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): July 31, 2007 (July 31, 2007)

HEALTHSPRING, INC.

(Exact name of registrant as specified in charter)

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

44 Vantage Way, Suite 300
Nashville, Tennessee
(Address of principal executive offices) 37228
(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 July 31, 2007, the Company issued a press release announcing its earnings results for the second quarter ended June 30, 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 July 31, 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: July 31, 2007

EXHIBIT INDEX

No.	Exhibit
99.1	Press Release issued by HealthSpring, Inc. dated July 31, 2007.

EX-99.1

EXHIBIT 99.1

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

HealthSpring, Inc. Reports 2007 Second Quarter Results
Increases 2007 Earnings Guidance

NASHVILLE, Tenn. (July 31, 2007) — HealthSpring, Inc. (NYSE:HS) today announced its results for the second quarter and six months ended June 30, 2007. Highlights for the 2007 second quarter included:

• Medicare Advantage members of 125,267 at June 30, 2007; up 16.4% over the 2006 second quarter. PDP membership of 118,124 at June 30, 2007; up 34.0% over the 2006 second quarter.

• Second quarter total revenue of $368.2 million; up 14.0% over the 2006 second quarter.

• Net income of $16.2 million, or $0.28 per diluted share, which includes a charge of $4.5 million, or $0.05 on a per diluted share basis (after-tax), for the impairment of intangible assets compared with $21.1 million, or $0.37 per share, in the 2006 second quarter.

Commenting on 2007 second quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, “We are pleased to have ended the second quarter on a positive note. The higher-than-expected inpatient utilization we experienced in the first five months of 2007, primarily in our Texas market, moderated during June. As it continues to stabilize in July, we are optimistic that this improvement will continue. The higher-than-expected medical costs for outpatient and emergency room services experienced during the first half of the year will likely continue into the second half of 2007. We continue to believe our physician engagement and medical management efforts will facilitate our ability to address these issues.”

Second Quarter Results

	Three Months Ended
	June 30,				Percent
($in thousands)	2007		2006		Change
Medicare premium revenue	$	344,047	$	282,347		21.9	%
Total revenue		368,151		322,803		14.0
Medicare medical expense		281,671		221,451		27.2
Total medical expense		292,213		250,857		16.5
SG&A		43,646		35,962		21.4
Adjusted EBITDA (1)		32,389		36,047		(10.1	)
Net income		16,190		21,109		(23.3	)
Net income per common share — diluted		0.28		0.37		(24.3	)

(1) See “Supplemental Information” below and the accompanying reconciliation of non-GAAP Adjusted EBITDA to GAAP Net Income.

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HS Reports Second Quarter Results
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July 31, 2007

Operating Highlights

Revenue

• Medicare Advantage premiums were $316.9 million for the 2007 second quarter, reflecting an increase of 24.6% over the 2006 second quarter. Year-to-date results include the accrual of $17.8 million for in-year risk adjustment payments. For comparison purposes, retroactive risk adjustment payments of $12.3 million for 2006 were reflected as additional premium in the quarter ended September 30, 2006. See the supplemental non-GAAP schedule entitled “Medicare Advantage Results” at www.healthspring.com under the Investor Relations link for a schedule that includes pro-forma adjustments that allocate the applicable portion of the actual 2006 CMS retroactive risk adjustment payment received in August 2006 over the first two quarters of 2006.

• PDP premium revenue was $27.1 million for the 2007 second quarter, a decrease of 2.9% compared with the 2006 second quarter. The revenue decrease is primarily attributable to a decline in per member per month, or PMPM, premiums, which was substantially offset by an increase of 34.0% in membership.

• Commercial membership was 14,698 at June 30, 2007, compared with 38,113 at June 30, 2006. Commercial premiums were $12.1 million for the 2007 second quarter.

Medical Expense

• Total Medicare medical loss ratio (MLR) was 81.9% for the 2007 second quarter, compared with 78.4% for the prior year’s second quarter.

• Medicare Advantage MLR (excluding PDP) was 81.0% for the 2007 second quarter and 81.1% for the six months ended June 30, 2007, compared with 79.5% and 79.4%, respectively, for the comparable prior-year periods. Adjusting the reported results for the three and six months ended June 30, 2006, to give pro forma effect to the recognition of the actual 2006 CMS risk adjustment payment attributable to each period, Medicare Advantage MLR would have been 78.0% and 77.9%, respectively. See the Supplemental Schedule, “Medicare Advantage Results,” referenced above. As previously announced, the increase in MLR was primarily the result of higher-than-expected costs of certain medical services in outpatient and emergency room settings and higher-than-expected in-patient utilization, primarily in the Company’s Texas market.

• On a year-to-date basis, the MLR for PDP was 93.0% for 2007 compared with 90.6% in 2006. As anticipated under PDP benefit design, PDP expenses are disproportionately higher in the first half of the year.

Selling General & Administrative (SG&A)

• SG&A expense represented 11.9% of total revenue in the 2007 second quarter compared with 11.1% in the 2006 second quarter.

• In the second quarter of 2007, SG&A expense increased by $7.7 million, or 21.4%, over the 2006 second quarter, primarily as a result of increases in personnel, stock compensation expense, and corporate infrastructure.

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HS Reports Second Quarter Results
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July 31, 2007

Impairment of Intangible Assets

• Financial results for the three months ended June 30, 2007, include a charge of $4.5 million, or $0.05 on a per diluted share basis (after-tax), for the impairment of intangible assets associated with commercial customer relationships in the Company’s Tennessee health plan. This charge is the result of the Company’s expectation that significant declines in commercial membership will occur as a result of its decision in the second quarter of 2007 to implement premium increases upon renewal for large group plans.

• At June 30, 2007, the carrying value of the related intangible asset was $0.9 million and will be amortized ratably over the next nine months ending March 31, 2008.

Balance Sheet Highlights

• At June 30, 2007, the Company’s cash and cash equivalents were $540.4 million, $78.3 million of which was held at unregulated subsidiaries. This amount included $114.8 million for the early receipt of the July CMS premium. Approximately $139.3 million of the cash balance relates to amounts held by the Company for the benefit of its Part D members and $32.8 million payable to CMS under the risk corridor provisions of Part D.

• For the first six months of 2007, net cash provided by operating activities (adjusted for the early premium payment from CMS) was $21.2 million compared with $44.9 million for the first six months of 2006. For the second quarter of 2007, net cash provided by operating activities was $33.7 million, or 2.1x net income, compared with $25.4 million for the second quarter of 2006.

• Days in claims payable totaled 39 at the end of the 2007 second quarter compared with 36 at the end of the first quarter 2007.

Retroactive Risk Adjustment

On July 27, 2007, the Company received preliminary notification from CMS that its final retroactive risk adjustment payment for 2006 would be approximately $16.8 million, which is composed of $14.8 million for Medicare Advantage (excluding Part D) and $2.0 million for Part D. The Company is currently reviewing and analyzing the preliminary retroactive rate adjustment information and expects to recognize additional premium revenue in the third quarter ending September 30, 2007, when the Company’s analysis is expected to be completed. A portion of these payments will be paid to providers under risk sharing arrangements. The Company believes that any such amounts related to Part D will be subject to risk corridor adjustments.

Updated 2007 Guidance

• EPS: The Company estimates that earnings per share for 2007, on a fully diluted basis, will be in the range of $1.33 to $1.43, on weighted average shares outstanding of approximately 57.4 million.

• Membership: The Company estimates that its Medicare Advantage membership will be in the range of 128,000 to 131,000 by the end of 2007. Additionally, the Company estimates that PDP membership will be approximately 130,000 by the end of 2007.

• Revenue: The Company estimates that 2007 total revenue will be between $1.45 billion and $1.50 billion, with approximately 96% — 97% of total revenue for the year attributable to the Medicare business.

• MLRs: The Company estimates Medicare Advantage full-year MLRs will range between 80.5% and 81.5% for 2007. The Company maintains its estimate that PDP MLRs will range between 82.0% and 87.0% for the year.

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HS Reports Second Quarter Results
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July 31, 2007

Conference Call
A live audio webcast of the conference call regarding first quarter results will begin at 10:00 a.m. ET on Wednesday, August 1, 2007. 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) 643-4199, confirmation number 7429899. 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 owns and operates Medicare Advantage and stand-alone Medicare prescription drug plans in Tennessee, Texas, Alabama, Illinois, and Mississippi and, effective January 1, 2007, 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.

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 explanations for medical cost trends, estimated CMS risk adjustment payments, timing of Part D benefits costs, Medicare-commercial premium revenue mix, estimates of retroactive risk rate adjustments, 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; 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; 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, and in the Company’s Quarterly Reports on Form 10-Q. 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

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HS Reports Second Quarter Results
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July 31, 2007

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 Adjusted EBITDA, a non-GAAP measure used in this release, when presented in conjunction with comparable GAAP measures, is useful to both management and investors in analyzing financial and business trends regarding the Company’s ongoing business and operating performance. The Company uses Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, and impairment of intangible assets, to assess business performance among its health plans and related management companies. This non-GAAP measure should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP.

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

	Three Months Ended
	June 30,
(in thousands)	2007		2006
Net income	$	16,190	$	21,109
Plus: income tax expense		8,656		12,398
Plus: interest expense		117		96
Plus: depreciation and amortization		2,890		2,444
Plus: impairment of intangible assets		4,536		—
Adjusted EBITDA	$	32,389	$	36,047

2. Membership

	June 30,		Dec. 31,		Percent			June 30,		Percent
	2007		2006		Change			2006		Change
Medicare Advantage Membership:
Tennessee		49,618		46,261		7.3	%		44,814		10.7	%
Texas		36,503		34,638		5.4			32,225		13.3
Alabama		30,094		27,307		10.2			24,669		22.0
Illinois		8,299		6,284		32.1			5,518		50.4
Mississippi		753		642		17.3			425		77.2
Total		125,267		115,132		8.8	%		107,651		16.4	%
PDP Membership:		118,124		88,753		33.1	%		88,139		34.0	%

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HS Reports Second Quarter Results
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July 31, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
June 30, 2007 and December 31, 2006
(in thousands)
(Unaudited)

	June 30,			December 31,
Assets	2007			2006
Current Assets:
Cash and cash equivalents	$	540,359		$	338,443
Accounts receivable, net of allowance for doubtful accounts		27,663			17,588
Investment securities available for sale		6,769			7,874
Current portion of investment securities held to maturity		10,359			10,566
Deferred income tax asset		3,448			3,644
Prepaid expenses and other assets		9,470			4,047
Total current assets		598,068			382,162
Investment securities held to maturity, less current portion		25,166			19,560
Non-current accounts receivable		4,034			—
Property and equipment, net		13,689			8,831
Goodwill		341,469			341,619
Intangible assets, net		73,156			81,175
Investment in and receivable from unconsolidated affiliate		1,389			1,301
Deferred financing fee		702			802
Restricted investments		8,066			7,195
Total assets	$	1,065,739		$	842,645
Liabilities and Stockholders’ Equity
Current Liabilities:
Medical claims liability	$	125,906		$	122,778
Accounts payable and accrued expenses		14,392			25,149
Deferred revenue		114,887			64
Funds held for the benefit of members		139,323			62,125
Risk corridor payable to CMS		31,697			27,587
Other current liabilities		—			835
Total current liabilities		426,205			238,538
Risk corridor payable to CMS, non-current		1,098			—
Deferred tax liability		25,669			28,444
Other long-term liabilities		2,114			381
Total liabilities		455,086			267,363
Stockholders’ Equity:
Common stock		576			575
Additional paid in capital		490,102			485,002
Retained earnings		120,038			89,758
Treasury stock		(63	)		(53	)
Total stockholders’ equity		610,653			575,282
Total liabilities and stockholders’ equity	$	1,065,739		$	842,645

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HS Reports Second Quarter Results
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July 31, 2007

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

	Three-Month Period Ended						Six-Month Period Ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenue:
Premium:
Medicare	$	344,047		$	282,347		$	675,826		$	549,034
Commercial		12,109			31,852			25,349			64,086
Total premium revenue		356,156			314,199			701,175			613,120
Management and fee revenue		6,036			6,112			12,085			11,747
Investment income		5,959			2,492			11,207			4,558
Total revenue		368,151			322,803			724,467			629,425
Operating Expenses:
Medical Expense:
Medicare expense		281,671			221,451			555,311			441,884
Commercial expense		10,542			29,406			20,597			56,345
Total medical expenses		292,213			250,857			575,908			498,229
Selling, general and administrative		43,646			35,962			91,152			70,571
Depreciation and amortization		2,890			2,444			5,837			4,867
Impairment of intangible assets		4,536			—			4,536			—
Interest expense		117			96			232			8,457
Total operating expenses		343,402			289,359			677,665			582,124
Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes		24,749			33,444			46,802			47,301
Equity in earnings of unconsolidated affiliate		97			63			118			170
Income before minority interest and income taxes		24,846			33,507			46,920			47,471
Minority interest		—			—			—			(303	)
Income before income taxes		24,846			33,507			46,920			47,168
Income taxes		(8,656	)		(12,398	)		(16,640	)		(17,486	)
Net income		16,190			21,109			30,280			29,682
Preferred dividends		—			—			—			(2,021	)
Net income available to common stockholders and members	$	16,190		$	21,109		$	30,280		$	27,661
Net Income per common share:
Basic	$	0.28		$	0.37		$	0.53		$	0.53
Diluted	$	0.28		$	0.37		$	0.53		$	0.53
Weighted average common shares outstanding:
Basic		57,241,467			57,271,044			57,237,611			51,984,926
Diluted		57,344,982			57,364,519			57,341,519			52,082,017

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HS Reports Second Quarter Results
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July 31, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
For the Six Months Ended June 30, 2007 and 2006
(in thousands)
(Unaudited)

	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net income	$	30,280		$	29,682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,837			4,867
Impairment of intangible assets		4,536			—
Amortization of deferred financing cost		100			148
Equity in earnings of unconsolidated affiliate		(118	)		(170	)
Minority interest		—			303
Paid in kind (PIK) interest		—			116
Stock-based compensation		4,099			2,164
Deferred tax benefit		(2,429	)		(6,496	)
Write off of deferred financing cost		—			5,375
Increase (decrease) in cash and cash equivalents due changes in:
Accounts receivable		(14,109	)		(27,472	)
Prepaid expenses and other current assets		(5,423	)		254
Medical claims payable		3,128			21,182
Accounts payable, accrued expenses and other current liabilities		(11,592	)		10,135
Risk corridor payable to CMS		5,208			4,838
Other long-term liabilities		1,733			(18	)
Deferred revenue		114,823			94,386
Net cash provided by operating activities		136,073			139,294
Cash flows from investing activities:
Purchase of property and equipment		(7,212	)		(1,633	)
Purchase of investment securities held to maturity		(25,413	)		(5,885	)
Maturity of investment securities held to maturity		21,119			7,251
Purchase of restricted investments		(871	)		(1,063	)
Distributions from affiliates		30			106
Net cash used in investing activities		(12,347	)		(1,224	)
Cash flows from financing activities:
Funds received for the benefit of members		77,198			72,882
Payments on borrowings		—			(188,642	)
Proceeds from issuance of common stock		1,002			188,749
Purchase of treasury stock		(10	)		(7	)
Deferred financing cost		—			(932	)
Net cash provided by financing activities		78,190			72,050
Net increase in cash and cash equivalents		201,916			210,120
Cash and cash equivalents at beginning of period		338,443			110,085
Cash and cash equivalents at end of period	$	540,359		$	320,205

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