Ben R. Leedle, Jr., president and chief executive officer of Healthways, Inc. (NASDAQ: HWAY), today announced financial results for the fourth quarter and year ended December 31, 2013. Total revenues for the quarter were $169.2 million compared with $175.2 million for the fourth quarter of 2012. Net loss for the fourth quarter of 2013 was $5.3 million, or $0.15 per share, compared with net income of $0.6 million, or $0.02 per diluted share, for the fourth quarter of 2012. Excluding non-cash interest expense from the fourth quarter of 2013 and a restructuring charge from the fourth quarter of 2012, adjusted net loss for the fourth quarter of 2013 was $0.12 per share compared with adjusted net income of $0.05 per diluted share for the fourth quarter of 2012 (see pages 7 and 8 for a reconciliation of non-GAAP financial measures).
For 2013, revenue was $663.3 million compared with $677.2 million for 2012. Net loss for 2013 was $8.5 million, or $0.25 per share, compared with net income of $8.0 million, or $0.24 per diluted share, for 2012. Excluding non-cash interest expense in 2013 and a restructuring charge in 2012, adjusted net loss for 2013 was $0.19 per share compared with adjusted net income of $0.27 per diluted share for 2012.
Leedle stated, “Our fourth-quarter financial results were below our guidance solely due to the accounting treatment of $10 million of fees under an expanded agreement for new services signed in the fourth quarter with an existing long-term customer. Our financial guidance for the quarter, based upon a term sheet for this agreement, included the expected recognition of the $10 million as revenue. We performed the services and fully incurred the related costs during the third and fourth quarters and collected payment for the $10 million of fees in January 2014. However, following a comprehensive review with our independent auditor over the past several weeks, particularly focused on certain new contractual provisions in the final agreement, which were completed in connection with a large related distribution agreement, we made a determination to recognize the $10 million during 2014 and 2015.
“As a result of this accounting conclusion, our revenues for the fourth quarter were $10 million less than expected and our earnings were $0.17 per share less than expected. If the amount had been recognized in our fourth-quarter revenue as originally anticipated, our revenues and earnings would have been well within the guidance we provided in our third-quarter earnings release. While this accounting conclusion has a disproportionate impact on fourth-quarter revenue and earnings, it will have an offsetting positive impact on our earnings over 2014 and 2015.
“In the fourth-quarter we met or exceeded our business expectations in terms of contract signings, lives under management, service delivery performance, health outcomes, risk-based fee recognition and cost structure. Our revenues for the fourth-quarter and full-year 2013 grew 5.2% and 10.8%, respectively, from the comparable prior-year periods, excluding the termination of the contracts with Cigna and one other health plan (the “two terminated contractsâ€; see pages 7 and 8 for a reconciliation of non-GAAP financial measures). In addition, we delivered a 61.7% sequential increase in fourth-quarter operating cash flow to $20.2 million, resulting in full-year operating cash flow of $71.5 million.â€
2014 Financial Guidance
Healthways today updated its 2014 financial guidance. The Company’s guidance for 2014 revenues is now in a range of $730 million to $760 million, an increase from the preliminary range of $725 million to $760 million that was provided in October 2013. Healthways continues to expect EBITDA margins to expand meaningfully, from 8.2% for 2013 to a range of 10.5% to 11.5% for 2014. The Company’s guidance for 2014 net income per diluted share is in a range of breakeven to $0.15, which includes $0.11 of non-cash interest expense. Healthways’ guidance for 2014 adjusted net income per diluted share, which excludes non-cash interest expense, is in a range of $0.11 to $0.26. The Company expects to progress from a first-quarter loss of approximately the same level as the first quarter of 2013, to approximately breakeven for the second quarter and to sequentially increasing profitability for the third and fourth quarters, primarily driven by the timing of recognizing performance-based fees.
Broad Market Adoption of Well-Being Improvement
“Our business development momentum was strong during the fourth quarter,†added Leedle. “We signed 35 contracts, including 11 contracts with new customers, 10 contract expansions and 14 contract extensions. For the full year, we signed 104 contracts, including 25 contracts with new customers, 33 contract expansions and 46 contract extensions. We renewed all three of our largest contracts up for renewal during 2013.
“The contracts we have signed since the end of the third quarter of 2013 demonstrate demand across all our customer markets: commercial and Medicare Advantage health plans; large employers; health systems, hospitals and physicians; and international. In addition, we are pleased with the progress made to date in our exclusive partnership to operate and license Dr. Dean Ornish’s Lifestyle Management Programs (Ornish Program). Generating revenue for providers and medical cost savings for payors makes the Ornish Program valuable for all the stakeholders in both fee for service and value-based payment models.
“We announced a new contract with WellPoint in the fourth quarter to offer the Ornish Program to its membership. In a February 11th news release, WellPoint said, ‘The collaboration applies to members of WellPoint’s affiliated health plans, which span 14 states and represent nearly one in nine Americans.’ This agreement represents not only WellPoint’s strong endorsement of the Ornish program but also WellPoint’s dedication to bring population health management and well-being improvement programs to its trusted provider network.