Healthways (HWAY) reported second-quarter fiscal 2011 earnings per share of 17 cents, missing the Zacks Consensus Estimate of 18 cents and also falling short of the year-ago earnings of 29 cents. Net income more than halved year over year to $5.8 million.
Revenues
Revenues came in at $169.6 million in the second quarter, down 3.4% year over year, narrowly beating the Zacks Consensus Estimate of $169 million.
Margins
Healthways’ operating income dropped sharply 37.5% year over year to $13.4 million in the reported quarter. Operating margin shrank to 7.9% from 12.2% in the year-ago quarter.
Balance Sheet and Cash Flow
The company had cash and cash equivalents of only $0.96 million, as of June 30, 2011, down 11.7% year over year. Long-term debt stood at $223.2 million, down 12.9% year over year. Debt to total capitalization was 34.1%, as of June 30, 2011, an improvement of 170 basis points (bps) in the quarter and 500 bps over the past four quarters.
Other
During the reported quarter, Healthways inked 30 new, expanded or extended contracts. The company experienced a 15% year-over-year growth in Requests for Proposals (“RFP”) and generated several possible leads on a non-RFP basis.
As reported earlier, on April 25, 2011, Healthways announced an expansion of its ties with CareFirst BlueCross BlueShield with whom it would form a partnership to deliver their network-wide Primary Care Medical Home model. The program is supposed to be the largest in its category in the nation. The company is implementing another major contract, nation-wide in France, with Caisse Nationale d’Assurance Maladie des Travailleurs Salaries (“CNAMTS”).
Outlook
Healthways has reaffirmed its revenue guidance for 2011 between $672 million and $710 million. It continues to assume revenues from domestic operations of about $650 million to $680 million. International sales are expected in the range of $22 million to $30 million.
The company also reiterated fiscal 2011 adjusted earnings guidance of 90 cents to $1.08 per share. It continues to forecast net income of 94 cents to $1.04 a share from domestic operations and a loss of 4 cents to an income of 4 cents a share from international ventures.
Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. The company’s model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. Its fitness program (SilverSneakers) for seniors is available at centers across the U.S. Healthways competes with Express Scrips (ESRX) among others.
Healthways has tie-ups with 80% of U.S. health plans and counts about 38 million lives in its customer base. Growth in the U.S. is expected to slow down, and total billable lives may stagnate a bit due to factors such as high unemployment, economic uncertainty and healthcare reform. Also, on the negative side, overseas contracts wins have been few and are limited to Australia, Brazil and France. Cash flow is modest and will be partly utilized to pare debt. We currently have a Neutral rating on the stock.
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