EX-99.1 2 g13107exv99w1.htm EX-99.1 PRESS RELEASE ISSUED BY HEALTHSPRING, INC. DATED APRIL 29, 2008. EX-99.1 Press Release issued by HealthSpring, Inc.
 

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Company Contact:
  Lankford Wade
Senior Vice President & Treasurer
HealthSpring, Inc.
(615) 236-6200
HealthSpring, Inc. Reports 2008 First Quarter Results
 
Increases 2008 Earnings Guidance
NASHVILLE, Tenn. (April 29, 2008) — HealthSpring, Inc. (NYSE:HS) today announced its results for the quarter ended March 31, 2008, and increased its earnings per share guidance projected for the full 2008 year. Results for the 2008 first quarter include the operations of HealthSpring’s Leon Medical Center Health Plans subsidiary (“LMC Health Plans”), which the Company acquired on October 1, 2007. Highlights for the 2008 first quarter included:
•   Net income of $21.1 million, or $0.37 per diluted share, compared with $14.1 million, or $0.25 per diluted share, in the 2007 first quarter.
•   Medicare premium revenue of $538.6 million; up 62.3% over the 2007 first quarter.
•   Medicare Advantage members of 152,527 and PDP membership of 258,012 at March 31, 2008.
Commenting on 2008 first quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, “The first quarter was full of positive momentum driven by improving revenue trends and continuing contributions from our LMC Health Plans acquisition. Based on the strong first quarter, we are pleased to be increasing our 2008 earnings guidance.”
First Quarter Results
($ in thousands)
                         
    Three Months Ended        
    March 31,        
                    Percent  
    2008     2007     Change  
Medicare premium revenue
   $ 538,553     $ 331,780       62.3 %
Total revenue
     552,608       356,317       55.1  
Medicare medical expense
     442,159       273,640       61.6  
Total medical expense
     444,182       283,695       56.6  
EBITDA (1)
     45,628       25,137       81.5  
Net income
     21,058       14,090       49.5  
Net income per common share — diluted
     0.37       0.25       48.0  
 
(1)   See “Supplemental Information” below and the accompanying reconciliation of EBITDA to net income, the comparable GAAP measure.
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HS Reports First Quarter Results
Page 2
April 29, 2008
Operating Highlights
Revenue
•   Medicare Advantage (including the prescription drug component of HealthSpring’s Medicare Advantage plans, or “MA-PD”) premiums were $459.3 million for the 2008 first quarter, reflecting an increase of 53.7% over the 2007 first quarter. The 2008 first quarter included $12.0 million of additional premium revenue estimated for 2007 final retroactive risk adjustment settlements with CMS. The increase in estimate resulted from the Company’s evaluation of additional information reported to CMS during the quarter. This adjustment had a favorable impact on net income of $5.3 million, or $0.09 per diluted share, in the quarter. There was no corresponding accrual for final retroactive risk settlements for the 2007 first quarter.
•   Per member per month (or “PMPM”) premiums increased by 21.0% in the 2008 first quarter over the 2007 first quarter, primarily as a result of rate increases in the 2008 first quarter, retroactive risk adjustments, and the inclusion of LMC Health Plans’ results. LMC Health Plans has historically experienced higher PMPMs than the Company’s other health plans.
•   Stand-alone PDP premium revenue was $79.2 million for the 2008 first quarter, an increase of 140.5% compared with the 2007 first quarter. The increase in membership in 2008 is primarily the result of auto-assignment of members in the California and New York regions. Also contributing to the revenue increase is a 2.6% increase in PDP PMPM premiums.
Medical Expense
•   Medicare Advantage medical loss ratio (MLR) was 79.6% for the 2008 first quarter, compared with 81.2% for the prior year’s first quarter. The 2008 first quarter includes the impact of adjusting estimated settlements with CMS for 2007 retroactive risk adjustment premiums (net of the costs of the related risk-sharing arrangements), which had a favorable impact of 130 basis points on the 2008 first quarter MLR. The 2008 first quarter MLR was negatively affected by increased drug costs and by higher inpatient utilization. The Company believes that the higher inpatient utilization was attributable, in part, to a flu season that was within the Company’s original expectations.
•   PDP MLR was 96.8% for the 2008 first quarter compared with 94.1% in the 2007 first quarter. This deterioration in PDP MLR was primarily the function of different pharmacy utilization patterns, including a higher utilization of brand versus generic drugs in new regions in 2008, which was partially offset by higher PDP PMPM premiums.
•   In 2008, with the widening of the Part D risk corridors, the Company anticipates that the profitability of Part D operations will be even more weighted toward the second half of the year.
Selling General & Administrative (SG&A)
•   SG&A expense increased by $15.4 million and represented 11.4% of total revenue in the 2008 first quarter compared with 13.3% of total revenue in the 2007 first quarter. The improvement in SG&A as a percentage of revenue is primarily the result of improved operating leverage and the inclusion of the LMC Health Plans, which historically has operated with lower relative administrative costs.
Depreciation and Amortization
•   Depreciation and amortization expense in the 2008 first quarter increased $4.3 million over the 2007 first quarter, the majority of which relates to the amortization of intangible assets identified in the acquisition of the LMC Health Plans.
Interest Expense
•   Interest expense in the 2008 first quarter increased $5.3 million over the 2007 first quarter, as a result of the interest incurred on the Company’s $300 million term credit facility entered into on October 1, 2007, in conjunction with the acquisition of the LMC Health Plans.
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HS Reports First Quarter Results
Page 3
April 29, 2008
Balance Sheet Highlights
•   At March 31, 2008, the Company’s cash and cash equivalents were $360.3 million, $38.4 million of which was held at unregulated subsidiaries.
•   In June 2007, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $50.0 million of the Company’s common stock over the subsequent 12 months. During the first quarter of 2008, the Company repurchased approximately 1.2 million shares for $20.7 million, or an average cost of $17.63 per share, under the stock repurchase program. All repurchases were made utilizing unrestricted cash on hand.
•   Total debt outstanding was $292.5 million at March 31, 2008. There were no borrowings outstanding under the Company’s revolving credit facility at March 31, 2008. There was no outstanding debt at March 31, 2007.
•   For the first quarter of 2008, net cash provided by operating activities was $14.0 million, compared with net cash used in operating activities of $7.3 million for the first quarter of 2007, after excluding the early receipt of the $109.7 million April CMS payment in March 2007.
•   Days in claims payable totaled 37 at the end of the 2008 first quarter, compared with 39 at the end of 2007.
Outlook
•   EPS: The Company raises its estimate for earnings per share for 2008, on a diluted basis, to be in the range of $1.85 to $2.00, on weighted average shares outstanding of approximately 56.6 million.
•   Membership: The Company revises its estimate for Medicare Advantage membership to be in the range of 156,000 to 160,000 at the end of 2008. Additionally, the Company revises its estimate for PDP membership to be approximately 265,000 to 270,000 at the end of 2008.
•   Revenue: The Company maintains its estimate that 2008 total revenue will be between $2.0 billion and $2.2 billion, with approximately 99% of total revenue for the year attributable to the Medicare business.
•   MLRs: The Company now estimates Medicare Advantage (including MA-PD) full-year MLRs will be at or below 80% for 2008. The Company is raising its estimate for stand-alone PDP MLRs to be in the range of 83.0% to 85.0% for the year.
Conference Call
A live audio webcast of the conference call regarding first quarter results will begin at 10:00 a.m. ET on Wednesday, April 30, 2008. 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 (719-325-4855), confirmation number (9934132). An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days.
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.
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HS Reports First Quarter Results
Page 4
April 29, 2008
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, seasonality of Part D operations’ profitability, 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. 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; changes in utilization; changes in medical and prescription drug cost trends; 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; challenges to integrating its recent Florida plan acquisition and the Company’s lack of experience in South Florida; 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; costs associated with compliance with regulatory mandates; 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, 2007.
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HS Reports First Quarter Results
Page 5
April 29, 2008
Supplemental Information
1. EBITDA
The Company uses EBITDA, or earnings before interest, taxes, and 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)   2008     2007  
Net income
   $ 21,058     $ 14,090  
Plus: income tax expense
     11,918       7,984  
Plus: interest expense
     5,404       115  
Plus: depreciation and amortization
     7,248       2,948  
 
            
EBITDA
   $ 45,628     $ 25,137  
 
            
     The Company believes that the non-GAAP measure used in this release, when presented in conjunction with the comparable GAAP measure, is useful to both management and investors in analyzing financial and business trends regarding the Company’s ongoing business and operating performance. This non-GAAP measure should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP.
2. Membership
                                         
    Mar. 31,     Dec. 31,     Percent     Mar. 31,     Percent  
    2008     2007     Change     2007     Change  
Medicare Advantage Membership:
                                        
Tennessee
     49,174       50,510       (2.6) %     48,309       1.8 %
Texas
     38,357       36,661       4.6       35,810       7.1  
Alabama
     28,045       30,600       (8.3 )     29,078       (3.6 )
Florida (1)
     26,681       25,946       2.8       N/A       N/A  
Illinois
     8,735       8,639       1.1       7,614       14.7  
Mississippi
     1,535       841       82.5       716       114.4  
 
                              
Total
     152,527       153,197       (0.4) %     121,527       25.5 %
 
                              
PDP Membership:
     258,012       139,212       85.3 %     110,692       133.1 %
 
                              
 
(1)   HealthSpring acquired Leon Medical Centers Health Plans on October 1, 2007.
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HS Reports First Quarter 2008 Results
Page 6
April 29, 2008
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)
                 
    March 31,     December 31,  
    2008     2007  
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 360,346     $ 324,090  
Accounts receivable, net
     95,459       59,027  
Investment securities available for sale
     1,815       24,746  
Investment securities held to maturity
     15,771       16,594  
Deferred income taxes
     2,353       2,295  
Prepaid expenses and other
     4,619       4,913  
 
            
Total current assets
     480,363       431,665  
Investment securities available for sale
     38,413       39,905  
Investment securities held to maturity
     8,408       10,105  
Property and equipment, net
     23,776       24,116  
Goodwill
     588,001       588,001  
Intangible assets, net
     230,850       235,893  
Restricted investments
     10,454       10,095  
Other
     29,725       11,293  
 
            
Total assets
   $ 1,409,990     $ 1,351,073  
 
            
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Medical claims liability
   $ 184,265     $ 154,510  
Accounts payable, accrued expenses and other
     38,202       27,489  
Funds held for the benefit of members
     103,767       82,231  
Risk corridor payable to CMS
     22,660       22,363  
Current portion of long-term debt
     22,500       18,750  
 
            
Total current liabilities
     371,394       305,343  
Deferred income tax liability
     88,933       90,552  
Long-term debt, less current portion
     270,000       277,500  
Other long-term liabilities
     5,286       6,323  
 
            
Total liabilities
     735,613       679,718  
 
            
Stockholders’ equity:
                
Common stock
     577       576  
Additional paid in capital
     496,994       494,626  
Retained earnings
     197,276       176,218  
Accumulated other comprehensive income
     243       —  
Treasury stock
     (20,713 )     (65 )
 
            
Total stockholders’ equity
     674,377       671,355  
 
            
Total liabilities and stockholders’ equity
   $ 1,409,990     $ 1,351,073  
 
            
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HS Reports First Quarter 2008 Results
Page 7
April 29, 2008
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2008     2007  
Revenue:
                
Premium:
                
Medicare
   $ 538,553     $ 331,780  
Commercial
     2,337       13,240  
 
            
Total premium revenue
     540,890       345,020  
Management and other fees
     6,907       6,049  
Investment income
     4,811       5,248  
 
            
Total revenue
     552,608       356,317  
 
            
Operating expenses:
                
Medical expense:
                
Medicare
     442,159       273,640  
Commercial
     2,023       10,055  
 
            
Total medical expense
     444,182       283,695  
Selling, general and administrative
     62,899       47,506  
Depreciation and amortization
     7,248       2,948  
Interest expense
     5,404       115  
 
            
Total operating expenses
     519,733       334,264  
 
            
Income before equity in earnings of unconsolidated affiliate and income taxes
     32,875       22,053  
Equity in earnings of unconsolidated affiliate
     101       21  
 
            
Income before income taxes
     32,976       22,074  
Income taxes
     (11,918 )     (7,984 )
 
            
Net income
     21,058       14,090  
 
            
Net Income per common share:
                
Basic
   $ 0.37     $ 0.25  
 
            
Diluted
   $ 0.37     $ 0.25  
 
            
Weighted average common shares outstanding:
                
Basic
     56,861,343       57,233,712  
 
            
Diluted
     56,962,521       57,330,365  
 
            
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HS Reports First Quarter 2008 Results
Page 8
April 29, 2008
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2008     2007  
Cash flows from operating activities:
                
Net income
   $ 21,058     $ 14,090  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
     7,248       2,948  
Amortization of deferred financing cost
     598       54  
Equity in earnings of unconsolidated affiliate
     (101 )     (21 )
Stock-based compensation
     2,356       2,121  
Deferred tax benefit
     (1,808 )     (358 )
Increase (decrease) in cash due to:
                
Accounts receivable
     (40,584 )     (14,176 )
Prepaid expenses and other current assets
     294       (2,240 )
Medical claims liability
     29,755       (9,635 )
Accounts payable, accrued expenses and other current liabilities
     10,713       (3,381 )
Deferred revenue
     —       109,693  
Other
     (15,519 )     3,312  
 
            
Net cash provided by operating activities
     14,010       102,407  
 
            
Cash flows from investing activities:
                
Purchase of property and equipment
     (1,866 )     (4,282 )
Purchase of investment securities
     (1,207 )     (16,747 )
Maturities of investment securities
     28,526       2,237  
Purchase of restricted investments
     (359 )     (875 )
 
            
Net cash provided by (used in) investing activities
     25,094       (19,667 )
 
            
Cash flows from financing activities:
                
Funds received for the benefit of members
     123,094       —  
Funds withdrawn for the benefit of members
     (101,558 )     —  
Funds received for the benefit of members, net
     —       52,541  
Payments on long-term debt
     (3,750 )     —  
Proceeds from stock option exercises
     14       224  
Purchase of treasury stock
     (20,648 )     (5 )
 
            
Net cash provided by (used in) financing activities
     (2,848 )     52,760  
 
            
Net increase in cash and cash equivalents
     36,256       135,500  
Cash and cash equivalents at beginning of period
     324,090       338,443  
 
            
Cash and cash equivalents at end of period
   $ 360,346     $ 473,943  
 
            
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