Healthways Inc. (HWAY) reported fourth-quarter 2014 adjusted EPS of 25 cents per share, which beat the Zacks Consensus Estimate by 6 cents. The company reported a loss of 12 cents per share in the year-ago quarter.
The better-than-expected results were primarily driven by a 17.7% surge in revenues, which totaled $199.1 million in the quarter, ahead of the Zacks Consensus Estimate of $196 million.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) soared 43% from the year-ago quarter to $78.5 million.
In the quarter, selling, general and administrative expenses (SG&A) decreased 6.3%, while depreciation & amortization fell 1.2%.
As a result, Healthways reported operating income (prior to legal charges) of $15 million as compared with the year-ago quarter’s loss of almost $3 million.
Healthways exited the fourth quarter with cash and cash equivalents of $1.7 million.
Guidance
For 2015, management expects the quarterly result trend to remain almost similar to that of 2014, with both quarter-over-quarter and year-over-year improvement in revenues and EPS.
Healthways expects to report loss in the first quarter owing to apprehensions of garnering lower revenues. However, management expects to recognize performance-based revenues primarily in the back half of the year.
Nevertheless, the quarterly progression will help Healthways achieve revenues in the range of $800 million to $825 million. EBITDA margin is forecasted in the range of 10.5% to 11% while adjusted EPS will likely come in between 35 cents and 47 cents.
Healthways expects strong revenue growth in its health system and physicians market and single to low-double digit growth in commercial health plan, international, Medicare Advantage, and direct-to-employer markets for 2015.
The company anticipates adjusted operating cash flow in the range of $80 million to $90 million and capital expenditures in the band of $37 million to $42 million.
Management believes that a growing customer base will help it boost revenues at compound annual growth rate of 10% to 15% over the next three to five years. EBITDA margins are also expected to return to a range of 15% to 18% by the end of that period.
Our Take
Healthways has a substantial and active pipeline of potential contracts with new and existing customers in both domestic and international markets. Revenues continue to be driven by new business wins, timing of recognizing performance-based fees and expansion of existing contracts.
Furthermore, Healthways sees increased demand for its population health services which is expected to drive margins and revenues going forward.
Zacks Rank & Other Stocks to Consider
Currently, Healthways carries a Zacks Rank #2 (Buy).
Other favorably-ranked stocks in the industry include AMN Healthcare Services (AHS), INC Research Holdings (INCR) and Luminex (LMNX). All the stocks sport a Zacks Rank #1 (Strong Buy).
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