Healthways Results in Line with Expectations for First-Quarter 2013

  Healthways Results in Line with Expectations for First-Quarter 2013

                     Reports Net Loss of $0.12 Per Share

  Affirms 2013 Financial Guidance, Including Earnings of $0.25 to $0.35 Per
                                Diluted Share

Business Wire

NASHVILLE, Tenn. -- April 18, 2013

Ben R. Leedle, Jr., president and chief executive officer of Healthways, Inc.
(NASDAQ: HWAY), today announced financial results for the first quarter ended
March 31, 2013. Total revenues for the quarter were $165.2 million, level with
revenues of $165.2million for the first quarter of 2012. There was a net loss
for the first quarter of 2013 of $3.9 million, or $0.12 per share, compared
with a net loss of $2.7 million, or $0.08 per share, for the first quarter of
2012.

“Healthways’ first-quarter 2013 financial performance was consistent with our
expectations, supporting the previously discussed quarterly progression that
we expect will enable us to achieve our financial guidance for 2013,” said
Leedle. “As anticipated, our revenues for the quarter reflected the negative
impact from the termination of the Cigna contract and one other health plan
contract (the “two terminated contracts”). Excluding the two terminated
contracts, our revenues expanded more than $18 million, or 12.6%, compared to
the same quarter last year (see page 7 for a reconciliation of non-GAAP
financial measures). Despite the impact from the two terminated contracts, we
expect the large, long-term contracts we signed in 2012 to drive
sequential-quarter growth in revenues and margins for the remainder of 2013.
As a result, we affirm our financial guidance for 2013. We also remain
confident that the continued organic growth and ramping revenue of our current
contract base will produce profitable growth for 2014.

“Net cash flow from operations for the first quarter was $26.0 million, which
included the collection of two significant accounts receivable originally
anticipated in the prior quarter. With capital expenditures of $11.3 million
for the first quarter, our free cash flow contributed to a $21.5 million net
debt reduction from the end of 2012. This reduction resulted in an improvement
in the ratio of long-term debt to EBITDA under our credit agreement to 3.1 at
the end of the first quarter, down from 3.4 at the end of 2012. We continue to
expect to produce net cash flows from operations of $70million to $80 million
for 2013, with anticipated capital expenditures of $45 million.”

Business Development Momentum

“Our positive business development momentum continued during the first quarter
in all three of our target markets: health plans, health systems and
employers,” added Leedle. “We expect to sign new and expanded business in each
of these markets during the remainder of 2013.

“During the first quarter, we signed 21 contracts, including five with new
customers, seven expansions and nine extensions. Included in these contracts
was a new contract with Carondelet Health Network, part of the Ascension
system, which represents our fifth partnership contract in the health systems
market. Like our other health systems partnership contracts, our agreement
with Carondelet presents an opportunity to develop a deep, strategic and
long-term relationship, bringing all our capabilities to bear in their market.
We also signed new multi-year contracts with health plans to provide our
SilverSneakers® Fitness Program to their Medicare Advantage members and
extended a successful commercial health plan fitness program with Health Care
Services Corporation.

“After the quarter’s end, we announced a new five-year international contract
with SulAmérica, the largest independent health insurer in Brazil, giving us
access to more than 1.5 million of SulAmérica’s adult members. Initially, the
focus of services will be a comprehensive assessment of the health and
well-being of a significant portion of the SulAmérica population. During the
remainder of 2013, we will jointly develop a progression plan for the
implementation of additional elements of the Healthways Well-Being Improvement
Solution.

“In addition to these contract signings, our work with health systems includes
the expected deployment of services over time that creates a ramping revenue
profile. During the first quarter, we announced our participation in two
commercial Accountable Care Organizations in conjunction with Texas Health
Resources and two managed care organizations. We also announced our
collaboration with Wellmont Health System to provide services in support of
the Wellmont Integrated Network Accountable Care Organization (ACO) in
Medicare’s Shared Savings Program.”

Financial Guidance

Based on the Company’s first quarter financial and operating results and its
outlook for the remainder of 2013, Healthways today affirmed its previously
issued financial guidance for 2013.

The Company’s guidance for 2013 revenues is a range of $710 million to $750
million. This range represents a 5% to 11% increase over 2012 revenues,
despite reduced revenues of approximately $80million in 2013, as compared to
2012, from the two terminated contracts. The Company expects its revenues to
grow sequentially throughout 2013, particularly in the second half of the
year. This sequential growth is driven primarily by the significant contracts
signed in 2012 that are expected to ramp for as long as 24 to 36 months before
reaching an average target revenue run rate. In addition, a vast majority of
the Company’s performance-based revenue for 2013 is expected to be recognized
in the second half of the year. As previously discussed, the Company expects
its existing contract base at the end of 2012 to produce revenue growth for
2014 over 2013 of more than $85 million, before considering any future
contract wins or losses.

The Company’s guidance for 2013 EBITDA margin remains in a range of 10.5% to
12.5%, compared to an EBITDA margin of 11.9% for 2012. In addition to the
impact of the two terminated contracts, the Company’s EBITDA margin guidance
reflects the fact that, for many of the large contracts signed during 2012,
implementation costs are incurred ahead of the revenue ramp anticipated during
2013. As a result of these dynamics, Healthways expects expansion in EBITDA
margin through the sequential quarters of 2013.

The Company’s guidance for 2013 net income per diluted share remains in the
range of $0.25 to $0.35. Consistent with guidance for 2013 EBITDA, the Company
expects net income per diluted share to ramp through the sequential quarters
of 2013, including a net loss of approximately $0.05 per share for the second
quarter of the year before returning to profitability in the third quarter.

Summary

Leedle concluded, “We have been explicit in our expectations for
sequential-quarter revenue and margin improvement, primarily due to the
ramping of large, long-term contracts signed in 2012. We expect these
contracts, combined with contracts signed in 2013, to drive further revenue
and margin growth in 2014, returning the Company to a path of sustainable
long-term profitable growth.

“However, the significance of our strong business development performance
extends beyond the expected financial results for the next two years. Our
recent wins reflect the accelerating transition of the healthcare industry to
a value-based payment model centered on longitudinal quality and cost results.
Healthways has long been a leading proponent and practitioner of value-based
payment models for creating the necessary alignment among all stakeholders to
pursue higher well-being to drive improved performance and reduced costs.
Anticipating the industry transition to these value-based models, we have
strengthened and expanded our value proposition for more than six years in
order to be positioned to provide proven, scaled, long-term total population
management through our comprehensive Well-Being Improvement Solution.

“As a result, we are the only company with an evidence-based record of
creating, measuring and capturing the value of sustained improvement in
individual and population well-being. As our contracting success continues to
indicate, there is strong demand in the healthcare market for exactly this
solution, giving Healthways a unique opportunity to maintain its ongoing
market leadership in delivering higher well-being, which results in better
individual and business performance and lower health-related costs.”

Conference Call

Healthways will hold a conference call to discuss this release today at 5:00
p.m. Eastern Time. Investors will have the opportunity to listen to the
conference call live over the Internet by going to www.healthways.com and
clicking Investor Relations, or by going to www.earnings.com, at least 15
minutes early to register, download and install any necessary audio software.
For those who cannot listen to the live broadcast, a telephonic replay will be
available for one week at 719-457-0820, code 4565899, and the replay will also
be available on the Company’s web site for the next 12 months.

Safe Harbor Provisions

This press release contains forward-looking statements, including our guidance
and financial expectations for future periods, which are based upon current
expectations, involve a number of risks and uncertainties and are subject to
the “safe harbor” provisions of the Private Securities Litigation Reform Act
of 1995. Those forward-looking statements include all statements that are not
historical statements of fact and those regarding the intent, belief or
expectations of the Company, including, without limitation, all statements
regarding the Company’s future earnings and results of operations. Those
forward-looking statements are subject to the finalization of the Company’s
quarterly financial accounting procedures and may be affected by certain risks
and uncertainties, including, but not limited to:

  *the Company’s ability to sign and implement new contracts;
  *the Company’s ability to accurately forecast the costs required to
    successfully implement new contracts;
  *the Company’s ability to accurately forecast the costs necessary to
    integrate new or acquired businesses, services (including outsourced
    services) or technologies into the Company’s business;
  *the Company’s ability to anticipate change and respond to emerging trends
    in the domestic and international markets for healthcare and the impact of
    the same on demand for the Company’s services;
  *the Company’s ability to implement its integrated data and technology
    solutions platform within the required time frame and expected cost
    estimates and to develop and enhance this platform and/or other
    technologies to meet evolving customer and market needs;
  *the Company’s ability to renew and/or maintain contracts with its
    customers under existing terms or restructure these contracts on terms
    that would not have a material negative impact on the Company’s results of
    operations;
  *the Company’s ability to accurately forecast the Company’s revenues,
    margins, earnings and net income, as well as any potential charges that
    the Company may incur as a result of changes in its business;
  *the Company’s ability to accurately forecast performance and the timing of
    revenue recognition under the terms of its customer contracts ahead of
    data collection and reconciliation;
  *the Company’s ability to accurately forecast enrollment and participation
    rates in services and programs offered within the Company’s contracts;
  *the risks associated with foreign currency exchange rate fluctuations;
  *the ability of the Company’s customers to provide timely and accurate data
    that is essential to the operation and measurement of the Company’s
    performance;
  *the Company’s ability to achieve the contractually required cost savings
    and clinical outcomes improvements and reach mutual agreement with
    customers with respect to cost savings, or to achieve such savings and
    improvements within the time frames it contemplates;
  *the risks associated with changes in macroeconomic conditions;
  *the risks associated with data privacy or security breaches, computer
    hacking, network penetration and other illegal intrusions;
  *the impact of litigation involving the Company and/or its subsidiaries;
  *the impact of future state, federal and international legislation and
    regulations applicable to the Company’s business, including the Patient
    Protection and Affordable Care Act, on the Company’s ability to deliver
    its services and on the financial health of the Company’s customers and
    their willingness to purchase the Company’s services; and
  *other risks detailed in the Company’s Annual Report on Form 10-K for the
    fiscal year ended December 31, 2012, and other filings with the Securities
    and Exchange Commission.

The Company undertakes no obligation to update or revise any such
forward-looking statements.

About Healthways

Healthways is the largest independent global provider of well-being
improvement solutions. Dedicated to creating a healthier world one person at a
time, the Company uses the science of behavior change to produce and measure
positive change in well-being for our customers, which include employers,
integrated health systems, hospitals, physicians, health plans, communities
and government entities. We provide highly specific and personalized support
for each individual and their team of experts to optimize each participant’s
health and productivity and to reduce health-related costs. Results are
achieved by addressing longitudinal health risks and care needs of everyone in
a given population. The Company has scaled its proprietary technology
infrastructure and delivery capabilities developed over 30 years and now
serves approximately 45 million people on four continents. Learn more at
www.healthways.com.


HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

                                  Three Months Ended
                                    March 31,
                                   2013                    2012
                                                              
Revenues                            $   165,165               $   165,218
Cost of services (exclusive
of depreciation and
amortization of $8,825 and              141,257                   140,235
$8,683, respectively,
included below)
Selling, general and                    13,098                    13,739
administrative expenses
Depreciation and                       13,533                  12,173    
amortization
                                                              
Operating loss                          (2,723    )               (929      )
Interest expense                       3,321                   3,187     
                                                              
Loss before income taxes                (6,044    )               (4,116    )
Income tax benefit                     (2,095    )              (1,451    )
                                                              
Net loss                            $   (3,949    )           $   (2,665    )
                                                              
Loss per share:
Basic                               $   (0.12     )           $   (0.08     )
                                                              
Diluted^(1)                         $   (0.12     )           $   (0.08     )
                                                              

Weighted average common
shares and equivalents:
Basic                                   34,018                    33,346
Diluted ^(1)                            34,018                    33,346
                                                              
^(1) The assumed exercise of stock-based compensation awards for the three
months ended March 31, 2013 and 2012 was not considered because the impact
would be anti-dilutive.



Healthways, Inc.

Reconciliation of Non-GAAP Measures to GAAP Measures

(Unaudited)



Reconciliation of Revenues Excluding the Two Terminated Contracts

to Revenues, GAAP Basis

                                   Three Months Ended   Three Months Ended
                                     March 31, 2013         March 31, 2012
Revenues excluding the two           $       163.8          $       145.5
terminated contracts ^(1)
Revenues attributable to the two            1.4                   19.7
terminated contracts ^(2)
Revenues, GAAP basis                 $       165.2          $       165.2
                                                                    

^(1) Revenues excluding the two terminated contracts is a non-GAAP financial
measure. The Company excludes revenues attributable to the two terminated
contracts from this measure because of the significance of these terminated
contracts. The Company believes it is useful to investors to provide
disclosures of its operating results and guidance on the same basis as that
used by management. You should not consider revenues excluding the two
terminated contracts in isolation or as a substitute for revenues determined
in accordance with accounting principles generally accepted in the United
States.

^(2) Revenues attributable to the two terminated contracts consist of pre-tax
revenues of $1.4 million and $19.7million for the three months ended March
31, 2013 and 2012, respectively.


HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)



ASSETS

                                          March 31,      December 31,
                                            2013             2012
Current assets:
Cash and cash equivalents                   $ 2,384          $ 1,759
Accounts receivable, net                      92,554           108,337
Prepaid expenses                              8,915            9,727
Other current assets                          9,237            7,227
Income taxes receivable                       5,242            5,920
Deferred tax asset                           9,026          8,839    
Total current assets                          127,358          141,809
                                                             
Property and equipment:
Leasehold improvements                        41,089           40,679
Computer equipment and related software       272,007          267,902
Furniture and office equipment                24,221           23,552
Capital projects in process                  15,153         11,799   
                                              352,470          343,932
Less accumulated depreciation                (197,322 )      (187,438 )
                                              155,148          156,494
                                                             
Other assets                                  21,092           21,042
                                                             
Intangible assets, net                        86,963           90,228
Goodwill, net                                338,605        338,695  
                                                             
Total assets                                $ 729,166       $ 748,268  
                                                             
See accompanying notes to the consolidated financial statements.



HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)



LIABILITIES AND STOCKHOLDERS’ EQUITY

                                                March 31,     December 31,
                                                  2013            2012
Current liabilities:
Accounts payable                                  $ 33,969        $  26,343
Accrued salaries and benefits                       18,249           24,909
Accrued liabilities                                 43,083           39,234
Deferred revenue                                    5,951            5,643
Contract billings in excess of earned revenue       16,846           14,793
Current portion of long-term debt                   11,634           11,801
Current portion of long-term liabilities           3,413          5,535   
Total current liabilities                           133,145          128,258
                                                                  
Long-term debt                                      257,187          278,534
Long-term deferred tax liability                    36,314           36,053
Other long-term liabilities                         26,277           26,602
                                                                  
Stockholders’ equity:
Preferred stock
$.001 par value, 5,000,000 shares authorized,       —                —
none outstanding
Common stock
$.001 par value, 120,000,000 shares
authorized, 34,133,567 and 33,924,464 shares        34               34
outstanding, respectively
Additional paid-in capital                          252,530          251,357
Retained earnings                                   52,592           56,541
Treasury stock, at cost, 2,254,953 shares in        (28,182 )        (28,182 )
treasury
Accumulated other comprehensive loss               (731    )       (929    )
Total stockholders’ equity                         276,243        278,821 
                                                                  
Total liabilities and stockholders’ equity        $ 729,166      $  748,268 
                                                                             


HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

                                                Three Months Ended
                                                  March 31,
                                                  2013           2012
Cash flows from operating activities:
Net loss                                          $ (3,949   )     $ (2,665  )
Adjustments to reconcile net loss to net cash
flows provided by operating activities, net
of business acquisitions:
Depreciation and amortization                       13,533           12,173
Amortization and write-off of deferred loan         235              435
costs
Share-based employee compensation expense           1,537            1,394
Deferred income taxes                               50               (1,562  )
Excess tax benefits from share-based payment        (137     )       (3      )
arrangements
Decrease (increase) in accounts receivable,         15,936           (10,226 )
net
(Increase) decrease in other current assets         (128     )       2,024
Increase (decrease) in accounts payable             77               (5,002  )
Decrease in accrued salaries and benefits           (7,193   )       (14,063 )
Increase in other current liabilities               6,919            8,241
Other                                              (851     )      (2,320  )
Net cash flows provided by (used in)               26,029         (11,574 )
operating activities
                                                                   
Cash flows from investing activities:
Acquisition of property and equipment               (11,264  )       (15,085 )
Other                                              (1,918   )      (1,825  )
Net cash flows used in investing activities        (13,182  )      (16,910 )
                                                                   
Cash flows from financing activities:
Proceeds from issuance of long-term debt            105,200          115,575
Payments of long-term debt                          (127,078 )       (91,228 )
Deferred loan costs                                 (744     )       —
Excess tax benefits from share-based payment        137              3
arrangements
Exercise of stock options                           360              9
Repurchases of common stock                         —                —
Change in outstanding checks and other             10,257         4,287   
Net cash flows (used in) provided by               (11,868  )      28,646  
financing activities
                                                                   
Effect of exchange rate changes on cash            (354     )      120     
                                                                   
Net increase in cash and cash equivalents          625            282     
                                                                   
Cash and cash equivalents, beginning of            1,759          864     
period
                                                                   
Cash and cash equivalents, end of period          $ 2,384         $ 1,146   
                                                                             

Contact:

Healthways, Inc.
Chip Wochomurka, 615-614-4493
chip.wochomurka@healthways.com
 
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