Metropolitan Health Networks Reports 2008 Second Quarter Results

Company Delivers 91% Increase in Earnings for First Half of 2008 Over 2007

WEST PALM BEACH, Fla., Aug. 5 /PRNewswire-FirstCall/ -- Metropolitan
Health Networks, Inc. (Amex: MDF), a leading provider of healthcare services
in Florida, today announced financial results for the six months and quarter
ended June 30, 2008.
On July 28, 2008 the company reported that in the three months ended June
30, 2008, the company's Medicare Advantage HMO and its PSN realized
retroactive mid-year Medicare Risk Adjustment ("MRA") premium increases
totaling $6.6 million resulting from improved risk scores. Approximately half
of this increase applied to premiums earned in the first half of 2008. As a
result, the retroactive premium payments for the first quarter of 2008 were
higher than the company's estimate of $500,000 at March 31, 2008, and had a
significant impact in the second quarter of 2008 on both revenue and the
medical expense ratio ("MER"). On a segment basis, the retroactive mid-year
premium increases were $5.8 million and $848,000 for the PSN and HMO,
respectively.
Six Months Year to Date Financial Highlights:
For the six months ended June 30, 2008, the company's revenue totaled
$158.2 million compared to $138 million in the prior year period, an increase
of 14.6%. Net income was $3.4 million compared to $1.8 million for the same
period of 2007, an increase of 91%. Fully diluted earnings per share were
$0.06 and $0.03 for the six months ended June 30, 2008 and 2007, respectively.
Year to date results for the company's core PSN business includes a
segment gain of $13.6 million before allocated overhead and income taxes.
This compares to a $13.1 million segment gain before allocated overhead and
income taxes in the prior year period. The company's HMO realized a year to
date segment loss of $3.3 million before allocated overhead and income taxes,
which compares to a segment loss of $5.6 million before allocated overhead and
income taxes for the same period last year. As discussed below, the Company
has entered into a definitive agreement for the sale of its HMO. Corporate
overhead for the first six months of 2008 totaled $4.9 million compared to
$4.5 million for the same period in 2007.
Second Quarter Financial Highlights:
The company recognized revenue of $82.2 million for the second quarter as
compared to $69.9 million in the 2007 second-quarter, a 17.6% increase. Net
income for the 2008-second quarter was $3.7 million or $0.07 per share,
diluted as compared to $1.5 million or $0.03 per share, diluted for the same
quarter last year.
The company's PSN realized a segment gain of $8.9 million before allocated
overhead and income taxes in the 2008 second-quarter. This compares to a
segment gain of $6.6 million before allocated overhead and income taxes in the
prior year's second quarter. The company's HMO realized a segment loss of
$690,000 before allocated overhead and income taxes, which compares to a
segment loss of $1.7 million before allocated overhead and income taxes in the
second quarter of 2007. Corporate overhead for the second quarter totaled
$2.3 million in both 2008 and 2007.
Customer Information:
The number of Medicare Advantage customers increased by 2,700 between June
2007 and June 2008 to 33,100 as of June 30, 2008. Total customers at June 30,
2008 for each of the Company's segments were approximately 25,700 for the core
PSN business and 7,400 for the Medicare Advantage HMO launched mid-year 2005.
Customer months, the combined total customers for each month of the
measurement period, increased to 99,400 in the second quarter of 2008, up from
91,800 in the 2007 period.
Medical Expense Ratio Highlights:
The company's consolidated MER decreased from 87.9% in the first half of
2007 to 87.7% in the first six months of 2008. The MER for the PSN business
segment was 86.9% in the first six months of both 2008 and 2007. The HMO's
MER decreased to 90.5% in the six months ended Junes 30, 2008 compared to
92.4% for the same period in 2007.
Balance Sheet Highlights:
Cash and equivalents at June 30, 2008 totaled $37.5 million as compared to
$38.7 million at December 31, 2007. The company had a working capital surplus
that increased to approximately $35.1 million at quarter end, compared to a
surplus of approximately $29.2 million as of December 31, 2007. The mid-year
adjustments totaling approximately $6.6 million discussed above were accrued
at June 30 and subsequently received in July. The company has no outstanding
debt and stockholders' equity totaled $42.4 million at June 30, 2008.
Sale of the HMO:
As announced on June 30, the company is selling its HMO to Humana for an
estimated $14 million, the transaction expected to close by October 1, 2008.
In the transaction, the company is retaining the opportunity to provide care
for the HMO's customers, today numbering about 7,400. Metropolitan Health
Networks is transitioning the HMO's business into its core PSN, or Provider
Service Network, business and is significantly expanding its relationship and
opportunity with Humana in the 13 counties in which the HMO operates. The
company expects to work in conjunction with Humana in exploring new
opportunities in additional counties.
In the course of analyzing the proposed sale of the HMO, the company
developed a range of projections regarding its future operating performance
after giving effect to the proposed sale of the HMO and Metropolitan's entry
into new risk provider agreements with Humana. Based upon these projections,
the company believes that the sale of the HMO and the new risk provider
agreements offer it an opportunity to immediately improve upon its potential
to generate positive income from operations in future periods. Most notably,
the company projects that by utilizing Humana's existing contracts with
various service providers, the new provider risk arrangements will reduce the
cost of providing medical services. It is also believed that the reduced
revenue per customer per month associated with the new provider risk
arrangements will be more than offset by projected medical cost savings,
elimination of a significant portion of the HMO sales and administrative
costs, and reductions in corporate overhead, which, the company expects,
should enhance its potential to generate income from operations.
Michael Earley, Chairman and Chief Executive Officer of Metropolitan
Health Networks, Inc., commented, "We are very pleased with our 2008 first
half report. The mid-year risk adjustment payments brought our premium levels
to expected levels that are more reflective of our continuing commitment to
proper risk coding. The MER performance in our core PSN business continues to
be very good and the MER of the HMO continues to improve, as we continue to
bring down our overhead spending."
Continuing, Earley noted, "2008 is shaping up to be a year of
transformation for Metropolitan as we move forward with the sale to Humana of
our HMO and the conversion its 7,400 customers into our PSN customers. The
sale expands our Humana-contracted market from 5 Florida counties to 18,
significantly increasing the potential for growth in both of our
organizations. We are once again refocusing our business, our expertise and
our resources on our core competencies while expanding our market area and our
opportunities. As our balance sheet continues to strengthen it will provide
the resources necessary to take advantage of this new footprint."
Conference Call Information:
Metropolitan Health Networks will hold a conference call to review its
second quarter 2008 results on Tuesday, August 5, 2008 at 11:00 a.m. Eastern.
The call will be hosted by Michael Earley, Chairman and Chief Executive
Officer. Interested parties may access the conference call by dialing the
following numbers: (866) 680-0893 (domestic) or 617-213-4859 (international),
pass code # 16942500. The call will also be available via web cast at
www.metcare.com, http://www.streetevents.com, http://www.fulldisclosure.com
Participants may pre-register for the call at
https://www.theconferencingservice.com/prereg/key.process?key=PP7CMCVPQ.
Pre-registrants will be issued a pin number to use when dialing into the live
call which will provide quick access to the conference by bypassing the
operator upon connection.
If you are unable to participate, an audio replay of the call will be
available beginning two hours after the call and will be available until 11:59
p.m. on August 12, 2008, by dialing (888) 286-8010 (domestic) or
(617) 801-6888 (international) using confirmation pass code 30673608.
About Metropolitan Health Networks, Inc.:
Metropolitan is a growing healthcare organization in Florida that provides
comprehensive healthcare services for Medicare Advantage members and other
patients in South and Central Florida. To learn more about Metropolitan Health
Networks, Inc. please visit its website at www.metcare.com.
Forward Looking Statements:
Except for historical matters contained herein, statements made in this
press release are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Without
limiting the generality of the foregoing, words such as "may", "will", "to",
"plan", "expect", "believe", "anticipate", "intend", "could", "would",
"estimate", or "continue" or the negative other variations thereof or
comparable terminology are intended to identify forward-looking statements.
Investors and others are cautioned that a variety of factors, including
certain risks, may affect our business and cause actual results to differ
materially from those set forth in the forward-looking statements. These risk
factors include, without limitation, (i) the risk that the sale of the HMO to
Humana will not be completed for a variety of reasons, including, but not
limited to, an inability to obtain necessary governmental approvals and third
party consents and the occurrence of an event which has a material adverse
effect on the HMO; (ii) our ability to meet our cost projections under the
IPA; (iii) our failure to accurately estimate incurred but not reported
medical benefits expense; (iv) pricing pressures exerted on us by managed care
organizations and the level of payments we receive under governmental programs
or from other payors; (v) future legislation and changes in governmental
regulations; (vi) the impact of Medicare Risk Adjustments on payments we
receive for our managed care operations; (vii) a loss of any of our
significant contracts or our ability to increase the number of Medicare
eligible patient lives we manage under these contracts; (viii) our ability to
successfully operate the HMO prior to the closing of its sale to Humana and,
if such sale does not occur, our ability to continuously increase enrollment
and effectively manage expenses in our HMO. The company is also subject to
the risks and uncertainties described in its filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for the year
ended December 31, 2007, its Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008, and its Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008.
Contacts:

Michael Earley
Metropolitan Health Networks
Chief Executive Officer
(561) 805-8500
mearley@metcare.com

Al Palombo
Cameron Associates
Investor Relations
(212) 245-8800 Ext. 209
al@cameronassoc.com

Financial Tables to Follow

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2008 2007
ASSETS (unaudited)
CURRENT ASSETS
Cash and equivalents, including
$14.8 million in 2008 and $13.0 million
in 2007 statutorily limited to use
by the HMO $37,523,151 $38,682,186
Accounts receivable, net 239,210 1,563,370
Due from Humana 5,434,152 -
Inventory 289,192 196,154
Prepaid expenses 1,332,214 739,307
Assets of HMO subsidiary held for sale,
excluding cash of $14.8 million 3,466,410 -
Deferred income taxes 1,118,887 2,905,755
Other current assets 76,371 676,980
TOTAL CURRENT ASSETS 49,479,587 44,763,752

PROPERTY AND EQUIPMENT, net 1,363,890 2,181,119
INVESTMENT 688,997 688,997
GOODWILL, net 2,587,332 2,585,857
DEFERRED INCOME TAXES 1,200,000 1,403,082
OTHER INTANGIBLE ASSETS, net 1,360,371 1,588,498
OTHER ASSETS 92,143 599,742
TOTAL ASSETS $56,772,320 $53,811,047

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $499,076 $1,461,668
Estimated medical expenses payable - 7,016,632
Due to CMS - 2,695,087
Accrued payroll and payroll taxes 1,745,909 2,546,295
Due to Humana - 753,466
Liabilities of HMO subsidiary
held for sale 10,508,119 -
Accrued expenses 1,595,872 1,071,920
TOTAL CURRENT LIABILITIES 14,348,976 15,545,068

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, par value $.001
per share; stated value $100 per share;
10,000,000 shares authorized; 5,000
issued and outstanding, with a
liquidation preference of $529,167
and $516,667 in 2008 and 2007,
respectively 500,000 500,000
Common stock, par value $.001 per share;
80,000,000 shares authorized;
51,992,282 and 51,556,732 issued and
outstanding at June 30, 2008 and
December 31, 2007, respectively 51,992 51,557
Additional paid-in capital 44,102,050 43,311,741
Accumulated deficit (2,230,698) (5,597,319)
TOTAL STOCKHOLDERS' EQUITY 42,423,344 38,265,979
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $56,772,320 $53,811,047

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Six Months Ended Three Months Ended
June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)

REVENUE: $158,225,536 $138,038,090 $82,211,038 $69,936,634

MEDICAL EXPENSE:
Medical claims
expense 132,450,182 115,810,183 67,213,177 58,316,918
Medical center
costs 6,389,936 5,479,700 3,238,402 2,788,620
Total Medical
Expense 138,840,118 121,289,883 70,451,579 61,105,538
GROSS PROFIT 19,385,418 16,748,207 11,759,459 8,831,096

OPERATING EXPENSES:
Payroll, payroll
taxes and benefits 7,014,102 6,703,455 3,261,665 3,376,485
Marketing and
advertising 1,600,527 2,031,701 232,424 422,432
General and
administrative 5,582,621 5,693,440 2,451,525 2,702,062
Total Operating
Expenses 14,197,250 14,428,596 5,945,614 6,500,979
OPERATING INCOME 5,188,168 2,319,611 5,813,845 2,330,117

OTHER INCOME (EXPENSE):
Interest income 225,917 707,245 144,850 326,015
Other income (expense) (6,416) (17,221) (9,279) (19,769)
Total other
income (expense) 219,501 690,024 135,571 306,246

INCOME BEFORE
INCOME TAX
EXPENSE 5,407,669 3,009,635 5,949,416 2,636,363
INCOME TAX EXPENSE: 2,041,048 1,250,400 2,244,898 1,105,400
NET INCOME $ 3,366,621 $1,759,235 $3,704,518 $1,530,963

NET EARNINGS PER
COMMON SHARE:
Basic $0.07 $ 0.03 $0.07 $0.03
Diluted $0.06 $ 0.03 $0.07 $0.03

SOURCE Metropolitan Health Networks, Inc.

Michael Earley, Metropolitan Health Networks, Chief Executive Officer,
+1-561-805-8500, mearley@metcare.com; or Al Palombo, Cameron Associates,
Investor Relations, +1-212-245-8800 Ext. 209, al@cameronassoc.com