Healthways Reports Loss in 1Q13

Zacks

Healthways (HWAY) reported first-quarter 2013 adjusted (excluding one-time expenses) loss per share of 12 cents, narrower than the Zacks Consensus Estimate of a loss of 15 cents per share.

Net loss was $3.9 million (or 12 cents per share) versus a loss of $2.7 million (or 8 cents per share) a year ago. The company’s results continue to reflect the loss of the Cigna Corp. (CI) contract and one other contract.

Revenues

Revenues were flat year over year at $165.2 million in the first quarter, beating the Zacks Consensus Estimate of $164 million. Upon exclusion of the two terminal contracts, sales increased 12.6%.

Margins

Gross margin dipped 60 basis points year over year to 14.5% in the quarter. Healthways posted an operating margin of (1.6%), compared with (0.6%) a year ago. Selling, general and administrative expenses dipped 4.7% year over year to $13.1 million.

Balance Sheet

Healthways ended the first quarter with cash and cash equivalents of only $2.4 million, up about 35.5% on a sequential basis. Long-term debt was $257.2 million, down 7.7% year over year.

Contract Activity

Healthways inked 21 new, expanded or extended contracts in the quarter. This count included five fresh contracts, nine extended contracts and seven expanded contracts.

Outlook

The company affirmed its guidance for 2013. For 2013, Healthways continues to expect sales in a band of $710 million and $750 million, up 5% to 11% year over year. The company expects higher revenues for 2013 despite a drop of $80 million from the loss of the Cigna contract and another contract. Healthways forecasts higher sales in the second half of 2013 as fresh contracts inked in 2012 will take 6 months to 24 months to take off. Moreover, performance-linked fees will be recognized in the second half of 2013. The company expects its pre-existing clientele at closure of 2012 to generate higher revenues of $85 million for 2014 as compared with 2013.  

The company continues to project EBITDA margin of about 10.5% to 12.5% (compared with EBITDA margin of 11.9% for 2012) for 2013. It expects EBITDA margin to increase sequentially during 2013 on account of initial ramp up of expenses for new large contracts and as performance-linked fees kick in with the passage of time. 

Healthways continues to guide to earnings per share of about 25 cents to 35 cents for 2013. Loss per share is expected to be 5 cents for the second quarter of 2013.

The Healthways model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. The company has invested in technology platforms that provide scalable support with large populations. It has tie-ups with a large proportion of U.S. health plans and counts many millions of lives in its customer base.

Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. Its fitness program (SilverSneakers) for seniors is available at over 15,000 centers across the U.S. and caters to several million eligible enrollees. Despite its unique scalable model, Healthways may face many challenges in the short term. The company competes with Express Scripts Holding Company (ESRX) among others.

The stock carries a Zacks Rank #3 (Hold). Align Technology Inc. (ALGN) carries a Zacks Rank #2 (Buy) and is expected to do well.
 

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