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): May 2, 2007 (May 2, 2007)

HEALTHSPRING, INC.

(Exact name of registrant as specified in charter)

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

44 Vantage Way, Suite 300
Nashville, Tennessee	37228
(Address of principal executive offices)	(Zip Code)

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

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 (see General Instruction A.2. below):

     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 May 2, 2007, the Company issued a press release announcing its earnings results for the first quarter ended March 31, 2007. 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, or 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 been provided in the release.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit 99.1      Press Release issued by HealthSpring, Inc. dated May 2, 2007.

SIGNATURES

     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, Corporate General Counsel, and Secretary

Date: May 2, 2007

EXHIBIT INDEX

No.		Exhibit
	99.1	Press Release issued by HealthSpring, Inc. dated May 2, 2007.

EX-99.1

EXHIBIT 99.1

Company Contact:	Lankford Wade
	Vice President
	HealthSpring, Inc.
	(615) 401-4632

HealthSpring, Inc. Reports 2007 First Quarter Results

First Quarter Net Income of $14.1 Million, or $0.25 per Diluted Share

NASHVILLE, Tenn. (May 2, 2007) — HealthSpring, Inc. (NYSE:HS) today announced its results for the first quarter ended March 31, 2007. Highlights included:

• Medicare Advantage membership of 121,527, an increase of 16.7% over membership at March 31, 2006. PDP membership of 110,692, an increase of 47.6% over membership at March 31, 2006.

• Total revenue in the first quarter of 2007 of $356.3 million, an increase of 16.2% over the 2006 first quarter.

• Cash and cash equivalents of $339.7 million at March 31, 2007, not reflecting the early receipt of the April premium payment from CMS, $81.2 million of which was held at unregulated subsidiaries.

Commenting on 2007 first quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, “Our membership and financial and operating results in the first quarter of 2007 met our expectations. We remain focused on delivering favorable financial results through effective and efficient medical management, and we believe the higher medical cost experienced in certain markets during our first quarter will moderate over the course of the year. As anticipated, SG&A expense was relatively high in the quarter (and will be similarly high in the fourth quarter), reflecting increased selling efforts during the quarter corresponding to Medicare open enrollment. For the year, we remain comfortable with our annual target for SG&A at or below 12.0% of revenue. Overall, our prospects for the future are favorable, and we look forward to continuing success for our Company in 2007.”

First Quarter Results
($in thousands)

	Three Months Ended
	March 31,
					Percent
	2007		2006		Change
Premium revenue	$	345,020	$	298,921		15.4	%
Total revenue		356,317		306,622		16.2
Medical expense		283,695		247,372		14.7
SG&A		47,506		34,609		37.3
EBITDA (1)		25,137		24,445		2.8
Net income		14,090		8,573		64.4
Net income available to common stockholders (2)		14,090		6,552		115.0
Net income per common share — diluted (3)		0.25		0.14		78.6

(1)	See “Supplemental Information” below and the accompanying reconciliation of non-GAAP EBITDA to GAAP Net Income.
(2)	Net income available to common stockholders is used in the calculation of earnings per share.
(3)	See “Supplemental Information” below and the accompanying reconciliation of non-GAAP pro forma earnings per share (adjusted to give effect to the Company’s initial public offering in the first quarter of 2006) to GAAP net income per common share.

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HS Reports First Quarter Results
Page 2
May 2, 2007

First Quarter Operating Highlights

Revenue

• Medicare Advantage plan membership increased to 121,527. Medicare Advantage premiums were $298.8 million for the 2007 first quarter, reflecting an increase of 24.7% over the 2006 first quarter. First quarter 2007 results include an $8.0 million accrual of premium revenue for an estimated risk adjustment payment from CMS. In 2006, the Company recorded risk adjustment payments on an as-received basis in the third quarter. See the supplemental non-GAAP schedule entitled “Medicare Advantage Results” at www.myhealthspring.com under the Investor Relations link for a schedule that includes pro-forma adjustments that allocate the applicable portion of the actual 2006 CMS risk adjustment payment over the first two quarters of 2006.

• PDP membership at the end of the first quarter was 110,692. The Company expanded its stand-alone PDP program on a national basis in 2007. PDP premium revenue was $33.0 million for the 2007 first quarter, an increase of 21.6% over the 2006 first quarter. The revenue increase is attributable to an increase of 47.6% in membership, partially offset by a decrease in per member per month, or PMPM, revenue.

• Commercial membership was 15,118 at March 31, 2007, compared with 39,550 at March 31, 2006. Commercial premiums were $13.2 million for the 2007 first quarter. The Company anticipates commercial premium revenue will be less than 4% of total revenue in 2007.

Medical Expense

• Total Medicare medical loss ratio (MLR) was 82.5% for the 2007 first quarter, compared with 82.7% for the prior year’s first quarter.

• Medicare Advantage MLR was 81.2% for the 2007 first quarter, compared with 79.2% for the prior year’s first quarter. Adjusting the reported results for the 2006 first quarter to give pro forma effect for the recognition of the actual 2006 CMS risk adjustment payment attributable to such quarter, Medicare Advantage MLR would have been 77.7%. See the Supplemental Schedule, “Medicare Advantage Results,” referenced above. The increase in MLR was primarily the result of increases in medical utilization and inflation trends (including increased prescription drug costs) offset in part by the accrual in 2007 of premium revenue for the estimated risk adjustment payment to be received from CMS. Medical expense for the current quarter includes the accrual of $1.9 million for risk sharing payments payable to providers related to the $8.0 million accrual for the estimated risk adjustment payment.

• The MLR for the Company’s PDP was 94.1% for the 2007 first quarter and 112.8% for the 2006 first quarter. PDP expenses, as anticipated under the benefit design, are expected to be disproportionately higher in the first half of the year. PDP expenses in the first quarter of 2006 included an estimated $8.1 million in prescription drug costs for members of other plans. The Company recovered substantially all of these amounts from other health plans during subsequent quarters in 2006 under CMS’s plan-to-plan reconciliation process.

SG&A

• Selling, general and administrative, or SG&A, expense represented 13.3% of total revenue in the 2007 first quarter and 11.3% in the prior-year period. With the advent of annual enrollment and lock-in, the Company expects its SG&A expenses to be seasonally higher in the first and fourth quarters because of the concentration of annual selling costs in the November through March timeframe.

• SG&A expense in the 2007 first quarter increased $12.9 million, or 37.3%, over the 2006 first quarter, primarily as a result of a 32% increase in personnel headcount, increases in sales and marketing expenses associated with open enrollment, stock compensation expense, and public company and other corporate infrastructure related expenses.

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HS Reports First Quarter Results
Page 3
May 2, 2007

Balance Sheet Highlights

• At March 31, 2007, the Company’s cash and cash equivalents were $473.9 million, $81.2 million of which was held at unregulated subsidiaries. This amount included $134.2 million for the early receipt of the April premium payment from CMS.

• Net cash used by operating activities (excluding the impact of premium prepayments from CMS) was $7.3 million for the 2007 first quarter compared with net cash provided by operating activities of $22.4 million for the 2006 first quarter. The change was primarily the result of the timing of claims payments, most of which relate to the Company’s pharmacy business.

• Days in claims payable were 36 at the end of the 2007 first quarter compared with 44 at the end of 2006 and 36 at the end of the March 2006 quarter.

Updated 2007 Guidance

• EPS: The Company maintains its estimate that earnings per share for 2007, on a fully diluted basis, will be in the range of $1.55 to $1.65, on weighted average shares outstanding of approximately 57.5 million.

• Membership: The Company currently estimates that its Medicare Advantage membership will be in the range of 130,000 to 133,000 by the end of 2007. The Company currently estimates that its PDP membership will be in the range of 120,000 to 130,000 by the end of 2007.

• Revenue: The Company now estimates that 2007 total revenue will be between $1.50 billion and $1.55 billion, with approximately 96% of total revenue for the year attributable to the Medicare business.

• MLRs: The Company projects Medicare Advantage MLRs will be at or below 80.0% for the full year. PDP MLRs are expected to range between 82.0% and 87.0% for the year. As previously indicated, PDP medical expenses are higher as a percent of premiums in the first half of the year.

Conference Call

A live audio webcast of the conference call regarding first quarter results, 2007 guidance, and other recent developments, will begin at 9:00 a.m. ET on Thursday, May 3, 2007. 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) 981-5547, confirmation number 1958042. 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 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. Effective January 1, 2007, HealthSpring began offering Medicare Part D prescription drug plans on a nationwide basis to persons in all 50 states who are eligible for Medicare. The Company also uses its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to employer groups.

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HS Reports First Quarter Results
Page 4
May 2, 2007

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 medical cost trends and SG&A seasonality, estimated CMS risk adjustment payments, Medicare-commercial premium revenue mix, and earnings, membership, and MLR guidance. 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.

The following important factors could cause actual results to differ materially from those in the forward-looking statements: changes in membership enrollment and dis-enrollment patterns; changes in utilization; changes in medical and prescription drug cost trends; the Company’s ability to accurately estimate and calculate Part D risk corridor adjustments; the Company’s ability to accurately estimate CMS retroactive risk adjustments to Medicare rates; the seasonality of marketing expenses related to limited open enrollment; increasing competition and potential confusion in the marketplace regarding other MA, MA-PD, PDP, and PFFS plan offerings; 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; legislative and regulatory actions or changes, including changes in Medicare funding; the reconciliation of Part D claims files errors; costs associated with information and data systems conversions and compliance with regulatory mandates; recent management changes; possible impairment of the book value of intangible assets or changes in the amortization rate of such assets; and changes in tax estimates, assets, or liabilities and valuation allowances related thereto. The foregoing list of important 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, 2006. Any projections or other forward-looking information in this release are based on limited information currently available to HealthSpring, 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. Such information speaks only as of the date of this release.

Supplemental Information

1. Non-GAAP Measures

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.

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HS Reports First Quarter Results
Page 5
May 2, 2007

This press release includes a presentation of the following non-GAAP financial measures:

The Company uses EBITDA, or earnings before interest, taxes, depreciation and amortization, to assess business performance among its health plans and related management companies.

The following table provides a reconciliation of EBITDA as used in this release to net income calculated in accordance with GAAP:

	Three Months Ended
	March 31,
(in thousands)	2007		2006
Net income	$	14,090	$	8,573
Plus: income tax expense		7,984		5,088
Plus: interest expense		115		8,361
Plus: depreciation and amortization		2,948		2,423
EBITDA	$	25,137	$	24,445

The following table adjusts GAAP net income available to common stockholders for the three months ended March 31, 2006, to give pro-forma effect to the Company’s initial public offering of common stock (“IPO”) as if it occurred on January 1, 2006:

(in thousands, except share data)
Net income available to common stockholders	$	6,552
Adjustments:
Preferred dividends		2,021
Minority interest		303
Pre-IPO interest expense (after tax)		5,346
Incremental FAS 123(R) expense (after tax)		(239	)
Pro-forma net income	$	13,983
Weighted average shares outstanding assuming a January 1, 2006 IPO		57,400	(1)
Non-GAAP pro-forma EPS	$	0.24	(2)

(1)	Diluted shares outstanding on a GAAP-basis for the three months ended March 31, 2006 were 46,740,643.
(2)	EPS on a GAAP basis for the three months ended March 31, 2006 was $0.14 (basic and diluted).

2. Membership

	March 31,		Dec. 31,		Percent			March 31,		Percent
	2007		2006		Change			2006		Change
Medicare Advantage Membership:
Tennessee		48,309		46,261		4.4	%		43,521		11.0	%
Texas		35,810		34,638		3.4			30,470		17.5
Alabama		29,078		27,307		6.5			24,820		17.2
Illinois		7,614		6,284		21.2			4,900		55.4
Mississippi		716		642		11.5			395		81.3
Total		121,527		115,132		5.6	%		104,106		16.7	%
PDP Membership:		110,692		88,753		24.7	%		74,985		47.6	%

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HS Reports First Quarter Results
Page 6
May 2, 2007

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

	March 31,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	473,943		$	338,443
Accounts receivable, net of allowance for doubtful accounts		31,764			17,588
Investment securities available for sale		7,816			7,874
Current portion of investment securities held to maturity		25,877			10,566
Deferred income tax asset		3,608			3,644
Prepaid expenses and other assets		6,287			4,047
Total current assets		549,295			382,162
Investment securities held to maturity, less current portion		18,817			19,560
Property and equipment, net		12,048			8,831
Goodwill		341,619			341,619
Intangible assets, net		79,292			81,175
Investment in and receivable from unconsolidated affiliate		1,322			1,301
Deferred financing fee		748			802
Restricted investments		8,070			7,195
Total assets	$	1,011,211		$	842,645
Liabilities and Stockholders’ Equity
Current liabilities:
Medical claims liability	$	113,143		$	122,778
Accounts payable and accrued expenses		22,310			25,149
Deferred revenue		109,757			64
Funds held for the benefit of members		114,666			62,125
Risk corridor payable to CMS		29,220			27,587
Other current liabilities		293			835
Total current liabilities		389,389			238,538
Deferred income tax liability		28,050			28,444
Other long-term liabilities		2,060			381
Total liabilities		419,499			267,363
Stockholders’ Equity:
Common stock		575			575
Additional paid-in capital		487,347			485,002
Retained earnings		103,848			89,758
Treasury Stock		(58	)		(53	)
Total stockholders’ equity		591,712			575,282
Total liabilities and stockholders’ equity	$	1,011,211		$	842,645

HS Reports First Quarter Results
Page 7
May 2, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
For the Three Months Ended March 31, 2007 and 2006
(in thousands, except share data)
(Unaudited)

	Three Months Ended
	March 31,
	2007			2006
Revenue:
Premium:
Medicare premiums	$	331,780		$	266,687
Commercial premiums		13,240			32,234
Total premium revenue		345,020			298,921
Management and other fees		6,049			5,635
Investment income		5,248			2,066
Total revenue		356,317			306,622
Operating Expenses:
Medical Expense:
Medicare expense		273,640			220,433
Commercial expense		10,055			26,939
Total medical expenses		283,695			247,372
Selling, general and administrative		47,506			34,609
Depreciation and amortization		2,948			2,423
Interest expense		115			8,361
Total operating expenses		334,264			292,765
Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes		22,053			13,857
Equity in earnings of unconsolidated affiliate		21			107
Income before minority interest and income taxes		22,074			13,964
Minority interest		—			(303	)
Income before income taxes		22,074			13,661
Income tax expense		(7,984	)		(5,088	)
Net income		14,090			8,573
Preferred dividends		—			(2,021	)
Net income available to common stockholders and members	$	14,090		$	6,552
Net Income per common share:
Basic	$	0.25		$	0.14
Diluted	$	0.25		$	0.14
Weighted average common shares outstanding:
Basic		57,233,712			46,640,074
Diluted		57,330,365			46,740,643

HS Reports First Quarter Results
Page 8
May 2, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
For the Three Months Ended March 31, 2007 and 2006
(in thousands)
(Unaudited)

	Three Months Ended
	March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	14,090		$	8,573
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,948			2,423
Amortization of deferred financing cost		54			112
Equity in earnings of unconsolidated affiliate		(21	)		(107	)
Minority interest		—			303
Paid-in-kind (PIK interest)		—			116
Stock-based compensation		2,121			851
Deferred tax benefit		(358	)		(4,170	)
Write off of deferred financing cost		—			5,375
Increase (decrease) in cash and cash equivalents due changes in:
Accounts receivable		(14,176	)		(12,747	)
Prepaid expenses and other current assets		(2,240	)		(1,552	)
Medical claims liability		(9,635	)		17,123
Accounts payable, accrued expenses and other current liabilities		(3,381	)		6,120
Risk corridor payable to CMS		1,633			—
Other long-term liabilities		1,679			(8	)
Deferred revenue		109,693			87,059
Net cash provided by operating activities		102,407			109,471
Cash flows from investing activities:
Purchase of property and equipment		(4,282	)		(513	)
Purchase of investment securities held-to-maturity		(16,747	)		(2,600	)
Maturity of investment securities held-to-maturity		2,237			2,165
Purchase of restricted investments		(875	)		(1,074	)
Net cash used in investing activities		(19,667	)		(2,022	)
Cash flows from financing activities:
Funds received for the benefit of members		52,541			46,922
Payments on borrowings		—			(188,642	)
Proceeds from issuance of common stock		224			188,897
Purchase of treasury stock		(5	)		(4	)
Net cash provided by financing activities		52,760			47,173
Net increase in cash and cash equivalents		135,500			154,622
Cash and cash equivalents at beginning of period		338,443			110,085
Cash and cash equivalents at end of period	$	473,943		$	264,707

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