Healthspring 8-K HealthSpring, Inc. Reports 2010 First Quarter Results

Exhibit 99.1

Company Contact: Lankford Wade
Senior Vice President & Treasurer
(615) 236-6200

HealthSpring, Inc. Reports 2010 First Quarter Results

Increases 2010 Earnings Per Share Guidance Range to $2.60 to $2.75

NASHVILLE, Tenn. (April 29, 2010) — HealthSpring, Inc. (NYSE:HS) today announced its results for the first quarter ended March 31, 2010. Highlights for the 2010 first quarter included:

• Net income of $33.8 million, or $0.59 per diluted share, compared with $20.6 million, or $0.38 per diluted share, in the 2009 first quarter.

• Premium revenue of $749.4 million, up 18.1% over the 2009 first quarter.

• Medicare Advantage membership of 195,365, up 11.5% over the 2009 first quarter and 3.2% over year-end 2009, and stand-alone PDP membership of 389,561, up 35.8% over the 2009 first quarter and 24.4% over year-end 2009.

Commenting on 2010 first quarter results, Herb Fritch, Chairman and Chief Executive Officer, said, “We are pleased to report that 2010 has started on a positive note as indicated by our strong results for the first three months of the year. Higher membership than expected as a result of higher gross sales and better member retention, coupled with favorable medical loss ratios in our Medicare Advantage plans, were the main drivers of our better than expected results. We are encouraged by the growth in membership and preservation of margins despite the quarter’s tighter reimbursement environment. Based on our first quarter’s results and because we believe the generally favorable trends in the quarter will continue over the balance of 2010, we are increasing our full year 2010 earnings per share guidance.”

First Quarter Results

	Three Months Ended
	March 31,				Percent
($ in thousands, except per share amounts)	2010		2009		Change
Premium revenue	$	749,378	$	634,596		18.1	%
Total revenue		760,442		646,115		17.7
Medical expense		612,519		529,600		15.7
Net income		33,801		20,612		64.0
Net income per common share — diluted(1)		0.59		0.38		55.3

(1) Weighted average shares outstanding used in the calculation of net income per common share — diluted for the three months ended March 31, 2010 and 2009, were 57,557,961 and 54,781,391, respectively.

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HS Reports First Quarter 2010 Results
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April 29, 2010

Operating Highlights

Revenue

• Medicare Advantage (including the prescription drug component of HealthSpring’s Medicare Advantage plans, or “MA-PD”) premiums were $619.4 million for the 2010 first quarter, reflecting an increase of 14.4% over the 2009 first quarter. The higher premiums in the 2010 first quarter were primarily attributable to an 11.5% increase in membership compared with the 2009 first quarter.

• Medicare Advantage per member per month, or “PMPM,” premiums increased to $1,062 in the 2010 first quarter, compared with $1,047 in the 2009 first quarter. The PMPM premium increase in the 2010 first quarter resulted from increases related to member risk scores partially offset by decreases in CMS-calculated base premium rates.

• Stand-alone PDP premium revenue was $129.5 million for the 2010 first quarter, an increase of 40.0% compared with the 2009 first quarter. The increase in revenue was primarily the result of a 35.8% increase in membership. PDP premiums PMPM in the 2010 first quarter were $111, compared with $109 in the 2009 first quarter.

Medical Expense

• Medicare Advantage medical loss ratio, or “MLR,” was 78.3% for the 2010 first quarter, compared with 81.3% for the 2009 first quarter. Changes in benefit design and decreases in inpatient utilization and outpatient procedure costs, combined with the premium revenue increases, resulted in a decrease in the current period MLR. Medicare Advantage PMPM medical expense decreased 2.5% in the 2010 first quarter compared with the 2009 first quarter.

• PDP MLR was 98.6% for the 2010 first quarter, compared with 95.8% for the 2009 first quarter. Higher costs in new PDP regions and increased transition prescription drug costs in the 2010 first quarter were the primary reasons for the increase in PDP MLR.

Selling, General & Administrative (SG&A) Expense

• SG&A expense as a percentage of total revenue in the 2010 first quarter decreased 110 basis points to 10.1%, compared with 11.2% in the 2009 first quarter. The improvement in SG&A as a percentage of revenue resulted primarily from revenue increases and operating cost management. The $4.3 million increase in SG&A expense for the 2010 first quarter compared with the 2009 first quarter was primarily the result of additional personnel costs, increases in sales commissions attributable to membership growth, and increases in advertising costs.

Interest Expense

• Interest expense in the 2010 first quarter increased $5.7 million compared with the 2009 first quarter. The Company’s interest expense in the 2010 first quarter includes debt extinguishment costs of $7.1 million resulting from the Company’s entering into a new credit facility and terminating its prior credit facility. Net of the extinguishment costs, interest expense decreased $1.4 million in the 2010 first quarter reflecting lower average debt amounts outstanding and lower interest rates compared with the 2009 first quarter.

• The Company’s weighted average effective interest rate on the Company’s borrowings (exclusive of the amortization of deferred financing costs and other credit facility fees) for the three months ended March 31, 2010, was 3.9%, compared with 5.2% for the three months ended March 31, 2009.

Income Taxes

• The Company’s effective income tax rate for the three months ended March 31, 2010, was 37.0%, compared with 36.5% for the three months ended March 31, 2009.

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HS Reports First Quarter 2010 Results
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April 29, 2010

Balance Sheet Highlights

• At March 31, 2010, the Company’s cash and cash equivalents were $294.1 million, $75.6 million of which was held by unregulated entities, compared with cash and cash equivalents of $439.4 million at December 31, 2009, $106.4 million of which was held by unregulated entities. The reduction in cash and cash equivalents during the three months ended March 31, 2010, was primarily caused by net purchases of $69.6 million of investment securities and by payments of $62.0 million of long-term debt.

• Total debt was $175.0 million at March 31, 2010, compared with $237.0 million at December 31, 2009, and $258.5 million at March 31, 2009. In the first quarter of 2010, the Company entered into a new $350 million senior secured credit facility. The new facility consists of $175.0 million in five-year term loans and a four-year, $175.0 million revolving credit facility. Borrowings under the facility and cash on hand were used to repay indebtedness outstanding under the Company’s previous credit agreement. There were no borrowings outstanding under the Company’s revolving credit facility at March 31, 2010.

• Days in claims payable totaled 29 at the end of the 2010 first quarter.

Outlook

• EPS: The Company is increasing its expectations for diluted earnings per share for 2010 to be in the range of $2.60 to $2.75, on weighted average shares outstanding of approximately 57.8 million.

• Membership: The Company increases its estimate for Medicare Advantage membership to a range of 198,000 to 200,000 at the end of 2010. The Company also refines its estimate for PDP membership from 410,000 to 420,000 to approximately 400,000 at the end of 2010.

• Revenue: The Company now estimates that 2010 total revenue will be between $2.90 billion and $2.95 billion.

• MLRs: The Company is modifying its estimate for Medicare Advantage MLR to a range of 80.0% to 81.0% for 2010. The Company now estimates stand-alone PDP MLR to be in the range of 86.5% to 87.5% for the year.

• SG&A: The Company now estimates that selling, general and administrative expense will be approximately 10.0% of total revenue for 2010.

• Income taxes: The Company estimates that its effective income tax rate for 2010 will be 36.5% to 37.0%.

Conference Call

A live audio webcast of the conference call regarding first quarter results and other matters referenced in this release will begin at 10:00 a.m. ET on Thursday, April 29, 2010. The public may access the conference call through HealthSpring’s website,www.healthspring.com, under the Investor Relations tab. The conference call can also be accessed by dialing (913) 312-0382, confirmation number 1935342. An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days.

About HealthSpring

HealthSpring is based in Nashville, Tenn., and is one of the country’s largest Medicare Advantage coordinated care plans. HealthSpring currently owns and operates Medicare Advantage plans in Alabama, Florida, Georgia, Illinois, Mississippi, Tennessee, and Texas and also offers a national stand-alone Medicare prescription drug plan. For more information, visitwww.healthspring.com. Media information is available at HealthSpring’s press site:http://press.healthspring.com.

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HS Reports First Quarter 2010 Results
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April 29, 2010

Cautionary Statement Regarding Forward Looking Statements

Statements contained in this release that are not historical fact are forward-looking statements, which the Company intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend on or refer to future events or conditions, or that include words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions are forward-looking statements. Such statements include statements regarding 2010 guidance. The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause its actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Any projections or other forward-looking information in this release or made orally and related thereto are based on management’s beliefs and assumptions and on information available to HealthSpring at the time the statements were or are made, which is subject to change. Although any such projections and forward-looking information and the factors influencing them will likely change, HealthSpring will not necessarily update the information except as required by law, as HealthSpring will only provide guidance at certain points during the year. Information contained herein speaks only as of the date of this release.

The following factors, among others, could cause actual results to differ materially from those in the forward-looking statements: changes in enrollment and dis-enrollment patterns; the impact of recent healthcare reform legislation, including legislative and regulatory actions or changes affecting Medicare funding and premium rates, increased costs, and new taxes; changes in our members’ utilization of medical services; changes in medical and prescription drug cost trends; the Company’s ability to accurately estimate CMS retroactive risk adjustments to Medicare premiums; competition; the Company’s ability to accurately estimate incurred but not reported and other unpaid medical claims; negotiation of acceptable contracts with physicians, hospitals, and other providers; contractual disputes with providers; increases in costs or liabilities associated with litigation; costs associated with compliance with regulatory mandates and with responding to regulatory audits; management changes; the Company’s ability to identify, evaluate, and integrate acquisition opportunities; substantial changes in interest rates over a prolonged period; and changes in tax estimates, assets, or liabilities and valuation allowances related thereto. The foregoing list of factors is not intended to be exhaustive. Additional information concerning these and other important risks and uncertainties can be found under the headings “Special Note Regarding Forward-Looking Statements” and “Item 1A. — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, and in other public filings by the Company.

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HS Reports First Quarter 2010 Results
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Supplemental Information

1. Membership

	March 31,		Dec. 31,		Percent			March 31,		Percent
	2010		2009		Change			2009		Change
MA Membership:
Alabama		31,170		31,330		(0.5	)%		29,385		6.1	%
Florida		35,093		32,606		7.6			29,978		17.1
Georgia		617		—		—			—		—
Illinois		11,548		11,261		2.5			10,067		14.7
Mississippi		5,134		4,591		11.8			3,419		50.2
Tennessee		63,505		58,252		9.0			53,833		18.0
Texas		48,298		51,201		(5.7	)		48,456		(0.3	)
Total		195,365		189,241		3.2	%		175,138		11.5	%
PDP Membership:		389,561		313,045		24.4	%		286,810		35.8	%

2. Reconciliation of Medical Claims Payable

The following table provides a reconciliation of changes in the medical claims liability for HealthSpring for the three months ended March 31, 2010 and 2009.

	Three months ended
	March 31,
(Unaudited, $ in thousands)	2010			2009
Balance at beginning of period	$	202,308		$	190,144
Incurred related to:
Current period(1)		623,872			537,724
Prior period(2)		(11,353	)		(8,124	)
Total incurred		612,519			529,600
Paid related to:
Current period		461,049			356,924
Prior period		155,894			151,002
Total paid		616,943			507,926
Balance at the end of the period	$	197,884		$	211,818

(1)

Approximately $0.6 million paid to providers under risk sharing and capitation arrangements related to 2009 first quarter premiums is included in the incurred related to current period amounts in 2010. Such amount does not relate to fee-for-service medical claims estimates. Similarly, $1.0 million paid to providers under risk sharing and capitation arrangements related to 2008 first quarter premiums is included in the 2009 incurred related to current period. These amounts are the result of additional retroactive risk adjustment premium payments recorded that pertain to the prior year’s premiums.

(2)

Negative amounts reported for incurred related to prior periods result from fee-for-service medical claims estimates being settled for amounts less than originally anticipated (a favorable development).

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HS Reports First Quarter 2010 Results
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3. Segment Information

Financial data by reportable segment for the three months ended March 31 is as follows (in thousands):

	MA-PD		PDP			Corporate			Total
Three months ended March 31, 2010
Revenue	$	630,950	$	129,476		$	16		$	760,442
EBITDA		82,451		(4,763	)		(6,295	)		71,393
Depreciation and amortization expense		6,192		31			1,564			7,787
Three months ended March 31, 2009
Revenue	$	553,485	$	92,618		$	12		$	646,115
EBITDA		51,978		(1,046	)		(6,667	)		44,265
Depreciation and amortization expense		6,356		20			1,148			7,524

As of January 1, 2010, the Company revised its methodology for allocating selling, general, and administrative expenses within its prescription drug operations to its MA-PD and PDP segments, which resulted in allocating a greater share of such expenses to its PDP segment. As a result of these revisions, the segment EBITDA amounts for the 2009 period includes reclassification adjustments between segments such that the periods presented are comparable.

A reconciliation of reportable segment EBITDA to net income included in the consolidated statements of income is as follows (in thousands):

	Three months ended
	March 31,
	2010			2009
EBITDA	$	71,393		$	44,265
Income taxes		(19,834	)		(11,848	)
Interest expense		(9,971	)(1)		(4,281	)
Depreciation and amortization		(7,787	)		(7,524	)
Net income	$	33,801		$	20,612

⁽¹⁾ Includes $7.1 million of debt extinguishment costs related to the termination of the Company’s previous credit facility.

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HS Reports First Quarter 2010 Results
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HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)

	March 31,			December 31,
	2010			2009
Assets
Current assets:
Cash and cash equivalents	$	294,133		$	439,423
Accounts receivable, net		152,081			92,442
Investment securities available for sale		—			8,883
Investment securities held to maturity		—			13,965
Funds due for the benefit of members		—			4,028
Deferred income taxes		4,085			6,973
Prepaid expenses and other		8,717			9,586
Total current assets		459,016			575,300
Investment securities available for sale		95,310			13,574
Investment securities held to maturity		45,072			38,463
Property and equipment, net		29,451			30,316
Goodwill		624,507			624,507
Intangible assets, net		198,666			203,147
Restricted investments		19,775			16,375
Risk corridor receivable from CMS		19,948			—
Other		14,047			6,585
Total assets	$	1,505,792		$	1,508,267
Liabilities and Stockholders’ Equity
Current liabilities:
Medical claims liability	$	197,884		$	202,308
Accounts payable, accrued expenses and other		55,726			50,954
Risk corridor payable to CMS		2,195			2,176
Funds held for the benefit of members		26,376			—
Current portion of long-term debt		17,500			43,069
Total current liabilities		299,681			298,507
Deferred income taxes		75,594			80,434
Long-term debt, less current portion		157,500			193,904
Other long-term liabilities		5,836			5,966
Total liabilities		538,611			578,811
Stockholders’ equity:
Common stock		612			608
Additional paid in capital		551,675			548,481
Retained earnings		462,566			428,765
Accumulated other comprehensive loss, net		1			(1,044	)
Treasury stock		(47,673	)		(47,354	)
Total stockholders’ equity		967,181			929,456
Total liabilities and stockholders’ equity	$	1,505,792		$	1,508,267

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HS Reports First Quarter 2010 Results
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HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)

	Three Months Ended
	March 31,
	2010			2009
Revenue:
Premium revenue	$	749,378		$	634,596
Management and other fees		10,188			9,969
Investment income		876			1,550
Total revenue		760,442			646,115
Operating expenses:
Medical expense		612,519			529,600
Selling, general and administrative		76,530			72,250
Depreciation and amortization		7,787			7,524
Interest expense		9,971			4,281
Total operating expenses		706,807			613,655
Income before income taxes		53,635			32,460
Income taxes		(19,834	)		(11,848	)
Net income	$	33,801		$	20,612
Net Income per common share:
Basic	$	0.59		$	0.38
Diluted	$	0.59		$	0.38
Weighted average common shares outstanding:
Basic		57,224,467			54,481,835
Diluted		57,557,961			54,781,391

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HS Reports First Quarter 2010 Results
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HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)

	Three Months Ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net income	$	33,801		$	20,612
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		7,787			7,524
Amortization of deferred financing cost		506			616
Amortization on bond investments		294			227
Equity in earnings of unconsolidated affiliate		(103	)		(51	)
Share-based compensation		2,719			2,904
Deferred tax benefit		(2,611	)		(2,769	)
Write-off of deferred financing fees		5,079			—
Tax shortfall from share awards		(1,194	)		—
Decrease (increase) in cash and cash equivalents due to changes in:
Accounts receivable		(59,639	)		(33,116	)
Prepaid expenses and other current assets		(4,742	)		(1,437	)
Medical claims liability		(4,424	)		21,674
Accounts payable, accrued expenses and other current liabilities		5,566			3,451
Risk corridor payable to/receivable from CMS		(19,929	)		(12,314	)
Other		1,977			766
Net cash (used in) provided by operating activities		(34,913	)		8,087
Cash flows from investing activities:
Purchases of property and equipment		(2,441	)		(2,819	)
Purchases of investment securities		(120,468	)		(18,247	)
Maturities of investment securities		8,211			8,700
Sales of investment securities		46,106			—
Purchases of restricted investments		(10,948	)		(6,583	)
Maturities of restricted investments		7,548			6,042
Net cash (used in) provided by investing activities		(71,992	)		(12,907	)
Cash flows from financing activities:
Funds received for the benefit of members		207,005			159,711
Funds withdrawn for the benefit of members		(176,601	)		(122,777	)
Proceeds from issuance of long-term debt		200,000			—
Payments on long-term debt		(261,972	)		(9,497	)
Excess tax benefit from stock options exercised		40			—
Proceeds from stock option exercises		477			6
Payment of debt issue costs		(7,334	)		—
Net cash (used in) provided by financing activities		(38,385	)		27,443
Net (decrease) increase in cash and cash equivalents		(145,290	)		22,623
Cash and cash equivalents at beginning of period		439,423			282,240
Cash and cash equivalents at end of period	$	294,133		$	304,863

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