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Increases 2009 Earnings Per Share Guidance to $2.30 to $2.40
NASHVILLE, Tenn.--(Business Wire)--
HealthSpring, Inc. (NYSE:HS) today announced its results for the third quarter
and nine months ended September 30, 2009. Highlights for the 2009 third quarter
include:
* Net income of $42.3 million, or $0.77 per diluted share, compared with $29.4
million, or $0.53 per diluted share, in the 2008 third quarter;
* Premium revenue of $649.8 million, up 26.0% over the 2008 third quarter; and
* Medicare Advantage membership of 186,635 at quarter-end, up 19.4% over the
2008 third quarter-end, and up 15.1% compared with 2008 year-end; stand-alone
PDP membership of 303,975, up 11.6% over the 2008 third quarter-end.
Commenting on 2009 third quarter results, Herb Fritch, Chairman and Chief
Executive Officer, said, "We are pleased with our strong performance in the
third quarter of 2009. Performance in the quarter was driven by improvement in
inpatient admissions in most of our markets that more than offset any higher
trends we continue to experience in outpatient and professional costs. Our
Florida and Part-D operations also continue to outperform our expectations for
the year. These positive trends have caused us to increase our earnings per
share guidance for 2009. We believe that our intense focus on physician
engagement and the value proposition we offer to Medicare beneficiaries have led
to the current year`s strong performance and position us well for a strong 2010
open enrollment season."
Third Quarter Results
($ in thousands, except per share amounts)
Three Months Ended
September 30, Percent
2009 2008 Change
Premium revenue $ 649,795 $ 515,892 26.0 %
Total revenue 659,780 527,899 25.0
Medical expense 519,478 411,703 26.2
Net income 42,314 29,360 44.1
Net income per common share - diluted (1) 0.77 0.53 45.3
(1) Weighted average shares outstanding used in the calculation of net income
per common share - diluted, were 54,700,390 and 55,811,236, respectively, for
the three months ended September 30, 2009 and 2008.
Operating Highlights
Revenue
* Medicare Advantage premiums (including the prescription drug component of
HealthSpring's Medicare Advantage plans, or "MA-PD") were $580.0 million for the
2009 third quarter, reflecting an increase of 27.3% over the 2008 third quarter.
The premium revenue increase is attributable to a 19.4% increase in membership
and a 6.7% increase in premiums per member per month, or "PMPM." Additionally,
the 2009 third quarter included $6.4 million of premium revenue for changes in
estimates for current-year retroactive risk settlements related to the first
half of 2009. This change in estimate had a favorable impact on net income of
$3.5 million, or $0.06 per diluted share, in the current quarter. By comparison,
the change in estimate for the 2008 third quarter was insignificant.
* Medicare Advantage PMPM premiums were $1,043.09 in the 2009 third quarter,
compared with $977.38 in the 2008 third quarter. The PMPM premium increase in
the 2009 third quarter resulted from rate increases in CMS-calculated base rates
as well as rate increases related to risk scores.
* Stand-alone PDP premium revenue was $69.0 million for the 2009 third quarter,
an increase of 16.8% compared with the 2008 third quarter. The higher revenue
resulted from an 11.6% increase in membership and a 4.7% increase in PDP
premiums PMPM in the current quarter.
* Investment income decreased from the 2008 third quarter by $2.9 million, or
76.9%, to $0.9 million for the 2009 third quarter, primarily as a result of a
lower average yield on invested and cash balances.
Medical Expense
* Medicare Advantage medical loss ratio, or "MLR," was 79.7% for the 2009 third
quarter, compared with 79.2% for the prior year`s third quarter. The impact from
risk-adjustment payments relating to prior periods of 2009 was favorable by 0.7%
on the 2009 third quarter. Higher outpatient expenses and increases in physician
expenses in the Alabama, Tennessee, and Texas health plans resulted in an
increase in the current period MLR, compared with the 2008 third quarter.
Increasing pharmacy trends for the drug benefit component of the Company's MA-PD
plans during the current period also contributed to the increase in the MLR.
These increases were partially offset by improvements in inpatient admissions
across all markets and continued strong performance in the Florida plan. On a
year-to-date basis, the MA MLR was 81.1%, compared with 79.2% for the prior
year`s first nine months, as adjusted in both periods to exclude favorable final
CMS settlement adjustments associated with prior years.
* PDP MLR was 81.5% for the 2009 third quarter, compared with 85.1% in the 2008
third quarter. On a year-to-date basis, the PDP MLR was 90.2%, compared with
93.3% for the prior year`s first nine months. The improvement in the PDP MLR was
primarily attributable to higher PMPM premium revenue. Higher utilization of
generic prescription drugs in the 2009 period also contributed to the
improvement in the year-to-date PDP MLR.
Selling, General & Administrative (SG&A) Expense
* SG&A expense as a percentage of total revenue in the 2009 third quarter
decreased 110 basis points to 10.0%, compared with 11.1% in the 2008 third
quarter. The improvement in SG&A as a percentage of revenue resulted primarily
from improvements in the Company's operating model and revenue increases. The
$7.2 million increase in the 2009 third quarter compared with the 2008 third
quarter was primarily the result of additional personnel costs associated with
membership increases. On a year-to-date basis, SG&A expense as a percentage of
total revenue in 2009 was 10.1% compared with 10.8% for the prior year`s first
nine months.
Interest Expense
* Interest expense in the 2009 third quarter decreased $0.8 million compared
with the 2008 third quarter as a result of lower effective interest rates and
lower average principal balances.
* The Company's weighted average effective interest rate (exclusive of the
amortization of deferred financing costs) for the three months ended September
30, 2009 was 4.7% compared with 5.3% for the three months ended September 30,
2008.
Income Tax Expense
* The effective income tax rate was adjusted in the 2009 third quarter to 34.9%
for the nine months ended September 30, 2009. This lower tax rate resulted
primarily from a favorable tax impact related to business combination accounting
for the Florida health plan acquisition. This and other minor adjustments
contributed $0.04 to diluted earnings per share for the 2009 third quarter. The
Company currently expects the effective income tax rate for the full year will
approximate 35.2%, which includes the items reported in the third quarter.
Balance Sheet Highlights
* At September 30, 2009, the Company`s cash and cash equivalents were $389.8
million, $75.3 million of which was held at unregulated subsidiaries, compared
with cash and cash equivalents of $282.2 million at December 31, 2008, $31.4
million of which was held at unregulated subsidiaries.
* Total debt outstanding was $244.2 million at September 30, 2009, compared with
$268.0 million at December 31, 2008, and $275.3 million at September 30, 2008.
There were no borrowings outstanding under the Company`s $100 million revolving
credit facility at September 30, 2009 or 2008.
* For the first nine months of 2009, net cash generated in operating activities
was $115.5 million compared with $152.6 million generated in the same period of
2008. Operating cash flows on a year-to-date basis for 2009 included the receipt
of approximately $31.8 million of prior-year CMS risk premium settlements
compared with the settlement of $57.9 million received in the first nine months
of 2008.
* Days in claims payable totaled 35 at the end of the 2009 third quarter,
compared with 36 at the end of the 2009 second quarter.
Outlook
* EPS: The Company is increasing its expectations for diluted earnings per share
for 2009 to be in the range of $2.30 to $2.40, on weighted average shares
outstanding of approximately 55.4 million.
* Membership: The Company increases its estimate for Medicare Advantage
membership from 186,000-188,000 to a range of 188,000-189,000 at the end of
2009. The Company also refines its estimate for PDP membership from
310,000-320,000 to a range of 311,000-313,000 at the end of 2009.
* Revenue: The Company now estimates that 2009 total revenue will be
approximately $2.65 billion.
* MLRs: The Company is modifying its estimate for Medicare Advantage (including
MA-PD) full-year MLR to be approximately 81.0% for 2009. The Company maintains
its estimate for stand-alone PDP MLR to be in the range of 84.0% to 86.0% for
the year.
* SG&A: The Company continues to estimate that selling, general and
administrative expense will be approximately 10.5% of total revenue for 2009.
Conference Call
A live audio webcast of the conference call regarding third quarter results will
begin at 10:00 a.m. ET on Thursday, October 29, 2009. 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) 312-0643, confirmation number 6838864. 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.
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 2010 open enrollment and 2009 guidance,
including effective tax rates. 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; legislative and regulatory actions or
changes, including changes in Medicare funding and premium rates; changes in our
members` utilization of medical services; changes in medical and prescription
drug cost trends; the Company`s ability to accurately estimate CMS retroactive
risk adjustments to Medicare premiums; competition; 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; costs associated with compliance with regulatory
mandates and with responding to regulatory audits; 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, 2008, and in other public filings by the Company.
Supplemental Information
1. Membership
Sept. 30, June 30, Percent Dec. 31, Percent Sept. 30, Percent
2009 2009 Change 2008 Change 2008 Change
MA Membership:
Alabama 31,007 30,101 3.0 29,022 6.8 28,651 8.2
Florida 31,513 30,892 2.0 27,568 14.3 27,204 15.8
Illinois 11,077 10,821 2.4 9,245 19.8 9,005 23.0
Mississippi 4,473 4,152 7.7 2,425 84.5 2,183 104.9
Tennessee 57,240 55,917 2.4 49,933 14.6 49,366 16.0
Texas 51,325 50,348 1.9 43,889 16.9 39,896 28.6
Total 186,635 182,231 2.4 162,082 15.1 156,305 19.4
PDP Membership: 303,975 294,753 3.1 282,429 7.6 272,469 11.6
Commercial: 735 739 (0.5 ) 895 (17.9 ) 921 (20.2 )
2. Segment Information
Financial data by reportable segment for the three and nine months ended September 30 is as follows (in thousands):
MA-PD PDP Commercial Corporate Total
Three months ended September 30, 2009
Revenue $ 589,966 $ 69,044 $ 754 $ 16 $ 659,780
EBITDA 71,983 10,644 (269 ) (7,907 ) 74,451
Depreciation and amortization expense 6,330 20 - 1,432 7,782
Three months ended September 30, 2008
Revenue $ 466,916 $ 59,917 $ 960 $ 106 $ 527,899
EBITDA 57,477 6,429 670 (7,014 ) 57,562
Depreciation and amortization expense 6,060 2 - 985 7,047
Nine months ended September 30, 2009
Revenue $ 1,736,970 $ 249,158 $ 2,269 $ 42 $ 1,988,439
EBITDA 183,866 18,557 (277 ) (21,596 ) 180,550
Depreciation and amortization expense 19,052 60 - 3,836 22,948
Nine months ended September 30, 2008
Revenue $ 1,430,899 $ 211,923 $ 4,346 $ 313 $ 1,647,481
EBITDA 190,758 7,974 66 (20,871 ) 177,927
Depreciation and amortization expense 18,261 5 - 3,014 21,280
As of January 1, 2009, the Company revised its methodology for allocating the
selling, general, and administrative expenses within its prescription drug
operations, which resulted in its allocating a greater share of such expenses to
its MA-PD segment. As such, the MA-PD and PDP segment`s EBITDA amounts for the
2008 period include reclassification adjustments between segments such that the
periods presented are comparable.
A reconciliation of reportable segment EBITDA to net income included in the
consolidated statements of income for the three and nine months ended September
30 is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
EBITDA $ 74,451 $ 57,562 $ 180,550 $ 177,927
Income tax expense (20,593 ) (16,635 ) (50,772 ) (51,494 )
Interest expense (3,762 ) (4,520 ) (12,014 ) (14,513 )
Depreciation and amortization (7,782 ) (7,047 ) (22,948 ) (21,280 )
Net Income $ 42,314 $ 29,360 $ 94,816 $ 90,640
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)
September 30, December 31,
Assets 2009 2008
Current assets:
Cash and cash equivalents $ 389,766 $ 282,240
Accounts receivable, net 71,546 74,398
Investment securities available for sale 6,066 3,259
Investment securities held to maturity 16,040 24,750
Funds due for the benefit of members 4,085 40,212
Deferred income taxes 3,458 4,198
Prepaid expenses and other 8,794 6,560
Total current assets 499,755 435,617
Investment securities available for sale 18,480 30,463
Investment securities held to maturity 41,924 20,086
Property and equipment, net 29,177 26,842
Goodwill 589,760 590,016
Intangible assets, net 207,739 221,227
Restricted investments 16,260 11,648
Risk corridor receivable from CMS 8,967 -
Other 7,176 8,878
Total assets $ 1,419,238 $ 1,344,777
Liabilities and Stockholders' Equity
Current liabilities:
Medical claims liability $ 200,372 $ 190,144
Accounts payable, accrued expenses and other 28,305 35,050
Risk corridor payable to CMS 3,089 1,419
Current portion of long-term debt 35,729 32,277
Total current liabilities 267,495 258,890
Deferred income taxes 80,433 89,615
Long-term debt, less current portion 208,425 235,736
Other long-term liabilities 9,027 9,658
Total liabilities 565,380 593,899
Stockholders' equity:
Common stock 581 578
Additional paid in capital 511,933 504,367
Retained earnings 389,986 295,170
Accumulated other comprehensive loss, net (1,288 ) (1,955 )
Treasury stock (47,354 ) (47,282 )
Total stockholders' equity 853,858 750,878
Total liabilities and stockholders' equity $ 1,419,238 $ 1,344,777
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)
Three Months Ended Nine Moths Ended
September 30, September 30,
2009 2008 2009 2008
Revenue:
Premium revenue $ 649,795 $ 515,892 $ 1,955,842 0.07
Multi-employer pension plan withdrawal charge 0.01 - - - 0.01 0.01
Adjusted earnings per diluted share $ 0.68 $ 0.86 (21 %) $ 0.67 (12 %) $ 0.70 (8 %) $ 2.70 (13 %) $ 2.80 (10 %)
The third quarter and fiscal 2010 guidance above does not incorporate the impact
of future multi-employer pension plan withdrawal charges.
The Company believes that adjusted earnings per diluted share provides investors
meaningful insight into the Company's earnings performance without the impact of
special charges. Non-GAAP numbers should be read in conjunction with GAAP
financial measures, as non-GAAP metrics are merely a supplement to, and not a
replacement for, GAAP financial measures. It should be noted as well that our
adjusted earnings per diluted share metric may be different from adjusted
earnings per diluted share metrics provided by other companies.
Return on Capital
Reconciliations and computations of return on capital:
September 30,
(In thousands) 2009 2008
Operating Income - Trailing Four Quarters $ 462,756 $ 529,385
Five Quarter Average of Total Assets $ 4,379,965 $ 4,007,369
Five Quarter Average of Securitized Trade Receivables 319,920 345,000
Five Quarter Average of Current Liabilities (exclusive of debt) (433,785 ) (459,450 )
Five Quarter Average Capital Employed $ 4,266,100 $ 3,892,919
Return on Capital 10.8 % 13.6 %
The Company believes this return on capital computation helps investors assess
how effectively the Company uses the capital invested in its operations. Our
management uses return on capital as one of the metrics for determining employee
compensation. Non-GAAP numbers should be read in conjunction with GAAP financial
measures, as non-GAAP metrics are merely a supplement to, and not a replacement
for, GAAP financial measures. It should be noted as well that our return on
capital computation information may be different from the return on capital
computations provided by other companies.
Free Cash Flow and Adjusted Cash from Operations
Reconciliations and computations of free cash flow and adjusted cash from
operations:
Six Months Ended
September 30,
(Amounts in thousands) 2009 2008
Net cash provided by operating activities $ 299,770 $ 270,242
Adjustments to cash provided by operating activities:
Cash used by the securitization of trade receivables 38,700 -
Stock issued for the employee stock purchase plan 7,759 8,102
Tax benefit realized from the exercise of stock options 2,721 8,454
Adjusted cash from operations $ 348,950 $ 286,798
Capital expenditures $ (131,365 ) $ (185,199 )
Adjustments to capital expenditures:
Proceeds from sales of plant and equipment 5,695 4,812
Operating lease buyouts - 5,575
Adjusted capital expenditures $ (125,670 ) $ (174,812 )
Free Cash Flow $ 223,280 $ 111,986
The Company believes that free cash flow and adjusted cash from operations
provide investors meaningful insight into the Company's ability to generate cash
from operations, which is available for servicing debt obligations and for the
execution of its business strategy, including acquisitions, the prepayment of
debt, or to support other investing and financing activities. Non-GAAP numbers
should be read in conjunction with GAAP financial measures, as non-GAAP metrics
are merely a supplement to, and not a replacement for, GAAP financial measures.
It should be noted as well that our free cash flow and adjusted cash from
operations metrics may be different from free cash flow and adjusted cash from
operations metrics provided by other companies.
HealthSpring, Inc.
Lankford Wade, 615-236-6200
Senior Vice President & Treasurer
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