) reported second quarter 2012 adjusted (excluding one-time
expenses) earnings per share of 15 cents, easily beating the Zacks
Consensus Estimate of 7 cents per share but falling short of the
year-ago earnings of 17 cents per share.
Net income came in at $5.1 million, down 12.5% year over year.
The results for the reported quarter reflect the loss of the
Revenues increased almost 0.4% year over year to $170.2 million
in the second quarter, surpassing the Zacks Consensus Estimate of
$169 million. Revenues were driven by the acknowledgement of
performance-based fees. Upon exclusion of the Cigna contract,
revenues improved 11% year over year.
Gross margin declined 170 basis points year over year to 24% in
the quarter. Healthways posted an operating margin of 7.7%, down
240 basis points year-over-year. Selling, general and
administrative expenses decreased 15.3% year over year to
approximately $15 million.
Balance Sheet and Cash Flow
The company ended the second quarter of 2012 with cash and cash
equivalents of only $1.3 million, up almost 38.4% year over year.
Long-term debt was $283.1 million, up 26.8% year over year. Net
cash flow from operations dipped 22.8% year over year to $21.7
Healthways inked 23 new, expanded or extended contracts in the
quarter. This count included nine fresh contracts, one
expanded contract, two expanded and extended contracts and 11
These contracts are spread across domestic as well as overseas
markets. The company has also started providing services for its
contract with the French firm Caisse Nationale d'Assurance Maladie
des Travailleurs Salaries (CNAMTS) from May, 2012.
Healthways acquired Ascentia Healthcare Solutions in the second
quarter. The company also forged a keystone 10-year contract for
Physician-Directed Population Health (PDHP) Management with Texas
Health Resources in the quarter.
Healthways has extended and expanded its pre-existing wellness
solutions contract with
). The renewed contract is binding through 2015. The company also
extended its SilverSneakers Fitness Program contract with
For 2012, Healthways maintains its forecast revenues in a band
of $665 million and $705 million. This estimate includes domestic
revenues in the range of $638 million to $670 million and overseas
revenues of about $27 million to $35 million.
The company maintained its forecast earnings per share in the
range of 38 cents to 50 cents for 2012. The estimate includes an
additional expenditure impact of 4 cents per share due to the
refinancing of Healthways' senior credit facilities. This estimate
comprises earnings per share from domestic sources in a range of 38
cents to 46 cents and from overseas operations in a band of zero to
The Healthways model encourages people to make favorable
lifestyle changes that lead to enhanced well-being, reduced
healthcare costs, improved performance and economic value for
customers. The company has invested in technology platforms that
provide scalable support with large populations. It has tie-ups
with a large proportion of U.S. health plans and counts many
millions of lives in its customer base.
Due to its unique scalable business model, Healthways shares
present a compelling long-term investment opportunity, although it
may face many challenges in the short term.
Healthways is the leader in a strategically critical and rapidly
evolving part of the health care services market. Its fitness
program (SilverSneakers) for seniors is available at 14,000 centers
across the U.S. and caters to several million eligible enrollees.
Healthways competes with
) among others.
We currently have a Neutral recommendation on Healthways. The
stock retains a Zacks #3 Rank, which translates into a short-term
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