Feb 13 2014
Ben R. Leedle, Jr., president and chief executive officer of Healthways, Inc. (NASDAQ: HWAY), today announced financial results for the fourth quarter and year ended December 31, 2013. Total revenues for the quarter were $169.2 million compared with $175.2 million for the fourth quarter of 2012. Net loss for the fourth quarter of 2013 was $5.3 million, or $0.15 per share, compared with net income of $0.6 million, or $0.02 per diluted share, for the fourth quarter of 2012. Excluding non-cash interest expense from the fourth quarter of 2013 and a restructuring charge from the fourth quarter of 2012, adjusted net loss for the fourth quarter of 2013 was $0.12 per share compared with adjusted net income of $0.05 per diluted share for the fourth quarter of 2012 (see pages 7 and 8 for a reconciliation of non-GAAP financial measures).
For 2013, revenue was $663.3 million compared with $677.2 million for 2012. Net loss for 2013 was $8.5 million, or $0.25 per share, compared with net income of $8.0 million, or $0.24 per diluted share, for 2012. Excluding non-cash interest expense in 2013 and a restructuring charge in 2012, adjusted net loss for 2013 was $0.19 per share compared with adjusted net income of $0.27 per diluted share for 2012.
Leedle stated, "Our fourth-quarter financial results were below our guidance solely due to the accounting treatment of $10 million of fees under an expanded agreement for new services signed in the fourth quarter with an existing long-term customer. Our financial guidance for the quarter, based upon a term sheet for this agreement, included the expected recognition of the $10 million as revenue. We performed the services and fully incurred the related costs during the third and fourth quarters and collected payment for the $10 million of fees in January 2014. However, following a comprehensive review with our independent auditor over the past several weeks, particularly focused on certain new contractual provisions in the final agreement, which were completed in connection with a large related distribution agreement, we made a determination to recognize the $10 million during 2014 and 2015.
"As a result of this accounting conclusion, our revenues for the fourth quarter were $10 million less than expected and our earnings were $0.17 per share less than expected. If the amount had been recognized in our fourth-quarter revenue as originally anticipated, our revenues and earnings would have been well within the guidance we provided in our third-quarter earnings release. While this accounting conclusion has a disproportionate impact on fourth-quarter revenue and earnings, it will have an offsetting positive impact on our earnings over 2014 and 2015.
"In the fourth-quarter we met or exceeded our business expectations in terms of contract signings, lives under management, service delivery performance, health outcomes, risk-based fee recognition and cost structure. Our revenues for the fourth-quarter and full-year 2013 grew 5.2% and 10.8%, respectively, from the comparable prior-year periods, excluding the termination of the contracts with Cigna and one other health plan (the "two terminated contracts"; see pages 7 and 8 for a reconciliation of non-GAAP financial measures). In addition, we delivered a 61.7% sequential increase in fourth-quarter operating cash flow to $20.2 million, resulting in full-year operating cash flow of $71.5 million."
2014 Financial Guidance
Healthways today updated its 2014 financial guidance. The Company's guidance for 2014 revenues is now in a range of $730 million to $760 million, an increase from the preliminary range of $725 million to $760 million that was provided in October 2013. Healthways continues to expect EBITDA margins to expand meaningfully, from 8.2% for 2013 to a range of 10.5% to 11.5% for 2014. The Company's guidance for 2014 net income per diluted share is in a range of breakeven to $0.15, which includes $0.11 of non-cash interest expense. Healthways' guidance for 2014 adjusted net income per diluted share, which excludes non-cash interest expense, is in a range of $0.11 to $0.26. The Company expects to progress from a first-quarter loss of approximately the same level as the first quarter of 2013, to approximately breakeven for the second quarter and to sequentially increasing profitability for the third and fourth quarters, primarily driven by the timing of recognizing performance-based fees.
Broad Market Adoption of Well-Being Improvement
"Our business development momentum was strong during the fourth quarter," added Leedle. "We signed 35 contracts, including 11 contracts with new customers, 10 contract expansions and 14 contract extensions. For the full year, we signed 104 contracts, including 25 contracts with new customers, 33 contract expansions and 46 contract extensions. We renewed all three of our largest contracts up for renewal during 2013.
"The contracts we have signed since the end of the third quarter of 2013 demonstrate demand across all our customer markets: commercial and Medicare Advantage health plans; large employers; health systems, hospitals and physicians; and international. In addition, we are pleased with the progress made to date in our exclusive partnership to operate and license Dr. Dean Ornish's Lifestyle Management Programs (Ornish Program). Generating revenue for providers and medical cost savings for payors makes the Ornish Program valuable for all the stakeholders in both fee for service and value-based payment models.
"We announced a new contract with WellPoint in the fourth quarter to offer the Ornish Program to its membership. In a February 11th news release, WellPoint said, 'The collaboration applies to members of WellPoint's affiliated health plans, which span 14 states and represent nearly one in nine Americans.' This agreement represents not only WellPoint's strong endorsement of the Ornish program but also WellPoint's dedication to bring population health management and well-being improvement programs to its trusted provider network.
"Since the end of the third quarter of 2013, we have announced key expansions in our international business in Brazil and Australia. We entered a new five-year agreement with our existing customer, SulAmérica, the largest independent health insurer in Brazil, to launch Latin America's most comprehensive private health and well-being improvement program for approximately 2 million SulAmérica members. We also expanded our presence in Australia by winning a rigorous, competitive process for a three-year contract to deliver Australia's largest health coaching program, available to approximately 10 million adults in New South Wales, Tasmania, the Australian Capital Territory, Queensland and South Australia. Also in 2013, Healthways announced the five-year renewal of its contract with Hospitals Contributions Fund (HCF), Australia's largest not-for-profit private health insurer, to provide the My Health Guardian program to more than 1.5 million members. In addition, we extended our contract to operate a program for chronic disease management services under the New South Wales Connecting Care in the Community program.
"Reflecting growing demand for effective web and mobile open social network solutions, in the fourth quarter we signed a key contract expansion with a Fortune 50 employer to provide both our Well-Being Tracker® and Daily Challenge® to all of its U.S. employees beginning in the second quarter of 2014. This expansion is further strong evidence that large self-insured employers both understand and embrace the value of our well-being improvement solution and are actively engaged in configuring those capabilities. Our customer views Healthways' services as an investment in the well-being of its employees and dependent family members and, in general, in the overall performance of its business.
"In January 2014 we announced a three-year agreement with Blue Shield of California to provide our MeYou Health-branded social well-being improvement solutions to support Blue Shield's Wellvolution health and wellness program. Blue Shield of California's three million fully insured commercial members and over a dozen self-insured large employer groups, including Blue Shield of California employees, will have access to MeYou Health's suite of open social well-being improvement products, as well as telephonic health risk coaching to support the program. Eligible participants can invite friends and family to join them free of charge in using the products, unlike typical employer-sponsored group benefit restricted programs. The resulting rich social interactions combine with intelligent game design to drive long-term engagement and effectiveness, an innovative approach that complements and enhances more traditional strategies.
"Since the third quarter, we have signed nine new, expanded or extended contracts for our SilverSneakers® Fitness Program, including an expansion with Humana, which increased access to the program to include all 2.2 million of its members nationwide. In addition, we reached agreement to advance the population health management capabilities of our existing customers, Renaissance Health Network and Carondelet Health Network. We also expanded already strong relationships with Texas Health Resources and Hawaii Medical Service Association - as well as our strategic relationship with Dan Buettner and Blue Zones - by securing commitments to launch a new Blue Zones Project by HealthwaysTM in Fort Worth and Hawaii."
Summary
Leedle concluded, "We have entered 2014 with solid business momentum and without the revenue headwinds we experienced over the past several years from the two terminated contracts. As a result, we expect to produce growth in annual revenues for 2014 in a range of 10% to 15%. With revenue growth, we expect to achieve greater operating leverage, leading to expanded margins for 2014.
"Our confidence in our prospects for growth in 2014 and beyond reflects the increasing demand for population health solutions, which has continued to accelerate over the past year. This demand is driven by the promise of these solutions to improve people's health and well-being, which drives improved performance and lower health-related costs. We believe Heathways stands alone in our ability to deliver guaranteed results at scale, and we expect this differentiated market position to support long-term growth in our earnings and shareholder value."