenue of $306.6 million; an increase of 69.4% over the combined 2005 first quarter; o MLRs for Medicare Advantage (non-Part D) plans decreased to 77.5% for the 2006 first quarter; improving by 236 basis points over 2005 first quarter and by 84 basis points over 2005 fourth quarter; and o Cash and cash equivalents at quarter end of $264.7 million and no long-term debt. Commenting on 2006 first quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, "We continue to be pleased with the fundamental earnings power of our business and see many opportunities for earnings growth, both organically and through opportunistic acquisitions. Our first quarter experience in managing medical costs reflects our continuing ability to align our interests with our physician partners and maintain disciplined benefit design. We are particularly pleased with our medical cost trends, the primary driver of our profitability, and the expected sustainability of these trends for the balance of 2006. Accordingly, we are raising our 2006 EPS guidance." FIRST QUARTER RESULTS HealthSpring, Inc. ("HealthSpring" or the "Company") completed a recapitalization, which was accounted for as a purchase, of NewQuest, LLC (its "Predecessor") on March 1, 2005, resulting in the Predecessor becoming a wholly owned subsidiary of HealthSpring. The information included in this release compares results for HealthSpring for the first quarter ended March 31, 2006, to the combined results of the Predecessor for the two months ended February 28, 2005, and for HealthSpring for the one-month period from March 1, 2005 to March 31, 2005. Per share amounts for the first quarter of 2005 are not comparable with 2006 first quarter results because the ownership of the Predecessor was composed of member units and HealthSpring ownership is represented by common stock and common stock equivalents. On January 1, 2006, the Company began offering prescription drug benefits in accordance with Medicare Part D, in addition to continuing to provide medical benefits, to its Medicare Advantage plan members. HealthSpring sometimes refers to these plans after January 1, 2006, collectively as Medicare Advantage plans and separately as "MA-only" (in other words, without prescription drug benefits) and "MA-PD" (with prescription drug benefits) plans. As of January 1, 2006, the Company also began offering prescription drug benefits on a stand-alone basis in accordance with Medicare Part D. HealthSpring refers to these as "stand-alone PDP" or "PDP" plans. Accordingly, as of January 1, 2006, HealthSpring is reflecting its membership by distinguishing between -MORE- HS Reports First Quarter Results Page 2 May 10, 2006 Medicare Advantage and PDP plans and the Company's financial results, including premium revenue and medical expense, by distinguishing between Medicare (without Part D) and Part D. Net income available to common stockholders for the quarter ended March 31, 2006, calculated in accordance with U.S. generally accepted accounting principles, or GAAP, was $6.6 million, or $0.14 per share (on a basic and fully diluted basis). First quarter results include an after-tax charge for stock compensation expense measured in accordance with FAS 123(R) of $430,000, or approximately $0.01 per basic and fully diluted share. First quarter results also reflect the effects of Part D prescription drug benefits, which were provided to Medicare beneficiaries for the first time on January 1, 2006. Due to the fact that Part D benefit costs are disproportionately higher in the first half of the contract year under the benefit design and because premiums are recognized ratably, HealthSpring expects to record net losses during the first portion of the year, which it expects will be offset by net income later in the year. The Company expects its full year results to reflect a net profit related to Part D. First quarter results include a pre-tax net loss for Part D of $5.6 million. The first quarter Medicare Part D loss includes a pre-tax charge of $8.1 million for medical expenses, net of related manufacturers' rebates, paid for persons who were not members of a HealthSpring plan and for which HealthSpring will seek reimbursement pursuant to CMS's recently announced process for "plan-to-plan reconciliation." The Company has not recorded any reimbursement during the three months ended March 31, 2006. Net income available to members of the Predecessor for the two months ended February 28, 2005, was $2.7 million and net income available to common stockholders for the Company for the one month ended March 31, 2005 was $0.3 million. Consequently, combined net income available to common stockholders and members for the combined three months ended March 31, 2005, which is not a GAAP measurement, was $3.0 million. Combined 2005 results are reconciled to GAAP for the two months of the Predecessor and the one month of HealthSpring on page 10 of this release. The Company completed its initial public offering of common stock on February 8, 2006, the proceeds of which were used to pay off all outstanding debt. The Company's preferred stock and all of its remaining minority interests were converted into common stock in conjunction with the IPO. On a pro-forma basis, assuming the IPO had occurred on January 1, 2006, the fully diluted net income per share for the 2006 first quarter would have been $0.24. The pro-forma EPS results are reconciled to first quarter GAAP net income in the "Supplemental Information" section herein. FIRST QUARTER HIGHLIGHTS ($ in thousands)
THREE MONTHS ENDED MARCH 31, ------------------ PERCENT 2006 2005 CHANGE -------- -------- ------- Premium revenue $298,921 $175,108 70.7 Total revenue 306,622 180,958 69.4 Medical expense 247,372 139,090 77.9 Adjusted SG&A 34,609 22,451(1) 54.2 Adjusted EBITDA (2) 24,748 19,417 27.5
--------- (1) Adjusted from combined SG&A of $29,392 to exclude $6,941 of expense relating to the Company's recapitalization on March 1, 2005. (2) See "Supplemental Information" below and the accompanying reconciliation of HealthSpring's and the Predecessor's non-GAAP Adjusted EBITDA to GAAP Net Income. -MORE- HS Reports First Quarter Results Page 3 May 10, 2006 Medicare Revenue o Medicare Advantage plan membership increased to 104,106 during the first quarter and by 33,066, or 46.5%, year over year. o Medicare premiums (not including Part D) were $220.8 million for the 2006 first quarter, reflecting an increase of 53.2% over the 2005 first quarter. o Medicare Part D premiums were $45.9 million for the 2006 first quarter. This amount reflects a reduction related to CMS's risk corridor payment adjustment based on HealthSpring's Part D experience to date. o Medicare premiums (including Part D) represented 89.2% of total premium revenue and 87.0% of total revenue for the 2006 first quarter. o Medicare (other than Part D) PMPM premiums averaged $715.64 in first quarter 2006, reflecting an increase of 2.8% over the prior year's first quarter. Part D PMPM premiums received from CMS for the 2006 first quarter averaged $87.44 for MA-PD members and $105.96 for stand-alone PDP members. Commercial Revenue o Commercial membership was 39,550 at March 31, 2006, a slight decline compared to membership of 40,431 at the end of the 2005 first quarter. o Commercial premiums were $32.2 million for the 2006 first quarter, reflecting an increase of 4.1% compared with the 2005 first quarter, primarily attributable to a 7.0% increase in PMPM rates to $270.93. Medical Expense o Medicare Advantage medical loss ratio, or MLR, excluding Part D expense, was 77.5% for the 2006 first quarter, reflecting an improvement of 236 basis points compared with the prior year's first quarter and an improvement of 84 basis points over the 2005 fourth quarter. o Medicare Part D MLR was 107.3% for the 2006 first quarter. It includes approximately $8.1 million in prescription drug costs, net of related manufacturers' rebates, incurred by us for members of other plans, for which we may be reimbursed as a result of a reconciliation process being proposed by CMS. Excluding this charge, Medicare Part D MLR would have been 89.6%. o Commercial MLR was 83.6% for the 2006 first quarter. o The 2006 first quarter reflects favorable prior period reserve development, or PPRD, of $12.9 million, compared to favorable PPRD of $6.2 million in the 2005 first quarter. Adjusted SG&A o Represented 11.3% of total revenue in the 2006 first quarter as compared with 12.4% in the comparable prior year period and 14.1% in the fourth quarter of 2005. o Increased in 2006 by $12.2 million, or by 54.2%, over the 2005 first quarter, as adjusted, primarily as a result of growth, geographic expansion, implementation of Part D, and public company expenses. BALANCE SHEET HIGHLIGHTS o At March 31, 2006, the Company's cash and cash equivalents were $264.7 million, $12.7 million of which was held at unregulated subsidiaries. This amount includes approximately $46.9 million of advances from CMS for reinsurance payments and low income cost subsidies for which we assume no risk, and which is accounted for as funds held for the benefit of members on our balance sheet, and $87.4 million for the early receipt of the April premium. o Net cash provided by operating activities (adjusting for the early premium payment) for the 2006 first quarter was $22.4 million, or 2.6x net income. -MORE- HS Reports First Quarter Results Page 4 May 10, 2006 o Days in claims payable was 36 at the end of the 2006 first quarter compared with 40 at the end of 2005 and 37 at the end of the 2005 first quarter. The decrease in the days claims payable is primarily related to Part D claims, which have an inherently shorter pay cycle than our Medicare Advantage and commercial lines of business. REVISED 2006 GUIDANCE o Membership: The Company estimates that its MA-only and MA-PD membership will be in the range of 112,000 to 117,000 by the end of 2006. HealthSpring estimates that PDP membership will average between 80,000 and 90,000 lives during the year. Commercial lives are projected to be 28,000 to 30,000 at year end. o Revenue: The Company maintains its estimate that 2006 total revenue will be between $1.25 billion and $1.35 billion, with approximately 90% of total revenue for the year attributable to Medicare Advantage and Part D premiums. Based on MA-PD and PDP membership estimates, the Company believes Part D premium revenue will account for approximately $200.0 million of total revenue. o MLRs: The Company is revising its projections for Medicare (without Part D) MLRs to range between 78.5% and 79.5% for the full year, and maintaining its Part D and Commercial MLRs at approximately 90.0% and 83%-84%, respectively. As previously indicated, Part D medical expenses are expected to be higher, as a percent of premiums, in the first half of the year. o EPS: The Company is increasing its estimate of GAAP earnings per share for 2006 to be in the range of $1.05 to $1.12. On a non-GAAP pro-forma basis (assuming the IPO took place on January 1, 2006) the 2006 EPS range would be $1.12 to $1.19, after adjusting in the first quarter for the elimination of preferred dividends, minority interest and tax expense, and adding incremental FAS 123(R) compensation expense. See "Supplemental Information" Note 3 herein. CONFERENCE CALL A live audio webcast of the conference call regarding first quarter results will begin at 11:00 a.m. ET today (May 10, 2006). The public may access the conference call through HealthSpring's website, www.myhealthspring.com, under the Investor Relations tab. The conference call can also be accessed by dialing (913) 312-1295, confirmation number 9315554. An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days. ABOUT HEALTHSPRING, INC. HealthSpring, Inc. is one of the largest managed care organizations in the United States whose primary focus is the Medicare Advantage market. The Company currently owns and operates Medicare Advantage and stand-alone Medicare prescription drug plans in Tennessee, Texas, Alabama, Illinois, and Mississippi. In addition, the Company uses its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to employer groups. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS Statements contained in this release that are not historical fact may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends such statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. 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," -MORE- HS Reports First Quarter Results Page 5 May 10, 2006 "may," "plans," "potential," "predicts," "projects," "should," "will," "would," and similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the Company's actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Additional information concerning 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, 2005, as filed with the Securities and Exchange Commission. Except as required by law, the Company assumes no obligation to update any forward-looking statement publicly, or to update the reasons actual results could differ materially from those predicted in any forward-looking statement, even if new information becomes available in the future. SUPPLEMENTAL INFORMATION The Company believes that the non-GAAP measures used in this release, when presented in conjunction with comparable GAAP measures, are useful to both management and investors in analyzing financial and business trends regarding 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. This press release includes a presentation of the following non-GAAP financial measures: 1) Combined results of operations of the Predecessor from January 1, 2005 through February 28, 2005, and of the Company from March 1, 2005 through March 31, 2005, which is not a financial measure recognized under GAAP. The Company has included this non-GAAP financial measure because it believes that it permits a more meaningful comparison of the Company's operating performance between the periods presented. See "Condensed Consolidated Statement of Income Information" herein on page 10. 2) The following table adjusts GAAP net income available to common stockholders to give pro-forma effect to the IPO as if it occurred on January 1, 2006:
(in 000's) Net income available to common stockholders $ 6,552 Adjustments: Preferred dividends 2,021 Minority interest (after tax) 190 Pre-IPO interest expense (after tax) 5,214 Incremental FAS 123(R) expense (after tax) (231) ------- Pro-forma net income $13,746 ======= Weighted average shares outstanding assuming a January 1, 2006 IPO 57,400 ======= Non-GAAP pro-forma EPS $ 0.24 =======
-MORE- HS Reports First Quarter Results Page 6 May 10, 2006 3) The following table adjusts projected GAAP EPS to projected pro-forma EPS, giving pro-forma effect to the IPO as if it had occurred on January 1, 2006:
GAAP PRO-FORMA ----------------------- ----------------------- (in 000's) Net income available to common stockholders $57,250 - $61,331 $57,250 - $61,331 Adjustments: Preferred dividends 2,021 Minority interest (after tax) 190 Pre-IPO interest expense (after tax) 5,214 Incremental FAS 123(R) expense (after tax) (231) ----------------------- Pro-forma net income $64,453 - $68,534 Weighted average shares outstanding for year 54,760 57,400 EPS $1.05 - $1.12 $1.12 - $1.19
4) The Company uses Adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation, amortization, and minority interest, to assess business performance among its health plans and related management companies. Although some excluded items may recur, management believes that this measure provides a more useful comparison of its business performance from period to period. The following tables provide a reconciliation of Adjusted EBITDA as used in this release to net income before preferred dividends calculated in accordance with GAAP.
THREE MONTHS ENDED MARCH 31, ------------------- 2006 2005 ------- ------- Net income before preferred dividends $ 8,573 $ 4,576 Plus: income tax expense 5,088 3,745 Plus: interest expense 8,361 1,649 Plus: depreciation and amortization 2,423 1,175 ------- ------- EBITDA 24,445 11,145 ------- ------- Plus: transaction expenses (a) -- 6,941 Plus: minority interest 303 1,331 ------- ------- Adjusted EBITDA $24,748 $19,417 ======= =======
(a) Transaction expenses represent transaction costs that were expensed during the two-month period ended February 28, 2005. -MORE- HS Reports First Quarter Results Page 7 May 10, 2006 HEALTHSPRING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION MARCH 31, 2006 AND DECEMBER 31, 2005 (IN THOUSANDS) (UNAUDITED)
MARCH 31, DECEMBER 31, 2006 2005 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 264,707 $ 110,085 A/R, net of allowance for doubtful accounts 19,995 7,248 Investment securities available for sale 8,594 8,646 Current portion of investment securities held to maturity 14,900 14,313 Deferred income tax asset 10,225 5,778 Prepaid expenses and other assets 4,700 3,148 ------------ ------------ Total current assets 323,121 149,218 Investment securities held to maturity, less current portion 22,894 22,993 Property and equipment, net 4,247 4,287 Goodwill 341,619 315,057 Intangible assets, net 86,825 87,675 Investment in and receivable from unconsolidated affiliate 1,576 1,469 Deferred financing fee -- 5,487 Restricted investments 6,726 5,652 ------------ ------------ Total assets $ 787,008 $ 591,838 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Medical claims liability $ 99,768 $ 82,645 Current portion of long-term debt -- 16,500 A/P and accrued expenses 21,603 17,408 Deferred revenue 87,424 365 Funds held for the benefit of members 46,923 -- Other current liabilities 2,287 362 ------------ ------------ Total current liabilities 258,005 117,280 Long-term debt, less current portion -- 172,026 Deferred tax liability 30,058 29,782 Other long-term liabilities 308 316 ------------ ------------ Total liabilities 288,371 319,404 ------------ ------------ Minority Interest -- 11,890 ------------ ------------ Stockholders' Equity: Preferred stock -- 2 Common stock 573 322 Additional paid in capital 480,613 249,317 Retained earnings 17,495 10,943 Treasury Stock (44) (40) ------------ ------------ Total stockholders' equity 498,637 260,544 ------------ ------------ Total liabilities and stockholders' equity $ 787,008 $ 591,838 ============ ============
-MORE- HS Reports First Quarter Results Page 8 May 10, 2006 HEALTHSPRING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME INFORMATION FOR THE THREE-MONTHS ENDED MARCH 31, 2006 AND 2005 (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
2006 2005 ---------- ---------- Revenue: (Combined) Premium: Medicare $ 266,687 $ 144,152 Commercial 32,234 30,956 ---------- ---------- Total premium revenue 298,921 175,108 Management and fee revenue 5,635 5,110 Investment income 2,066 740 ---------- ---------- Total revenue 306,622 180,958 ---------- ---------- Operating Expenses: Medical Expense: Medicare 220,433 115,160 Commercial 26,939 23,930 ---------- ---------- Total medical expenses 247,372 139,090 Selling, general and administrative 34,609 29,392 Depreciation and amortization 2,423 1,175 Interest 8,361 1,649 ---------- ---------- Total operating expenses 292,765 171,306 ---------- ---------- Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes 13,857 9,652 Equity in earnings of unconsolidated affiliate 107 -- ---------- ---------- Income before minority interest and income taxes 13,964 9,652 Minority interest (303) (1,331) ---------- ---------- Income before income taxes 13,661 8,321 Income taxes (5,088) (3,745) ---------- ---------- Net income 8,573 4,576 Preferred dividends (2,021) (1,543) ---------- ---------- Net income available to common stockholders and members $ 6,552 $ 3,033 ========== ========== Net Income per common share: Basic $ 0.14 -- ========== Diluted $ 0.14 -- ========== Weighted average common shares outstanding: Basic 46,640,074 -- ========== Diluted 46,740,643 -- ==========
-MORE- HS Reports First Quarter Results Page 9 May 10, 2006 HEALTHSPRING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW INFORMATION FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006 (IN THOUSANDS) (UNAUDITED) Cash flows from operating activities: Net income $ 8,573 Adjustments to reconcile net income to net cash provide by Operating activities Depreciation and amortization 2,423 Equity in earnings of unconsolidated affiliate (107) Minority Interest 303 PIK Interest 116 Stock-based compensation 851 Deferred tax benefit (4,170) Write off of deferred financing cost 5,487 Increase (decrease) in cash and cash equivalents due to changes in: Accounts receivable (12,747) Prepaid expenses and other current assets (1,552) Medical claims payable 17,123 Accounts payable, accrued expenses and other current liabilities 6,120 Other long-term liabilities (8) Deferred revenue 87,059 --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 109,471 --------- Cash flows from investing activities: Purchase of PPE (513) Purchase of investment securities (2,600) Sale / maturity of investment securities 2,165 Purchase of restricted investments (1,074) --------- NET CASH USED IN INVESTING ACTIVITIES (2,022) --------- Cash flows from financing activities: Payments on borrowings (188,642) Proceeds from issuance of common stock 188,897 Funds received for the benefit of members 46,922 Purchase of treasury stock (4) --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 47,173 --------- Net increase in cash and cash equivalents 154,622 Cash and cash equivalents at beginning of period 110,085 --------- Cash and cash equivalents at end of period $ 264,707 =========
-MORE- HS Reports First Quarter Results Page 10 May 10, 2006 HEALTHSPRING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME INFORMATION (IN THOUSANDS) (UNAUDITED)
PREDECESSOR HEALTHSPRING, INC. COMBINED ------------------ ------------------ ------------------ PERIOD FROM PERIOD FROM JANUARY 1, 2005 TO MARCH 1, 2005 TO THREE MONTHS ENDED FEBRUARY 28, 2005 MARCH 31, 2005 MARCH 31, 2005 ------------------ ------------------ ------------------ Revenue: Premium: Medicare premiums $ 94,764 $ 49,388 $ 144,152 Commercial premiums 20,704 10,252 30,956 ------------------ ------------------ ------------------ Premium revenue 115,468 59,640 175,108 Management fee revenue 3,461 1,649 5,110 Investment income 461 279 740 ------------------ ------------------ ------------------ Total revenue 119,390 61,568 180,958 Operating Expenses: Medical expenses 90,843 48,247 139,090 Selling, general and administrative 21,608 7,784 29,392 Depreciation and amortization 315 860 1,175 Interest 42 1,607 1,649 ------------------ ------------------ ------------------ Total operating expenses 112,808 58,498 171,306 Income before minority interest and income taxes 6,582 3,070 9,652 Minority interest (1,248) (83) (1,331) ------------------ ------------------ ------------------ Income before income taxes 5,334 2,987 8,321 Income tax expense (2,628) (1,117) (3,745) ------------------ ------------------ ------------------ Net income before preferred dividends 2,706 1,870 4,576 Preferred dividends -- (1,543) (1,543) ------------------ ------------------ ------------------ Net income available to members and common stockholders $ 2,706 $ 327 $ 3,033 ================== ================== ==================
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