Healthspring 8-K HealthSpring, Inc. Reports 2011 First Quarter Results

Exhibit 99.1

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

HealthSpring, Inc. Reports 2011 First Quarter Results

Raises 2011 Earnings Per Share Guidance Range to $3.40 to $3.70

NASHVILLE, TN. (April 28, 2011) — HealthSpring, Inc. (NYSE:HS) today announced its results for the first quarter ended March 31, 2011, which include the results of Bravo Health, Inc. (“Bravo Health”), acquired by the Company in November 2010. Highlights for the 2011 first quarter included:

• Net income of $44.2 million, or $0.75 per diluted share, compared with $33.8 million, or $0.59 per diluted share, in the 2010 first quarter.

• Premium revenue of $1.4 billion, up 85.0% over the 2010 first quarter.

• Medicare Advantage membership of 331,609, up 69.7% over the 2010 first quarter and 8.9% over 2010 year-end, and stand-alone PDP membership of 834,642, up 114.3% over the 2010 first quarter and 15.2% over 2010 year-end.

• Completion of an underwritten public offering of 8,625,000 shares of common stock in March and the receipt of net proceeds of $301.5 million.

Commenting on the 2011 first quarter results, Herb Fritch, Chairman and Chief Executive Officer, said, “We are pleased to begin 2011 on a positive note as indicated by our strong results for the first three months of the year. The main drivers of these favorable results were higher membership than expected, resulting from higher gross sales and member retention, continued favorable inpatient utilization in most of our Medicare Advantage plans, and increased operating leverage at the SG&A line. Somewhat offsetting these favorable results were higher Medicare Advantage MLRs in our newly acquired Pennsylvania and Mid-Atlantic plans, some of which were expected, and higher than anticipated PDP expenses in certain markets, particularly California. On balance, we believe the results for the quarter bode well for a strong 2011 and are raising our earnings per share guidance.”

First Quarter Results
($in thousands, except per share amounts)

	Three Months Ended
	March 31,				Percent
	2011		2010		Change
Premium revenue	$	1,386,136	$	749,378		85.0	%
Total revenue		1,401,889		760,442		84.4
Medical expense		1,170,413		612,519		91.1
Net income		44,220		33,801		30.8
Net income per common share — diluted(1)		0.75		0.59		27.1

⁽¹⁾ Weighted average shares outstanding used in the calculation of net income per common share — diluted were 59,067,394 and 57,557,961, respectively, for the three months ended March 31, 2011 and 2010.

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HS Reports First Quarter 2011 Results
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Operating Highlights

Revenue

• Medicare Advantage premiums (including the prescription drug component of HealthSpring’s Medicare Advantage plans, or “MA-PD”) were $1.1 billion for the 2011 first quarter, which represents an increase of 77.7% over the 2010 first quarter. The higher premium revenue in the 2011 first quarter was primarily attributable to the inclusion of Bravo Health and to a 9.1% increase in membership in the legacy HealthSpring health plans compared with the 2010 first quarter.

• Medicare Advantage premiums per member per month, or “PMPM,” were $1,111 in the 2011 first quarter, compared with $1,062 in the 2010 first quarter. The increase in PMPM premiums was primarily the result of the inclusion of higher PMPM premiums from the Pennsylvania market and increased risk adjustment payments.

• Stand-alone PDP premium revenue was $285.0 million for the 2011 first quarter, an increase of 120.1% compared with the 2010 first quarter. The increase in revenue was primarily the result of the inclusion of Bravo Health premium revenue for the first quarter 2011.

• Investment income in the 2011 first quarter increased $2.4 million compared with the 2010 first quarter. The increase in investment income was primarily as a result of increases in invested balances.

Medical Expense

• Medicare Advantage medical loss ratio, or “MLR,” was 80.5% for the 2011 first quarter, compared with 78.3% for the 2010 first quarter. The increase in the 2011 first quarter MLR, much of which was expected, is primarily due to the inclusion of Bravo Health, which has historically run higher MLRs than other HealthSpring plans, and as a result of increases in member benefits for 2011. The increase in MLR was partially offset by lower MLRs in many of our markets resulting from more favorable inpatient utilization in the current quarter.

• PDP MLR was 99.6% for the 2011 first quarter, compared with 98.6% for the 2010 first quarter. The 100 basis points increase in PDP MLR during the current quarter was primarily the result of the higher cost trends from new members in certain PDP regions, particularly California.

Selling, General & Administrative (SG&A) Expense

• SG&A expense as a percentage of total revenue in the 2011 first quarter decreased 40 basis points to 9.7%, compared with 10.1% in the 2010 first quarter. The decrease in SG&A expense as a percentage of revenue resulted primarily from revenue increases and lower marketing expenses due to the shortened enrollment period for 2011. SG&A expense in the 2011 first quarter increased $59.7 million compared with the 2010 first quarter, primarily as a result of the inclusion of Bravo Health in the 2011 first quarter.

Depreciation and Amortization Expense

• Depreciation and amortization expense in the 2011 first quarter increased $7.0 million over the 2010 first quarter, the majority of which increase relates to the amortization of identifiable intangible assets acquired as part of the Bravo Health transaction.

Interest Expense

• Interest expense in the 2011 first quarter increased $0.3 million compared with the 2010 first quarter. The Company’s interest expense in the 2010 first quarter included debt extinguishment costs of $7.1 million resulting from the Company entering into a new credit facility. Net of the extinguishment costs, interest expense increased $7.4 million in the 2011 first quarter, reflecting higher average debt amounts outstanding related to borrowings made to finance the Bravo Health acquisition.

• The 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, 2011, was 4.6%, compared with 3.9% for the three months ended March 31, 2010.

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HS Reports First Quarter 2011 Results
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Income Taxes

• The Company’s effective income tax rate for the three months ended March 31, 2011, was 37.1%, compared with 37.0% for the three months ended March 31, 2010.

Balance Sheet Highlights

• At March 31, 2011, the Company’s cash and investments were $893.7 million, $172.3 million of which was held by unregulated entities, compared with cash and investments of $771.8 million at December 31, 2010, $83.4 million of which was held by unregulated entities.

• Days in claims payable totaled 33 at the end of the 2011 first quarter, compared with 29 at the end of the 2010 first quarter and 35 at the end of the 2010 fourth quarter.

• On March 29, 2011, the Company completed an underwritten public offering of 8,625,000 shares of its common stock. The net proceeds from the offering, after offering expenses and underwriting discounts, were $301.5 million. The Company used $263.4 million of the net proceeds for the repayment of indebtedness during the 2011 first quarter.

• Total debt outstanding was $354.1 million at March 31, 2011, compared with $626.9 million at December 31, 2010. There were no borrowings outstanding under the Company’s revolving credit facility at March 31, 2011.

Outlook

The Company expects the following in regards to 2011:

• Diluted EPS: The Company revises its estimate for diluted earnings per share to a range of $3.40 to $3.70, on weighted average shares outstanding of approximately 66.0 million. In connection with the equity offering completed in March 2011, the Company had previously revised earnings per share guidance to a range of $3.30 to $3.60.

• Membership: The Company maintains its estimate for Medicare Advantage membership to be at least 340,000 at the end of 2011. The Company now estimates its PDP membership to be in the range of 860,000 to 880,000 at the end of 2011.

• Revenue: The Company maintains its estimate that total revenue will be at least $5.4 billion.

• MLRs: The Company revises its estimate for Medicare Advantage (including MA-PD) full-year MLR to a range of 81.0% to 81.5%. The Company now estimates its stand-alone PDP MLR to be in the range of 87.0% to 88.0% for the year.

• SG&A: The Company revises its estimate for selling, general and administrative expense to be approximately 10.0% of total revenue for the year.

• Income taxes:The Company maintains its estimate that its effective income tax rate for 2011 will be 37.0% to 37.5%.

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 28, 2011. 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 8096339. An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days.

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HS Reports First Quarter 2011 Results
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About HealthSpring

HealthSpring is based in Nashville, Tennessee, and is one of the country’s largest Medicare Advantage coordinated care plans. HealthSpring currently owns and operates Medicare Advantage plans in Alabama, Delaware, Florida, Georgia, Illinois, Maryland, Mississippi, New Jersey, Pennsylvania, Tennessee, Texas, and Washington D.C. and also offers national and regional stand-alone Medicare prescription drug plans. For more information, visit www.healthspring.com. Media information is available at HealthSpring’s press site: http://press.healthspring.com.

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 relate 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 2011 guidance and trends in membership growth, utilization, and medical expenses. 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, including as a result of shortened enrollment periods; 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 and pharmaceuticals; 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 or liabilities 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; changes in tax estimates, assets, or liabilities and valuation allowances related thereto; HealthSpring’s lack of prior experience in Bravo Health’s service areas; HealthSpring’s ability to manage and integrate successfully the operations of Bravo Health, achieve operating efficiencies, and maintain and grow membership as anticipated; and HealthSpring’s ability to effectively service the additional indebtedness incurred in connection with the acquisition of Bravo Health. 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, 2010, and in other public filings by the Company.

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HS Reports First Quarter 2011 Results
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Supplemental Information

1. Membership

	March 31,		Dec. 31,		Percent			March 31,		Percent
	2011		2010		Change			2010		Change
MA Membership:
Alabama		32,510		30,148		7.8	%		31,170		4.3	%
Florida		38,177		37,022		3.1			35,093		8.8
Pennsylvania		67,899		63,044		7.7			—		—
Tennessee		71,441		65,533		9.0			63,505		12.5
Texas		79,923		71,105		12.4			48,298		65.5
Other		41,659		37,752		10.3			17,299		140.8
Total		331,609		304,604		8.9	%		195,365		69.7	%
PDP Membership		834,642		724,394		15.2	%		389,561		114.3	%

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, 2011 and 2010.

	Three Months Ended
	March 31,
(Unaudited, $ in thousands)	2011			2010
Balance at beginning of period	$	350,217		$	202,308
Incurred related to:
Current period		1,174,160			623,872
Prior period(1)		(3,747	)		(11,353	)
Total incurred		1,170,413			612,519
Paid related to:
Current period		824,458			461,049
Prior period		273,045			155,894
Total paid		1,097,503			616,943
Balance at the end of the period	$	423,127		$	197,884

⁽¹⁾ 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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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, 2011
Revenue	$	1,116,869	$	285,006		$	14		$	1,401,889
EBITDA		121,424		(17,479	)		(8,654	)		95,291
Depreciation and amortization expense		12,538		679			1,545			14,762
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

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,
	2011			2010
EBITDA	$	95,291		$	71,393
Income taxes		(26,033	)		(19,834	)
Interest expense		(10,276	)		(9,971	)(1)
Depreciation and amortization		(14,762	)		(7,787	)
Net income	$	44,220		$	33,801

⁽¹⁾ Includes $7.1 million of debt extinguishment costs related to the termination of a prior credit facility.

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HS Reports First Quarter 2011 Results
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HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)

	March 31,			December 31,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	300,676		$	191,459
Accounts receivable, net		246,509			168,893
Funds due for the benefit of members		—			83,429
Deferred income taxes		16,849			15,459
Prepaid expenses and other		12,639			17,481
Total current assets		576,673			476,721
Investment securities available for sale		565,111			551,207
Property and equipment, net		62,717			60,017
Goodwill		839,001			839,001
Intangible assets, net		355,979			365,884
Restricted investments		27,931			29,136
Other		40,944			26,637
Risk corridor receivable from CMS		48,508			—
Total assets	$	2,516,864		$	2,348,603
Liabilities and Stockholders’ Equity
Current liabilities:
Medical claims liability	$	423,127		$	350,217
Accounts payable, accrued expenses and other		81,743			101,915
Book overdraft		34,326			19,629
Risk corridor payable to CMS		7,785			7,780
Funds held for the benefit of members		9,360			—
Current portion of long-term debt		37,350			61,226
Total current liabilities		593,691			540,767
Deferred income taxes		100,784			104,301
Long-term debt, less current portion		316,774			565,649
Other long-term liabilities		6,679			5,755
Total liabilities		1,017,928			1,216,472
Stockholders’ equity:
Common stock		718			619
Additional paid in capital		892,851			569,024
Retained earnings		667,208			622,988
Accumulated other comprehensive income, net		1,397			1,495
Treasury stock		(63,238	)		(61,995	)
Total stockholders’ equity		1,498,936			1,132,131
Total liabilities and stockholders’ equity	$	2,516,864		$	2,348,603

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HS Reports First Quarter 2011 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,
	2011			2010
Revenue:
Premium revenue	$	1,386,136		$	749,378
Management and other fees		12,429			10,188
Investment income		3,324			876
Total revenue		1,401,889			760,442
Operating expenses:
Medical expense		1,170,413			612,519
Selling, general and administrative		136,185			76,530
Depreciation and amortization		14,762			7,787
Interest expense		10,276			9,971
Total operating expenses		1,331,636			706,807
Income before income taxes		70,253			53,635
Income taxes		(26,033	)		(19,834	)
Net income	$	44,220		$	33,801
Net Income per common share:
Basic	$	0.77		$	0.59
Diluted	$	0.75		$	0.59
Weighted average common shares outstanding:
Basic		57,796,247			57,224,467
Diluted		59,067,394			57,557,961

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HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	44,220		$	33,801
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		14,762			7,787
Amortization of deferred financing cost		2,891			506
Amortization on bond investments		2,430			294
Equity in earnings of unconsolidated affiliate		(92	)		(103	)
Share-based compensation		2,342			2,719
Deferred tax benefit		(4,856	)		(2,611	)
Write-off of deferred financing fees		—			5,079
Changes in operating assets and liabilities:
Accounts receivable		(94,762	)		(59,639	)
Prepaid expenses and other current assets		4,918			(4,742	)
Medical claims liability		72,910			(4,424	)
Accounts payable, accrued expenses and other current liabilities		(21,659	)		4,372
Risk corridor payable to/receivable from CMS		(48,504	)		(19,929	)
Other		1,167			1,977
Net cash used in operating activities		(24,233	)		(34,913	)
Cash flows from investing activities:
Purchases of property and equipment		(7,557	)		(2,441	)
Purchases of investment securities		(57,323	)		(120,468	)
Maturities of investment securities		30,726			8,211
Sales of investment securities		10,128			46,106
Purchases of restricted investments		(10,766	)		(10,948	)
Maturities of restricted investments		11,957			7,548
Other		6			—
Net cash used in investing activities		(22,829	)		(71,992	)
Cash flows from financing activities:
Funds received for the benefit of members		509,924			207,005
Funds withdrawn for the benefit of members		(417,135	)		(176,601	)
Proceeds from issuance of common stock		301,509			—
Proceeds from issuance of long-term debt		—			200,000
Payments on long-term debt		(272,751	)		(261,972	)
Excess tax benefit from stock options exercised		54			40
Proceeds from stock option exercises		20,022			477
Payment of debt issue costs		(41	)		(7,334	)
Change in book overdraft		14,697			—
Net cash provided by (used in) financing activities		156,279			(38,385	)
Net increase (decrease) in cash and cash equivalents		109,217			(145,290	)
Cash and cash equivalents at beginning of period		191,459			439,423
Cash and cash equivalents at end of period	$	300,676		$	294,133

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