) posted an adjusted loss of 12 cents for the fourth quarter of
2013 compared with earnings of 5 cents per share in the
comparable quarter of 2012 and missed the Zacks Consensus
Estimate of earnings of 3 cents per share. The decline in
earnings can be attributable to lower revenues and higher cost of
services during the quarter.
Revenues in the quarter dipped 3.4% to $169.2 million, also
lagging the Zacks Consensus Estimate of $174 million. However,
excluding the two terminated contracts, including the one with
), revenues increased 5.2% in the quarter to $169.0 million.
For full year 2013, Healthways reported adjusted net loss of 19
cents per share compared with adjusted earnings of 27 cents per
share in 2012. Revenues declined 2.1% to $663.3 million in the
year. However, excluding the two terminated contracts, revenues
for the year grew 10.8% to $659.8 million.
The adjusted figures for both the quarter and full year exclude
non-cash interest expense in 2013 and a restructuring charge in
Healthways failed to meet its own revenue expectations of 171 to
$181 million for the fourth quarter and $665-$675 million for the
full year due to the accounting treatment of $10 million of fees
under an expanded agreement for new services signed with an
existing long-term customer in the fourth quarter.
Healthways' guidance had included $10 million as revenues.
However, the company collected payment for the $10 million of
fees in Jan 2014. It now plans to recognize $10 million in the
2014 and 2015 results.
Operating loss in the quarter was $3.0 million compared with an
operating profit of $4.9 million. For the full year, operating
profit declined significantly to $1.9 million from $28.9 million
Healthways inked 35 contracts in the reported quarter. This count
included 11 fresh, 10 expanded, and 14 extended contracts. The
company has forged contracts with WellPoint in the U.S.,
SulAmérica in Brazil, renewed contract with Hospitals
Contributions Fund (HCF) in Australia, and extended contract
under the New South Wales Connecting Care.
These apart, Healthways signed nine new, expanded or extended
contracts for its SilverSneakers Fitness Program, including an
expansion with Humana. It also reached agreement to advance the
population health management capabilities of its existing
customers - Renaissance Health Network and Carondelet Health
Network. It also expanded its contract with Texas Health
Resources and Hawaii Medical Service Association and broadened
its strategic relationship with Dan Buettner and Blue Zones.
For the full year 2013, Healthways signed 104 contracts. This
includes 25 new contracts, 33 expanded contracts, and 46 extended
contracts. The company also renewed all three of its largest
contracts, which are due for renewal in 2013.
Healthways ended the year with cash and cash equivalents of $2.6
million, up 46.9% from $1.8 million as of Dec 31, 2012. Long-term
debt was $251.9 million, down 13.2% from $290.3 million at the
end of 2012. Consequently, long-term debt-to-capitalization ratio
fell 560 basis points to 45.4% from 51.0% as of Dec 31, 2012.
In 2013, cash flow from operating activities surged 75.8% to
$71.5 million compared with $40.7 million in 2012, despite lower
earnings. The improvement was driven by significant decrease in
accounts receivable and considerable increase in accounts
payable. Capital expenditures fell 15.5% to $41.3 million from
$48.9 million a year ago.
For 2014, Healthways upgraded its revenue guidance to a range of
$730 to $760 million (reflecting a 10-15% rise from 2013) from
the earlier range of $725 to $760 million, provided in Oct 2013.
The current Zacks Consensus Estimate for 2014 revenues of $737
million lies within the guided range.
The company continues to expect EBITDA margins to increase 230 to
330 bps from 8.2% in 2013 to 10.5-11.5% for 2014. Healthways
expects adjusted earnings in a range of 11 to 26 cents per share.
The current Zacks Consensus Estimate for 2014 earnings of 15
cents lies within the guided range.
Healthways expects to report a loss in the 2014 first quarter at
the same level as in the first quarter of 2013. However, it
expects to breakeven in the second quarter and report sequential
increase in profitability in the third and fourth quarters,
driven by the timing of recognizing performance-based fees.
Despite dwindling earnings and revenues in the fourth quarter,
investors look optimistic about the Healthways' guidance, which
reflects improvement. As a result, shares of the company rose
0.7% after the earning release. However, we are concerned about
slowdown in the underlying market that can significantly hurt the
Currently, Healthways retains a Zacks Rank #4 (Sell). Some
better-ranked stocks in the medical services industry include
Quintiles Transnational Holdings Inc.
). Both these stocks carry a Zacks Rank #1 (Strong Buy).
BIOTELEMETRY (BEAT): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
HEALTHWAYS INC (HWAY): Free Stock Analysis
QUINTILES TRANS (Q): Free Stock Analysis
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