Healthways Reports First-Quarter Financial Results

  Healthways Reports First-Quarter Financial Results

           Revenues Increased Year-over-Year by 7% to $177 Million

 Major New Contract with Fortune 100 Company among 20 Signed in First Quarter

Affirms Financial Guidance for 2014, Excluding Previously Announced Settlement
                                    Charge

Business Wire

NASHVILLE, Tenn. -- April 24, 2014

Ben R. Leedle, Jr., president and chief executive officer of Healthways
(NASDAQ: HWAY), today announced financial results for the first quarter ended
March31, 2014.

  *Total revenues for the quarter were $176.8 million, up 7.0% from $165.2
    million for the first quarter of 2013.
  *Net loss for the first quarter of 2014 was $9.6 million, or $0.27 per
    share. Adjusted net loss was $2.6 million, or $0.07 per share for the
    first quarter of 2014, improved from $3.9 million, or $0.12 per share, for
    the same period last year. (See pages 10 and 11 for a reconciliation of
    non-GAAP financial measures.)
  *Adjusted net loss per share for the first quarter of 2014 excludes a
    previously disclosed $9.4 million pre-tax charge, or $0.17 per share,
    related to the settlement of a contract dispute (the “settlement charge”)
    and non-cash interest expense of $0.03 per share.
  *Healthways affirms its 2014 financial guidance, excluding the previously
    announced settlement charge.

“Our financial results for the first quarter of 2014 are consistent with our
expectations for the quarter and our financial guidance for the year,”
commented Leedle. “Our comparable-quarter revenue increase was the best we
have produced since the fourth quarter of fiscal 2008. Our operating cash flow
for the first quarter of 2014 was $9.1 million and capital expenditures were
$10.6 million. We continue to expect operating cash flow for the full year of
$75 million to $85 million, with total capital expenditures of $40 million to
$45 million.”

Transformed Value Proposition and Services Support Growth in Revenue and
Margins

Leedle added, “We have completed the development of our total population
health capabilities and infrastructure and have rigorously proven the expanded
value that our services deliver for our customers across all our markets. As a
result, strategic investments as a percentage of revenue continue to decline,
even as we experience increased demand for and adoption of our well-being
improvement services. We expect this dynamic to drive margin expansion as
revenue grows, as reflected in our 2014 financial guidance and as evidenced in
our first-quarter results, with 7% comparable-quarter revenue growth producing
13% expansion of adjusted EBITDA. Our positive momentum and market leadership
are well established. Our primary focus is on executing our solutions and
delivering the promised value to our clients.”

Broad Market Adoption of Well-Being Improvement

“Our business development momentum continued at a strong pace during the first
quarter, reflecting growing demand for population health services and, in
particular, our Well-Being Improvement Solution^TM,” said Leedle. “During the
first quarter, we signed 20 contracts, including five contracts with new
customers, seven contract expansions and eight contract extensions. These
contracts were broad-based among our four domestic customer markets:
commercial health plans; Medicare Advantage plans; large employers; and health
systems, hospitals and physicians. In addition, we continue to have a
substantial and active pipeline of potential contracts with new and existing
customers in both domestic and international markets.

“As just one example of the market’s recognition of our unique and proven
capabilities, the American Hospital Association (AHA) last week announced its
exclusive endorsement of Healthways’ acute to post-acute Care Transitions
Solution^TM. This solution uses our proprietary clinical technology in support
of highly trained professionals who coordinate transitions of care for
patients. The solution is proven to improve care process, enhance health
outcomes, reduce avoidable hospital readmissions and increase patient and
provider satisfaction. In announcing the exclusive endorsement, the AHA noted
that a pilot study of the Care Transitions Solution showed a 44%
year-over-year reduction in self-pay readmissions. The AHA chose Healthways’
solution from among 14 companies whose services they reviewed as part of their
due diligence process. The AHA’s exclusive endorsement substantially enhances
the visibility and credibility of our Care Transitions Solution with hospitals
and health systems, which benefit from this solution under either
fee-for-service or fee-for-value reimbursement.”

Significant New Customer Win

Leedle continued, “Today, we are announcing a major new contract with a
Fortune 100 employer for services beginning in the second quarter of 2014. We
won this contract from the long-term incumbent provider, a national health
plan, through a competitive process. Under this three-year agreement, we will
provide a broad set of services designed to improve employee well-being,
reduce lifestyle risk factors, increase productivity and lower costs. Our
agreement covers more than 300,000 eligible members and provides for
deployment of additional solutions in 2015. This new contract is further
evidence that large self-insured employers understand and embrace the value of
our proprietary Well-Being Improvement Solution. Our new client has chosen
Healthways to improve the well-being of its employees and dependent family
members to enhance overall business performance.”

2014 Financial Guidance

Key Elements (See pages 10 and 11 for a reconciliation of non-GAAP financial
measures):

  *Guidance for 2014 revenues remains in a range of $730 million to $760
    million.
  *Guidance for 2014 adjusted EBITDA margin remains in a range of 10.5% to
    11.5%.
  *Earnings Guidance:

                                          Year Ending December 31, 2014
                                            Previous         Current
                                            Guidance          Guidance
                                                                             
Adjusted net earnings per diluted share     $ 0.11 - 0.26     $ 0.11 - 0.26
Non-cash interest expense per share           (0.11       )     (0.11        )
Settlement charge per share                  -                (0.17        )
Net income per diluted share/net (loss)     $ 0.00 - 0.15     $ (0.17)-(0.02 )
per share
                                                                             

Moving past the usual impact of new contract implementation costs early in the
year, the Company expects that continued sequential quarter revenue growth
will also drive improved profit margins, which will be further enhanced by the
expected timing of recognizing performance-based fees, primarily in the second
half of the year.

Summary

Leedle concluded, “We remain confident in our ability to achieve sustained
profitable growth. Trends such as increasing healthcare costs, an aging
population and increasing chronic illness are driving strong and broad-based
demand for population health services, and we are well-positioned to benefit
from the industry transition to fee-for-value reimbursement. We also expect
that our unique proposition to guarantee well-being improvement results will
enable us to continue building our diversified base of business during 2014,
strengthening the Company’s potential for long-term growth and increased
shareholder value.”

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 Investors at least 15 minutes early to register, download and install
any necessary audio software. Presentation materials related to the conference
call may also be accessed by going to www.healthways.com and clicking
Investors. For those who cannot listen to the live broadcast, a telephonic
replay will be available for one week at 719-457-0820, code 9895727, 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 and year-end financial accounting procedures and may be affected by
certain risks and uncertainties, including, but not limited to:

  *the effectiveness of management’s strategies and decisions;
  *the Company’s ability to sign and implement new contracts for our
    solutions;
  *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 achieve estimated annualized revenue in backlog
    in the manner and within the timeframe we expect, which is based on
    certain estimates regarding the implementation of our services;
  *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 costs and management distraction related to a proxy contest;
  *the risks associated with deriving a significant concentration of revenues
    from a limited number of customers;
  *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 Company’s ability to effectively compete against other entities, whose
    financial, research, staff, and marketing resources may exceed our
    resources;
  *the Company’s ability to service its debt and remain in compliance with
    its debt covenants;
  *counterparty risk associated with our interest rate swap agreements and
    foreign currency exchanged contracts;
  *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, as amended by the Health Care and
    Education Reconciliation Act of 2010 on the Company’s operations and/or
    demand for its services; and
  *other risks detailed in the Company’s Annual Report on Form 10-K for the
    fiscal year ended December 31, 2013, 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 68 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,
                                        2014                 2013
                                                                           
    Revenues                            $    176,777         $   165,165
    Cost of services
    (exclusive of
    depreciation and                         148,148             141,257
    amortization of $9,372
    and $8,825, respectively,
    included below)
    Selling, general and                     16,431              13,098
    administrative expenses
    Depreciation and                         13,336              13,533
    amortization
    Legal settlement charges                9,363              —
                                                                           
    Operating loss                           (10,501   )         (2,723    )
    Interest expense                        4,383              3,321
                                                                           
    Loss before income taxes                 (14,884   )         (6,044    )
    Income tax benefit                      (5,288    )        (2,095    )
                                                                           
    Net loss                            $    (9,596    )     $   (3,949    )
                                                                           
    Loss per share:
    Basic                               $    (0.27     )     $   (0.12     )
                                                                           
    Diluted^(1)                         $    (0.27     )     $   (0.12     )
                                                                           
    Comprehensive loss                  $    (9,253    )     $   (3,751    )
                                                                           
    Weighted average common
    shares and equivalents:
    Basic                                    35,151              34,018
    Diluted ^(1)                             35,151              34,018
                                                                           
    The assumed exercise of stock-based compensation awards for the three
(1) months ended March 31, 2014 and 2013 was not considered because the impact
    would be anti-dilutive.
                                                             

                                                        
  HEALTHWAYS, INC.
  CONSOLIDATED BALANCE SHEETS
  (Unaudited)
  (In thousands)
                                                                          
  ASSETS
                                                                          
                                            March 31,        December 31,
                                            2014             2013
  Current assets:
  Cash and cash equivalents                 $ 2,158          $  2,584
  Accounts receivable, net                    113,007           89,484
  Prepaid expenses                            13,979            9,228
  Other current assets                        6,527             6,857
  Income taxes receivable                     3,941             1,402
  Deferred tax asset                         9,598            9,667
  Total current assets                        149,210           119,222
                                                                          
  Property and equipment:
  Leasehold improvements                      37,559            37,463
  Computer equipment and related software     296,281           290,392
  Furniture and office equipment              23,004            22,881
  Capital projects in process                32,880           25,228
                                              389,724           375,964
  Less accumulated depreciation              (228,264 )       (217,766  )
                                              161,460           158,198
                                                                          
  Other assets                                61,011            53,629
  Intangible assets, net                      76,592            79,162
  Goodwill, net                              338,800          338,800
                                                                          
  Total assets                              $ 787,073        $  749,011
                                                                          

                                                           
  HEALTHWAYS, INC.
  CONSOLIDATED BALANCE SHEETS
  (In thousands, except share and per share data)
  (Unaudited)
  
  LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                             
                                                March 31,       December 31,
                                               2014           2013
  Current liabilities:
  Accounts payable                            $ 40,257        $ 33,125
  Accrued salaries and benefits                 14,159          20,157
  Accrued liabilities                           51,894          32,065
  Deferred revenue                              6,077           4,496
  Contract billings in excess of earned         20,187          17,411
  revenue
  Current portion of long-term debt             16,230          14,340
  Current portion of long-term liabilities     1,956          2,822
  Total current liabilities                     150,760         124,416
                                                                             
  Long-term debt                                246,692         237,582
  Long-term deferred tax liability              29,973          33,320
  Other long-term liabilities                   64,779          51,003
                                                                             
  Stockholders’ equity:
  Preferred stock
  $.001 par value, 5,000,000 shares             —               —
  authorized, none outstanding
  Common stock
  $.001 par value, 120,000,000 shares
  authorized, 35,223,754 and 35,107,303         35              35
  shares outstanding, respectively
  Additional paid-in capital                    284,676         283,244
  Retained earnings                             38,404          48,000
  Treasury stock, at cost, 2,254,953 shares     (28,182   )     (28,182      )
  in treasury
  Accumulated other comprehensive loss         (64       )    (407         )
  Total stockholders’ equity                   294,869        302,690
                                                                             
  Total liabilities and stockholders’ equity  $ 787,073       $ 749,011
                                                                             


  HEALTHWAYS, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)
  (In thousands)
                                                
                                                    Three Months Ended
                                                   March 31,
                                                   2014         2013
  Cash flows from operating activities:
  Net loss                                        $ (9,596   )    $ (3,949   )
  Adjustments to reconcile net loss to net cash
  flows provided by operating activities, net
  of business acquisitions:
  Depreciation and amortization                     13,336          13,533
  Amortization of deferred loan costs               463             235
  Amortization of debt discount                     1,630           —
  Share-based employee compensation expense         1,699           1,537
  Excess tax benefits from share-based payment      (230     )      (137     )
  arrangements
  (Increase) decrease in accounts receivable,       (23,190  )      15,936
  net
  Increase in other current assets                  (711     )      (128     )
  Increase in accounts payable                      7,436           77
  Decrease in accrued salaries and benefits         (6,584   )      (7,193   )
  Increase in other current liabilities             18,387          6,969
  Other                                            6,469          (851     )
  Net cash flows provided by operating             9,109          26,029
  activities
                                                                             
  Cash flows from investing activities:
  Acquisition of property and equipment             (10,566  )      (11,264  )
  Other                                            (1,910   )     (1,918   )
  Net cash flows used in investing activities      (12,476  )     (13,182  )
                                                                             
  Cash flows from financing activities:
  Proceeds from issuance of long-term debt          107,225         105,200
  Payments of long-term debt                        (103,335 )      (127,078 )
  Deferred loan costs                               (60      )      (744     )
  Excess tax benefits from share-based payment      230             137
  arrangements
  Exercise of stock options                         163             360
  Change in outstanding checks and other           (1,589   )     10,257
  Net cash flows provided by (used in)             2,634          (11,868  )
  financing activities
                                                                             
  Effect of exchange rate changes on cash          307            (354     )
                                                                             
  Net (decrease) increase in cash and cash         (426     )     625
  equivalents
                                                                             
  Cash and cash equivalents, beginning of          2,584          1,759
  period
                                                                             
  Cash and cash equivalents, end of period        $ 2,158         $ 2,384
                                                                             

                                                 
    HEALTHWAYS, INC.
    RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
    (Unaudited)
                                                                             
    Reconciliation of Adjusted Net Loss and Adjusted Net Loss Per Share
    to Net Loss and Net Loss Per Share, GAAP Basis
                                                                             
                      Three Months Ended               Three Months Ended

                      March 31, 2014                   March 31, 2013
                   $ in           Per         $ in         Per
                      thousands        Share           thousands       Share
    Adjusted net      $  (2,573  )    $ (0.07 )     $ (3,949    )  $ (0.12 )
    loss ^ (1)
    Net loss
    attributable
    to non-cash          (986    )       (0.03 )       —               —
    interest
    charges ^(2)
    Net loss
    attributable
    to legal            (6,037  )      (0.17 )      —              —
    settlement
    charges ^(3)
    Net loss, GAAP    $  (9,596  )     $ (0.27 )     $ (3,949    )   $ (0.12 )
    basis
                                                                             
    Adjusted net loss and adjusted net loss per share are non-GAAP financial
    measures. The Company excludes net loss attributable to non-cash interest
    and legal settlement charges from these measures because of their
    comparability to the Company's historical operating results. The Company
(1) 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 adjusted net loss or adjusted net loss per share in
    isolation or as a substitute for net loss or net loss per share determined
    in accordance with accounting principles generally accepted in the United
    States.
                                                                             
    Net loss attributable to non-cash interest charges represents the
(2) after-tax impact of the amortization of a debt discount for the three
    months ended March 31, 2014.
                                                                             
    Net loss attributable to legal settlement charges consists of the
(3) after-tax impact of charges for the three months ended March 31, 2014
    associated with the Company’s settlement of a contractual dispute in April
    2014.
    

    
    Reconciliation of Adjusted EPS Guidance
    to EPS (Loss) Guidance, GAAP Basis
                                  
                                          Twelve Months Ending
                                          December 31, 2014
    Adjusted EPS guidance ^(4)            $         0.11-0.26
    EPS (loss) guidance
    attributable to non-cash                        (0.11               )
    interest charges ^(5)
    EPS (loss) guidance
    attributable to legal                          (0.17               )
    settlement charges ^(6)
    EPS (loss) guidance, GAAP             $         (0.17)-(0.02        )
    basis
                                                                        
    Adjusted EPS guidance is a non-GAAP financial measure. The Company
    excludes EPS (loss) guidance attributable to non-cash interest and legal
    settlement charges from this measure because of its comparability to the
    Company's historical operating results. The Company believes it is useful
(4) to investors to provide disclosures of its operating results and guidance
    on the same basis as that used by management. You should not consider
    adjusted EPS guidance in isolation or as a substitute for EPS (loss)
    guidance determined in accordance with accounting principles generally
    accepted in the United States.
                                                                        
    EPS (loss) guidance attributable to non-cash interest charges consists of
(5) pre-tax charges of $6.8 million for the twelve months ending December 31,
    2014 associated with amortization of a debt discount.
                                                                        
    EPS (loss) guidance attributable to legal settlement charges consists of
(6) pre-tax charges of $9.4 million for the twelve months ending December 31,
    2014 related to the Company’s settlement of a contractual dispute in April
    2014.
    

                                                                 
    HEALTHWAYS, INC.
    RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES (Continued)
    (Unaudited)
                                                                       
    Reconciliation of Adjusted EBITDA
    to Net Loss, GAAP Basis
    (In thousands)
                                                                       
                         Three Months                   Three
                         Ended                          Months
                                                        Ended
                         March 31, 2014               March        Growth
                                                        31, 2013
    Adjusted EBITDA      $      12,198            $  10,810           13%
    ^(7)
    Legal settlement            (9,363     )         —
    charges ^(8)
    Depreciation and            (13,336    )         (13,533     )
    amortization
    Interest expense            (4,383     )         (3,321      )
    Income tax                 5,288               2,095
    benefit
    Net loss, GAAP       $      (9,596     )        (3,949      )
    basis
                                                                       
    Adjusted EBITDA is a non-GAAP financial measure. The Company excludes
    legal settlement charges from this measure because of its comparability to
    the Company's historical operating results. The Company believes it is
(7) 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 adjusted EBITDA in isolation or as a substitute for net loss
    determined in accordance with accounting principles generally accepted in
    the United States.
                                                                       
    Legal settlement charges consists of pre-tax charges of $ 9.4 million for
(8) the three months ended March 31, 2014 related to the Company’s settlement
    of a contractual dispute in April 2014.

Contact:

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