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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