EXHIBIT 99.1
| | | |
| Company Contact: | | Lankford Wade |
| | | Vice President |
| | | HealthSpring, Inc. |
| | | (615) 236-6200 |
HealthSpring, Inc. Reports 2007 Third Quarter Results Increases 2007 Earnings Guidance
FRANKLIN, Tenn. (October 30, 2007) — HealthSpring, Inc. (NYSE:HS) today announced its results for the third quarter and nine months ended September 30, 2007. Highlights for the 2007 third quarter included:
| • | | Medicare Advantage members of 126,616 at September 30, 2007; up 13.6% over the 2006 third quarter end. PDP membership of 128,127 at September 30, 2007; up 45.2% over the 2006 third quarter end. |
| • | | Medicare premium revenue of $342.2 million; up 13.2% over the 2006 third quarter. |
| • | | Net income of $22.4 million, or $0.39 per diluted share, compared with $31.1 million, or $0.54 per diluted share, in the 2006 third quarter. Retroactive risk payments from CMS received in the 2006 third quarter resulted in a favorable after-tax impact on net income of approximately $6.7 million, or $0.12 per diluted share. |
Commenting on 2007 third quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, “We are pleased with our third quarter results. Despite the challenges we experienced during the first five months of 2007, it appears that our medical costs are now more in line with our historical experience. In addition, despite increases in competition and reductions in premiums, profitability in our Part D line of business continues to be better than originally expected. We were also pleased that we were able to finance and complete the acquisition of Leon Medical Centers Health Plans on October 1. We look forward to an exciting open enrollment period for 2008 in Florida and in our other markets.”
Third Quarter Results
| | | | | | | | | | | | | |
| | | Three Months Ended | | | | |
| | | September 30, | | | Percent | |
| ($ in thousands) | | 2007 | | | 2006 | | | Change | |
| Medicare premium revenue | | $ | 342,173 | | | $ | 302,261 | | | | 13.2 | % |
| Total revenue | | | 366,342 | | | | 343,861 | | | | 6.5 | |
| Medicare medical expense | | | 279,923 | | | | 228,829 | | | | 22.3 | |
| Total medical expense | | | 288,261 | | | | 256,439 | | | | 12.4 | |
| SG&A | | | 40,161 | | | | 37,839 | | | | 6.1 | |
EBITDA(1) | | | 38,078 | | | | 49,676 | | | | (23.3 | ) |
| Net income | | | 22,365 | | | | 31,053 | | | | (28.0 | ) |
| Net income per common share — diluted | | | 0.39 | | | | 0.54 | | | | (27.8 | ) |
| | |
| (1) | | See “Supplemental Information” below and the accompanying reconciliation of non-GAAP measures to GAAP measures. |
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HS Reports Third Quarter Results
Page 2
October 30, 2007
Operating Highlights
Revenue
| • | | Medicare Advantage premiums were $315.2 million for the 2007 third quarter, reflecting an increase of 17.9% over the 2006 third quarter as adjusted for the 2006 retroactive risk payments (see “Supplemental Information” Note 1 herein). As reported, Medicare Advantage premiums increased 12.7% over the 2006 third quarter. |
| • | | PDP premium revenue was $26.9 million for the 2007 third quarter, an increase of 19.6% compared with the 2006 third quarter. The revenue increase is primarily attributable to the 45.2% increase in membership, which was partially offset by a decline in per member per month, or PMPM, premiums. |
| • | | Commercial premiums were $10.9 million for the 2007 third quarter. Commercial membership was 12,453 at September 30, 2007, compared with 36,011 at September 30, 2006. |
Medical Expense
| • | | Total Medicare medical loss ratio (MLR) was 81.8% for the 2007 third quarter, compared with 75.7% for the prior year’s third quarter. |
| • | | Medicare Advantage MLR (excluding PDP) for the three months ended September 30, 2007, was 81.9% compared with 79.6% for the 2006 third quarter on an as-adjusted basis (see “Supplemental Information” Note 1 herein). As reported, Medicare Advantage MLR was 81.9% for the 2007 third quarter compared with 76.9% for the comparable prior-year period. |
| • | | On a year-to-date basis, the MLR for PDP was 88.8% for 2007 compared with 81.9% in the 2006 period. The deterioration in PDP MLR was primarily the result of lower PDP PMPM revenue in the current year. |
| • | | In October 2007, the Company received notification from CMS that the Company’s obligation to CMS to settle certain Part D payments (funds held for the benefit of members and risk corridor adjustments) for the 2006 plan year amounted to $103.7 million. Adjusting the Company’s prior estimate of amounts due CMS for the 2006 plan year to amounts set forth in the final settlement notification from CMS resulted in a negative impact of $3.5 million to operations for the three months ended September 30, 2007, which increased Medicare Advantage MLR (excluding PDP) by 60 basis points, PDP MLR by 440 basis points, and total Medicare MLR by 100 basis points for the three months ended September 30, 2007. |
Selling General & Administrative (SG&A)
| • | | SG&A expense represented 11.0% of total revenue in both the 2007 third quarter and the 2006 third quarter. |
| • | | In the third quarter of 2007, SG&A expense increased by $2.3 million, or 6.1%, over the 2006 third quarter, primarily as a result of increases in personnel and stock compensation. |
Balance Sheet Highlights
| • | | At September 30, 2007, the Company’s cash and cash equivalents were $409.8 million, $90.1 million of which was held at unregulated subsidiaries. Approximately $56.0 million of cash at unregulated subsidiaries, together with the $12.0 million of funds held in escrow, were spent in the 2007 fourth quarter for the acquisition of Leon Medical Centers Health Plans and for transaction-related expenses (see below). Approximately $137.5 million of the cash balance at September 30, 2007, relates to amounts held by the Company for the benefit of its Part D members and $43.9 million relates to payables to CMS under the risk corridor provisions of Part D. |
| • | | As noted above, in October 2007, the Company received notification from CMS of the 2006 final Part D settlement of $103.7 million. The Company anticipates such amount will settle against premium payments in the fourth quarter of 2007. |
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HS Reports Third Quarter Results
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October 30, 2007
| • | | For the third quarter of 2007, net cash provided by operating activities, after adjusting for the early receipt of the $114.5 million July CMS payment in June, was $40.8 million, or 1.8 times net income, compared with $53.5 million for the third quarter of 2006, or 1.7 times net income, after adjusting for the early receipt of the $94.6 million July CMS payment in June 2006. |
| • | | Days in claims payable totaled 38 at the end of the 2007 third quarter compared with 40 at the end of the second quarter 2007. |
Acquisition of Leon Medical Centers Health Plans
As previously announced, on October 1, 2007, the Company completed its acquisition of Leon Medical Centers Health Plans, Inc. (“LMC Health Plans”), a Miami, Florida-based Medicare Advantage HMO with approximately 26,000 members. The Company acquired LMC Health Plans for $355 million in cash at closing and additional consideration of 2.67 million shares of HealthSpring’s common stock to be released from escrow upon satisfaction of certain conditions.
The $355 million cash purchase price was financed, in part, with the proceeds of a new $300 million senior secured term loan facility. The term loan facility has a term of five years and bears interest at a spread over a base rate or LIBOR (initially 250 basis points for LIBOR advances), depending on the Company’s leverage ratio. The Company also has entered into a $100 million senior secured revolving credit facility, which is currently undrawn.
As part of the transaction, the Company entered into an exclusive long-term provider contract with Leon Medical Centers, Inc., an operator of five Medicare-only medical clinics located throughout Miami-Dade County. The provider contract includes a risk-sharing arrangement whereby both the Company and LMC will share equally in the surplus or deficit of the health plan relative to targeted medical loss ratios, which is initially set at 80.0%.
Updated 2007 Guidance
The updated 2007 guidance provided below includes the estimated results from the operations of LMC Health Plans from October 1, 2007, the date of acquisition.
| • | | EPS: The Company estimates that earnings per share for 2007, on a fully diluted basis, will be in the range of $1.40 to $1.45, on weighted average shares outstanding of approximately 57.4 million. The estimated range of earnings per share includes the $0.05 net loss per share that resulted from the Company’s recording a charge to earnings of $4.5 million during the 2007 second quarter for the impairment of intangible assets. |
| • | | Membership: The Company estimates that its Medicare Advantage membership will be in the range of 153,000 to 154,000 (including approximately 26,000 from LMC Health Plans) at the end of 2007. Additionally, the Company estimates that PDP membership will be approximately 135,000 at the end of 2007. |
| • | | Revenue: The Company estimates that 2007 total revenue will be approximately $1.55 billion, with approximately 97% of total revenue for the year attributable to the Medicare business. |
| • | | MLRs: The Company now estimates Medicare Advantage full-year MLRs will range between 80.0% and 81.0% for 2007. The Company maintains its estimate that PDP MLRs will range between 83.0% and 86.0% for the year. |
Conference Call
A live audio webcast of the conference call regarding third quarter results will begin at 10:00 a.m. ET on Wednesday, October 31, 2007. 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) 981-5547, confirmation number 7704216. 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 Third Quarter Results
Page 4
October 30, 2007
About HealthSpring, Inc.
HealthSpring is one of the largest managed care organizations in the United States whose primary focus is the Medicare Advantage market. The Company owns and operates Medicare Advantage plans and a stand-alone Medicare prescription drug plan in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas, and, effective January 1, 2007, began offering Medicare Part D prescription drug plans on a nationwide basis to persons in all 50 states who are eligible for Medicare. The Company also uses its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to employer groups.
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 explanations for medical cost trends, estimated CMS liabilities and risk corridor adjustments and the settlement thereof, Medicare-commercial premium revenue mix, estimates of retroactive risk rate adjustments, and earnings, membership, and MLR 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.
The following factors, among others, could cause actual results to differ materially from those in the forward-looking statements: changes in membership enrollment and dis-enrollment patterns; changes in utilization; changes in medical and prescription drug cost trends; the Company’s ability to accurately estimate and calculate Part D risk corridor adjustments; the Company’s ability to accurately estimate CMS retroactive risk adjustments to Medicare rates; increasing competition and potential confusion in the marketplace regarding other MA, MA-PD, PDP, and PFFS plan offerings; the Company’s ability to accurately estimate incurred but not reported medical claims; challenges to integrating LMC Health Plans and the Company’s lack of experience in South Florida; negotiation of acceptable contracts with physicians, hospitals, and other providers; contractual disputes with providers; increases in costs or liabilities associated with litigation; legislative and regulatory actions or changes, including changes in Medicare funding; the reconciliation of Part D claims files errors; costs associated with information and data systems conversions and compliance with regulatory mandates; management changes; 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, 2006, and in the Company’s Quarterly Reports on Form 10-Q. Any projections or other forward-looking information in this release are based on limited information currently available to HealthSpring, 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. Such information speaks only as of the date of this release.
Supplemental Information
1. Non-GAAP Measures
The Company believes that the non-GAAP measures used in this release, when presented in conjunction with comparable GAAP measures, are useful to both management and investors in analyzing financial and business trends regarding the Company’s ongoing business and operating performance. These non-GAAP measures should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP.
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HS Reports Third Quarter Results
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October 30, 2007
(A) The Company uses EBITDA, or earnings before interest, taxes, depreciation and amortization, and impairment of intangible assets, to assess business performance among its health plans and related management companies.
The following table provides a reconciliation of EBITDA as used in this release to net income calculated in accordance with GAAP:
| | | | | | | | | |
| | | Three Months Ended | |
| | | September 30, | |
| (in thousands) | | 2007 | | | 2006 | |
| Net income | | $ | 22,365 | | | $ | 31,053 | |
| Plus: income tax expense | | | 12,574 | | | | 15,963 | |
| Plus: interest expense | | | 123 | | | | 119 | |
| Plus: depreciation and amortization | | | 3,016 | | | | 2,541 | |
| | | | | | | |
| EBITDA | | $ | 38,078 | | | $ | 49,676 | |
| | | | | | | |
(B) The table below includes pro-forma adjustments to include the Medicare premiums and expense (excluding PDP) related to the risk adjustment payment for the 2006 plan year, which was received and recognized in the third quarter of 2006, as if it had been recorded in the applicable period of 2006 in which it was earned. The 2006 third quarter payment, after adjusting medical expense to reflect payments to providers pursuant to risk-sharing arrangements, resulted in a favorable after-tax impact on net income in that quarter of approximately $6.7 million, or $0.12 per share.
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | |
| | | September 30, | | | $ | | | % | |
| ($ in millions) | | 2007 | | | 2006 | | | Change | | | Change | |
Premiums: | | | | | | | | | | | | | | | | |
| Medicare Advantage Premiums — as reported | | $ | 315.2 | | | $ | 279.7 | | | $ | 35.5 | | | | 12.7 | % |
| Pro-forma Adjustment for the CMS Risk Adjustment Payment | | | — | | | | (12.3 | ) | | | 12.3 | | | | — | |
| | | | | | | | | | | | | |
| Medicare Advantage Premiums — as adjusted | | $ | 315.2 | | | $ | 267.4 | | | $ | 47.8 | | | | 17.9 | % |
| | | | | | | | | | | | | |
Medical Expense: | | | | | | | | | | | | | | | | |
| Medical Expense — as reported | | $ | 258.3 | | | $ | 215.1 | | | | | | | | | |
| Pro-forma Adjustment for the CMS Risk Adjustment Payment | | | — | | | | (2.2 | ) | | | | | | | | |
| | | | | | | | | | | | | | | |
| Medical Expense — as adjusted | | $ | 258.3 | | | $ | 212.9 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Medical Loss Ratios (MLRs): | | | | | | | | | | | | | | | | |
| Medicare Advantage — as reported | | | 81.9 | % | | | 76.9 | % | | | | | | | | |
| Medicare Advantage — as adjusted | | | 81.9 | % | | | 79.6 | % | | | | | | | | |
2. Membership
| | | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, | | | Dec. 31, | | | Percent | | | Sept. 30, | | | Percent | |
| | | 2007 | | | 2006 | | | Change | | | 2006 | | | Change | |
Medicare Advantage Membership: | | | | | | | | | | | | | | | | | | | | |
| Tennessee | | | 50,228 | | | | 46,261 | | | | 8.6 | % | | | 45,763 | | | | 9.8 | % |
| Texas | | | 36,491 | | | | 34,638 | | | | 5.3 | | | | 33,057 | | | | 10.4 | |
| Alabama | | | 30,642 | | | | 27,307 | | | | 12.2 | | | | 26,084 | | | | 17.5 | |
| Illinois | | | 8,453 | | | | 6,284 | | | | 34.5 | | | | 6,024 | | | | 40.3 | |
| Mississippi | | | 802 | | | | 642 | | | | 24.9 | | | | 566 | | | | 41.7 | |
| | | | | | | | | | | | | | | | |
| Total | | | 126,616 | | | | 115,132 | | | | 10.0 | % | | | 111,494 | | | | 13.6 | % |
| | | | | | | | | | | | | | | | |
PDP Membership: | | | 128,127 | | | | 88,753 | | | | 44.4 | % | | | 88,262 | | | | 45.2 | % |
| | | | | | | | | | | | | | | | |
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HS Reports Third Quarter Results
Page 6
October 30, 2007
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
September 30, 2007 and December 31, 2006
(in thousands)
(Unaudited)
| | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2007 | | | 2006 | |
Assets | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 409,828 | | | $ | 338,443 | |
| Accounts receivable, net of allowance for doubtful accounts | | | 36,966 | | | | 17,588 | |
| Investment securities available for sale | | | 49,160 | | | | 7,874 | |
| Current portion of investment securities held to maturity | | | 17,701 | | | | 10,566 | |
| Deferred income tax asset | | | 2,974 | | | | 3,644 | |
| Prepaid expenses and other assets | | | 5,950 | | | | 4,047 | |
| | | | | | | |
| Total current assets | | | 522,579 | | | | 382,162 | |
| Investment securities held to maturity, less current portion | | | 13,324 | | | | 19,560 | |
| Funds held in escrow for acquisition | | | 12,000 | | | | — | |
| Property and equipment, net | | | 17,127 | | | | 8,831 | |
| Goodwill | | | 341,804 | | | | 341,619 | |
| Intangible assets, net | | | 71,636 | | | | 81,175 | |
| Restricted assets | | | 8,062 | | | | 7,195 | |
| Other | | | 2,328 | | | | 2,103 | |
| | | | | | | |
| Total assets | | $ | 988,860 | | | $ | 842,645 | |
| | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Medical claims liability | | $ | 118,937 | | | $ | 122,778 | |
| Accounts payable, accrued expenses and other | | | 17,461 | | | | 25,984 | |
| Deferred revenue | | | 351 | | | | 64 | |
| Funds held for the benefit of members | | | 137,464 | | | | 62,125 | |
| Risk corridor payable to CMS | | | 34,062 | | | | 27,587 | |
| | | | | | | |
| Total current liabilities | | | 308,275 | | | | 238,538 | |
| Deferred tax liability | | | 25,917 | | | | 28,444 | |
| Risk corridor payable to CMS, less current portion | | | 9,877 | | | | — | |
| Other long-term liabilities | | | 2,177 | | | | 381 | |
| | | | | | | |
| Total liabilities | | | 346,246 | | | | 267,363 | |
| | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
| Common stock | | | 576 | | | | 575 | |
| Additional paid in capital | | | 492,088 | | | | 485,002 | |
| Retained earnings | | | 150,015 | | | | 89,758 | |
| Treasury stock | | | (65 | ) | | | (53 | ) |
| | | | | | | |
| Total stockholders’ equity | | | 642,614 | | | | 575,282 | |
| | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 988,860 | | | $ | 842,645 | |
| | | | | | | |
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HS Reports Third Quarter Results
Page 7
October 30, 2007
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three-Month Period Ended | | | Nine-Month Period Ended | |
| | | September 30, | | | September 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| Revenue: | | | | | | | | | | | | | | | | |
| Premium: | | | | | | | | | | | | | | | | |
| Medicare | | $ | 342,173 | | | $ | 302,261 | | | $ | 1,033,481 | | | $ | 851,295 | |
| Commercial | | | 10,876 | | | | 30,037 | | | | 36,225 | | | | 94,123 | |
| | | | | | | | | | | | | |
| Total premium revenue | | | 353,049 | | | | 332,298 | | | | 1,069,706 | | | | 945,418 | |
| Management and fee revenue | | | 6,528 | | | | 8,249 | | | | 18,613 | | | | 19,995 | |
| Investment income | | | 6,765 | | | | 3,314 | | | | 17,972 | | | | 7,872 | |
| | | | | | | | | | | | | |
| Total revenue | | | 366,342 | | | | 343,861 | | | | 1,106,291 | | | | 973,285 | |
| | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | |
| Medical Expense: | | | | | | | | | | | | | | | | |
| Medicare expense | | | 279,923 | | | | 228,829 | | | | 838,798 | | | | 670,713 | |
| Commercial expense | | | 8,338 | | | | 27,610 | | | | 28,934 | | | | 83,955 | |
| | | | | | | | | | | | | |
| Total medical expenses | | | 288,261 | | | | 256,439 | | | | 867,732 | | | | 754,668 | |
| Selling, general and administrative | | | 40,161 | | | | 37,839 | | | | 131,314 | | | | 108,410 | |
| Depreciation and amortization | | | 3,016 | | | | 2,541 | | | | 8,850 | | | | 7,408 | |
| Impairment of intangible assets | | | — | | | | — | | | | 4,537 | | | | — | |
| Interest expense | | | 123 | | | | 119 | | | | 357 | | | | 8,576 | |
| | | | | | | | | | | | | |
| Total operating expenses | | | 331,561 | | | | 296,938 | | | | 1,012,790 | | | | 879,062 | |
| | | | | | | | | | | | | |
| Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes | | | 34,781 | | | | 46,923 | | | | 93,501 | | | | 94,223 | |
| Equity in earnings of unconsolidated affiliate | | | 158 | | | | 93 | | | | 275 | | | | 264 | |
| | | | | | | | | | | | | |
| Income before minority interest and income taxes | | | 34,939 | | | | 47,016 | | | | 93,776 | | | | 94,487 | |
| Minority interest | | | — | | | | — | | | | — | | | | (303 | ) |
| | | | | | | | | | | | | |
| Income before income taxes | | | 34,939 | | | | 47,016 | | | | 93,776 | | | | 94,184 | |
| Income taxes | | | (12,574 | ) | | | (15,963 | ) | | | (33,519 | ) | | | (33,449 | ) |
| | | | | | | | | | | | | |
| Net income | | | 22,365 | | | | 31,053 | | | | 60,257 | | | | 60,735 | |
| Preferred dividends | | | — | | | | — | | | | — | | | | (2,021 | ) |
| | | | | | | | | | | | | |
| Net income available to common stockholders and members | | $ | 22,365 | | | $ | 31,053 | | | $ | 60,257 | | | $ | 58,714 | |
| | | | | | | | | | | | | |
| Net Income per common share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.39 | | | $ | 0.54 | | | $ | 1.05 | | | $ | 1.09 | |
| | | | | | | | | | | | | |
| Diluted | | $ | 0.39 | | | $ | 0.54 | | | $ | 1.05 | | | $ | 1.09 | |
| | | | | | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 57,259,106 | | | | 57,218,805 | | | | 57,244,854 | | | | 53,741,536 | |
| | | | | | | | | | | | | |
| Diluted | | | 57,355,150 | | | | 57,319,221 | | | | 57,355,891 | | | | 53,840,646 | |
| | | | | | | | | | | | | |
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HS Reports Third Quarter Results
Page 8
October 30, 2007
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
For the Three and Nine Months Ended September 30, 2007 and 2006
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | | | | | | | | | | | |
| Net income | | $ | 22,365 | | | $ | 31,053 | | | $ | 60,257 | | | $ | 60,735 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 3,016 | | | | 2,541 | | | | 8,850 | | | | 7,408 | |
| Impairment of intangible assets | | | — | | | | — | | | | 4,537 | | | | — | |
| Amortization of deferred financing cost | | | 51 | | | | 47 | | | | 152 | | | | 195 | |
| Equity in earnings of unconsolidated affiliate | | | (158 | ) | | | (93 | ) | | | (275 | ) | | | (264 | ) |
| Minority interest | | | — | | | | — | | | | — | | | | 303 | |
| Paid in kind (PIK) interest | | | — | | | | — | | | | — | | | | 116 | |
| Stock-based compensation | | | 1,984 | | | | 1,608 | | | | 6,082 | | | | 3,772 | |
| Deferred tax benefit | | | 387 | | | | 5,779 | | | | (2,042 | ) | | | (717 | ) |
| Write off of deferred financing cost | | | — | | | | — | | | | — | | | | 5,375 | |
| Increase (decrease) in cash and cash equivalents due changes in: | | | | | | | | | | | | | | | | |
| Accounts receivable | | | 11,627 | | | | 5,256 | | | | (19,378 | ) | | | (22,216 | ) |
| Prepaid expenses and other current assets | | | 1,223 | | | | (31 | ) | | | (1,903 | ) | | | 226 | |
| Medical claims payable | | | (10,533 | ) | | | 3,548 | | | | (3,841 | ) | | | 24,730 | |
| Accounts payable, accrued expenses and other current liabilities | | | 1,063 | | | | (7,496 | ) | | | (8,523 | ) | | | 2,638 | |
| Risk corridor payable to CMS | | | 9,728 | | | | 11,340 | | | | 16,352 | | | | 16,178 | |
| Deferred revenue | | | (114,536 | ) | | | (94,550 | ) | | | 287 | | | | (33 | ) |
| Other long-term liabilities | | | 63 | | | | (14 | ) | | | 1,796 | | | | (163 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | (73,720 | ) | | | (41,012 | ) | | | 62,351 | | | | 98,283 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | |
| Purchase of property and equipment | | | (4,933 | ) | | | (1,926 | ) | | | (12,143 | ) | | | (3,559 | ) |
| Escrowed deposit for acquisition | | | (12,000 | ) | | | — | | | | (12,000 | ) | | | — | |
| Purchase of investment securities | | | (40,941 | ) | | | (2,449 | ) | | | (66,354 | ) | | | (8,334 | ) |
| Maturity of investment securities | | | 3,050 | | | | 5,028 | | | | 24,169 | | | | 12,279 | |
| Purchase/maturities of restricted investments | | | 4 | | | | (495 | ) | | | (867 | ) | | | (1,558 | ) |
| Distributions from affiliates | | | 186 | | | | 120 | | | | 216 | | | | 226 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | | | (54,634 | ) | | | 278 | | | | (66,979 | ) | | | (946 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | |
| Funds received for the benefit of members | | | (1,858 | ) | | | (12,266 | ) | | | 75,340 | | | | 60,615 | |
| Payments on borrowings | | | — | | | | — | | | | — | | | | (188,642 | ) |
| Proceeds from issuance of common stock | | | — | | | | (138 | ) | | | 1,002 | | | | 188,611 | |
| Purchase of treasury stock | | | (2 | ) | | | (6 | ) | | | (12 | ) | | | (13 | ) |
| Deferred financing cost | | | (317 | ) | | | — | | | | (317 | ) | | | (932 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | (2,177 | ) | | | (12,410 | ) | | | 76,013 | | | | 59,639 | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (130,531 | ) | | | (53,144 | ) | | | 71,385 | | | | 156,976 | |
| Cash and cash equivalents at beginning of period | | | 540,359 | | | | 320,205 | | | | 338,443 | | | | 110,085 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 409,828 | | | $ | 267,061 | | | $ | 409,828 | | | $ | 267,061 | |
| | | | | | | | | | | | | |
-END-
