EXHIBIT 99.1
(HEALTHSPRING LOGO)
Company Contact: J. Gentry Barden, Esq.
Senior Vice President & General Counsel
HealthSpring, Inc.
(615) 401-4531
HEALTHSPRING, INC. REPORTS 2006 FIRST QUARTER RESULTS;
INCREASES 2006 GAAP EPS GUIDANCE TO $1.05 TO $1.12
NASHVILLE, Tenn. (May 10, 2006) - HealthSpring, Inc. (NYSE:HS) today announced
its results for the first quarter ended March 31, 2006. 2006 first quarter
highlights included:
o Medicare Advantage members increase to 104,106 at March 31, 2006; up 46.5%
year over year;
o 2006 first quarter total revenue of $306.6 million; an increase of 69.4%
over the combined 2005 first quarter;
o MLRs for Medicare Advantage (non-Part D) plans decreased to 77.5% for the
2006 first quarter; improving by 236 basis points over 2005 first quarter
and by 84 basis points over 2005 fourth quarter; and
o Cash and cash equivalents at quarter end of $264.7 million and no long-term
debt.
Commenting on 2006 first quarter results, Herb Fritch, Chairman, President, and
Chief Executive Officer, said, "We continue to be pleased with the fundamental
earnings power of our business and see many opportunities for earnings growth,
both organically and through opportunistic acquisitions. Our first quarter
experience in managing medical costs reflects our continuing ability to align
our interests with our physician partners and maintain disciplined benefit
design. We are particularly pleased with our medical cost trends, the primary
driver of our profitability, and the expected sustainability of these trends for
the balance of 2006. Accordingly, we are raising our 2006 EPS guidance."
FIRST QUARTER RESULTS
HealthSpring, Inc. ("HealthSpring" or the "Company") completed a
recapitalization, which was accounted for as a purchase, of NewQuest, LLC (its
"Predecessor") on March 1, 2005, resulting in the Predecessor becoming a wholly
owned subsidiary of HealthSpring. The information included in this release
compares results for HealthSpring for the first quarter ended March 31, 2006, to
the combined results of the Predecessor for the two months ended February 28,
2005, and for HealthSpring for the one-month period from March 1, 2005 to March
31, 2005. Per share amounts for the first quarter of 2005 are not comparable
with 2006 first quarter results because the ownership of the Predecessor was
composed of member units and HealthSpring ownership is represented by common
stock and common stock equivalents.
On January 1, 2006, the Company began offering prescription drug benefits in
accordance with Medicare Part D, in addition to continuing to provide medical
benefits, to its Medicare Advantage plan members. HealthSpring sometimes refers
to these plans after January 1, 2006, collectively as Medicare Advantage plans
and separately as "MA-only" (in other words, without prescription drug benefits)
and "MA-PD" (with prescription drug benefits) plans. As of January 1, 2006, the
Company also began offering prescription drug benefits on a stand-alone basis in
accordance with Medicare Part D. HealthSpring refers to these as "stand-alone
PDP" or "PDP" plans. Accordingly, as of January 1, 2006, HealthSpring is
reflecting its membership by distinguishing between
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HS Reports First Quarter Results
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May 10, 2006
Medicare Advantage and PDP plans and the Company's financial results, including
premium revenue and medical expense, by distinguishing between Medicare (without
Part D) and Part D.
Net income available to common stockholders for the quarter ended March 31,
2006, calculated in accordance with U.S. generally accepted accounting
principles, or GAAP, was $6.6 million, or $0.14 per share (on a basic and fully
diluted basis). First quarter results include an after-tax charge for stock
compensation expense measured in accordance with FAS 123(R) of $430,000, or
approximately $0.01 per basic and fully diluted share.
First quarter results also reflect the effects of Part D prescription drug
benefits, which were provided to Medicare beneficiaries for the first time on
January 1, 2006. Due to the fact that Part D benefit costs are
disproportionately higher in the first half of the contract year under the
benefit design and because premiums are recognized ratably, HealthSpring expects
to record net losses during the first portion of the year, which it expects will
be offset by net income later in the year. The Company expects its full year
results to reflect a net profit related to Part D. First quarter results include
a pre-tax net loss for Part D of $5.6 million. The first quarter Medicare Part D
loss includes a pre-tax charge of $8.1 million for medical expenses, net of
related manufacturers' rebates, paid for persons who were not members of a
HealthSpring plan and for which HealthSpring will seek reimbursement pursuant to
CMS's recently announced process for "plan-to-plan reconciliation." The Company
has not recorded any reimbursement during the three months ended March 31, 2006.
Net income available to members of the Predecessor for the two months ended
February 28, 2005, was $2.7 million and net income available to common
stockholders for the Company for the one month ended March 31, 2005 was $0.3
million. Consequently, combined net income available to common stockholders and
members for the combined three months ended March 31, 2005, which is not a GAAP
measurement, was $3.0 million. Combined 2005 results are reconciled to GAAP for
the two months of the Predecessor and the one month of HealthSpring on page 10
of this release.
The Company completed its initial public offering of common stock on February 8,
2006, the proceeds of which were used to pay off all outstanding debt. The
Company's preferred stock and all of its remaining minority interests were
converted into common stock in conjunction with the IPO. On a pro-forma basis,
assuming the IPO had occurred on January 1, 2006, the fully diluted net income
per share for the 2006 first quarter would have been $0.24. The pro-forma EPS
results are reconciled to first quarter GAAP net income in the "Supplemental
Information" section herein.
FIRST QUARTER HIGHLIGHTS
($ in thousands)
THREE MONTHS ENDED
MARCH 31,
------------------ PERCENT
2006 2005 CHANGE
-------- -------- -------
Premium revenue $298,921 $175,108 70.7
Total revenue 306,622 180,958 69.4
Medical expense 247,372 139,090 77.9
Adjusted SG&A 34,609 22,451(1) 54.2
Adjusted EBITDA (2) 24,748 19,417 27.5
- ---------
(1) Adjusted from combined SG&A of $29,392 to exclude $6,941 of expense
relating to the Company's recapitalization on March 1, 2005.
(2) See "Supplemental Information" below and the accompanying reconciliation of
HealthSpring's and the Predecessor's non-GAAP Adjusted EBITDA to GAAP Net
Income.
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HS Reports First Quarter Results
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May 10, 2006
Medicare Revenue
o Medicare Advantage plan membership increased to 104,106 during the first
quarter and by 33,066, or 46.5%, year over year.
o Medicare premiums (not including Part D) were $220.8 million for the 2006
first quarter, reflecting an increase of 53.2% over the 2005 first quarter.
o Medicare Part D premiums were $45.9 million for the 2006 first quarter.
This amount reflects a reduction related to CMS's risk corridor payment
adjustment based on HealthSpring's Part D experience to date.
o Medicare premiums (including Part D) represented 89.2% of total premium
revenue and 87.0% of total revenue for the 2006 first quarter.
o Medicare (other than Part D) PMPM premiums averaged $715.64 in first
quarter 2006, reflecting an increase of 2.8% over the prior year's first
quarter. Part D PMPM premiums received from CMS for the 2006 first quarter
averaged $87.44 for MA-PD members and $105.96 for stand-alone PDP members.
Commercial Revenue
o Commercial membership was 39,550 at March 31, 2006, a slight decline
compared to membership of 40,431 at the end of the 2005 first quarter.
o Commercial premiums were $32.2 million for the 2006 first quarter,
reflecting an increase of 4.1% compared with the 2005 first quarter,
primarily attributable to a 7.0% increase in PMPM rates to $270.93.
Medical Expense
o Medicare Advantage medical loss ratio, or MLR, excluding Part D expense,
was 77.5% for the 2006 first quarter, reflecting an improvement of 236
basis points compared with the prior year's first quarter and an
improvement of 84 basis points over the 2005 fourth quarter.
o Medicare Part D MLR was 107.3% for the 2006 first quarter. It includes
approximately $8.1 million in prescription drug costs, net of related
manufacturers' rebates, incurred by us for members of other plans, for
which we may be reimbursed as a result of a reconciliation process being
proposed by CMS. Excluding this charge, Medicare Part D MLR would have been
89.6%.
o Commercial MLR was 83.6% for the 2006 first quarter.
o The 2006 first quarter reflects favorable prior period reserve development,
or PPRD, of $12.9 million, compared to favorable PPRD of $6.2 million in
the 2005 first quarter.
Adjusted SG&A
o Represented 11.3% of total revenue in the 2006 first quarter as compared
with 12.4% in the comparable prior year period and 14.1% in the fourth
quarter of 2005.
o Increased in 2006 by $12.2 million, or by 54.2%, over the 2005 first
quarter, as adjusted, primarily as a result of growth, geographic
expansion, implementation of Part D, and public company expenses.
BALANCE SHEET HIGHLIGHTS
o At March 31, 2006, the Company's cash and cash equivalents were $264.7
million, $12.7 million of which was held at unregulated subsidiaries. This
amount includes approximately $46.9 million of advances from CMS for
reinsurance payments and low income cost subsidies for which we assume no
risk, and which is accounted for as funds held for the benefit of members
on our balance sheet, and $87.4 million for the early receipt of the April
premium.
o Net cash provided by operating activities (adjusting for the early premium
payment) for the 2006 first quarter was $22.4 million, or 2.6x net income.
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HS Reports First Quarter Results
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May 10, 2006
o Days in claims payable was 36 at the end of the 2006 first quarter compared
with 40 at the end of 2005 and 37 at the end of the 2005 first quarter. The
decrease in the days claims payable is primarily related to Part D claims,
which have an inherently shorter pay cycle than our Medicare Advantage and
commercial lines of business.
REVISED 2006 GUIDANCE
o Membership: The Company estimates that its MA-only and MA-PD membership
will be in the range of 112,000 to 117,000 by the end of 2006. HealthSpring
estimates that PDP membership will average between 80,000 and 90,000 lives
during the year. Commercial lives are projected to be 28,000 to 30,000 at
year end.
o Revenue: The Company maintains its estimate that 2006 total revenue will be
between $1.25 billion and $1.35 billion, with approximately 90% of total
revenue for the year attributable to Medicare Advantage and Part D
premiums. Based on MA-PD and PDP membership estimates, the Company believes
Part D premium revenue will account for approximately $200.0 million of
total revenue.
o MLRs: The Company is revising its projections for Medicare (without Part D)
MLRs to range between 78.5% and 79.5% for the full year, and maintaining
its Part D and Commercial MLRs at approximately 90.0% and 83%-84%,
respectively. As previously indicated, Part D medical expenses are expected
to be higher, as a percent of premiums, in the first half of the year.
o EPS: The Company is increasing its estimate of GAAP earnings per share for
2006 to be in the range of $1.05 to $1.12. On a non-GAAP pro-forma basis
(assuming the IPO took place on January 1, 2006) the 2006 EPS range would
be $1.12 to $1.19, after adjusting in the first quarter for the elimination
of preferred dividends, minority interest and tax expense, and adding
incremental FAS 123(R) compensation expense. See "Supplemental Information"
Note 3 herein.
CONFERENCE CALL
A live audio webcast of the conference call regarding first quarter results will
begin at 11:00 a.m. ET today (May 10, 2006). The public may access the
conference call through HealthSpring's website, www.myhealthspring.com, under
the Investor Relations tab. The conference call can also be accessed by dialing
(913) 312-1295, confirmation number 9315554. An online replay will be available
approximately two hours following the conclusion of the live broadcast and will
continue for 30 days.
ABOUT HEALTHSPRING, INC.
HealthSpring, Inc. is one of the largest managed care organizations in the
United States whose primary focus is the Medicare Advantage market. The Company
currently owns and operates Medicare Advantage and stand-alone Medicare
prescription drug plans in Tennessee, Texas, Alabama, Illinois, and Mississippi.
In addition, the Company 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 may be
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends such
statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 21E of the Exchange Act. 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,"
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May 10, 2006
"may," "plans," "potential," "predicts," "projects," "should," "will," "would,"
and similar expressions are forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the Company's actual results, performance, or achievements to be
materially different from any future results, performance, or achievements
expressed or implied by the forward-looking statements. Additional information
concerning 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, 2005, as filed with the Securities and Exchange Commission. Except as
required by law, the Company assumes no obligation to update any forward-looking
statement publicly, or to update the reasons actual results could differ
materially from those predicted in any forward-looking statement, even if new
information becomes available in the future.
SUPPLEMENTAL INFORMATION
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.
This press release includes a presentation of the following non-GAAP financial
measures:
1) Combined results of operations of the Predecessor from January 1, 2005
through February 28, 2005, and of the Company from March 1, 2005 through
March 31, 2005, which is not a financial measure recognized under GAAP. The
Company has included this non-GAAP financial measure because it believes
that it permits a more meaningful comparison of the Company's operating
performance between the periods presented. See "Condensed Consolidated
Statement of Income Information" herein on page 10.
2) The following table adjusts GAAP net income available to common
stockholders to give pro-forma effect to the IPO as if it occurred on
January 1, 2006:
(in 000's)
Net income available to common stockholders $ 6,552
Adjustments:
Preferred dividends 2,021
Minority interest (after tax) 190
Pre-IPO interest expense (after tax) 5,214
Incremental FAS 123(R) expense (after tax) (231)
-------
Pro-forma net income $13,746
=======
Weighted average shares outstanding assuming a
January 1, 2006 IPO 57,400
=======
Non-GAAP pro-forma EPS $ 0.24
=======
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HS Reports First Quarter Results
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May 10, 2006
3) The following table adjusts projected GAAP EPS to projected pro-forma EPS,
giving pro-forma effect to the IPO as if it had occurred on January 1,
2006:
GAAP PRO-FORMA
----------------------- -----------------------
(in 000's)
Net income available to common stockholders $57,250 - $61,331 $57,250 - $61,331
Adjustments:
Preferred dividends 2,021
Minority interest (after tax) 190
Pre-IPO interest expense (after tax) 5,214
Incremental FAS 123(R) expense (after tax) (231)
-----------------------
Pro-forma net income $64,453 - $68,534
Weighted average shares outstanding for year 54,760 57,400
EPS $1.05 - $1.12 $1.12 - $1.19
4) The Company uses Adjusted EBITDA, or adjusted earnings before interest,
taxes, depreciation, amortization, and minority interest, to assess
business performance among its health plans and related management
companies. Although some excluded items may recur, management believes that
this measure provides a more useful comparison of its business performance
from period to period.
The following tables provide a reconciliation of Adjusted EBITDA as used in
this release to net income before preferred dividends calculated in
accordance with GAAP.
THREE MONTHS ENDED
MARCH 31,
-------------------
2006 2005
------- -------
Net income before preferred dividends $ 8,573 $ 4,576
Plus: income tax expense 5,088 3,745
Plus: interest expense 8,361 1,649
Plus: depreciation and amortization 2,423 1,175
------- -------
EBITDA 24,445 11,145
------- -------
Plus: transaction expenses (a) -- 6,941
Plus: minority interest 303 1,331
------- -------
Adjusted EBITDA $24,748 $19,417
======= =======
(a) Transaction expenses represent transaction costs that were expensed during
the two-month period ended February 28, 2005.
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May 10, 2006
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
MARCH 31, 2006 AND DECEMBER 31, 2005
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2006 2005
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 264,707 $ 110,085
A/R, net of allowance for doubtful accounts 19,995 7,248
Investment securities available for sale 8,594 8,646
Current portion of investment securities held to maturity 14,900 14,313
Deferred income tax asset 10,225 5,778
Prepaid expenses and other assets 4,700 3,148
------------ ------------
Total current assets 323,121 149,218
Investment securities held to maturity, less current portion 22,894 22,993
Property and equipment, net 4,247 4,287
Goodwill 341,619 315,057
Intangible assets, net 86,825 87,675
Investment in and receivable from unconsolidated affiliate 1,576 1,469
Deferred financing fee -- 5,487
Restricted investments 6,726 5,652
------------ ------------
Total assets $ 787,008 $ 591,838
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical claims liability $ 99,768 $ 82,645
Current portion of long-term debt -- 16,500
A/P and accrued expenses 21,603 17,408
Deferred revenue 87,424 365
Funds held for the benefit of members 46,923 --
Other current liabilities 2,287 362
------------ ------------
Total current liabilities 258,005 117,280
Long-term debt, less current portion -- 172,026
Deferred tax liability 30,058 29,782
Other long-term liabilities 308 316
------------ ------------
Total liabilities 288,371 319,404
------------ ------------
Minority Interest -- 11,890
------------ ------------
Stockholders' Equity:
Preferred stock -- 2
Common stock 573 322
Additional paid in capital 480,613 249,317
Retained earnings 17,495 10,943
Treasury Stock (44) (40)
------------ ------------
Total stockholders' equity 498,637 260,544
------------ ------------
Total liabilities and stockholders' equity $ 787,008 $ 591,838
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May 10, 2006
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME INFORMATION
FOR THE THREE-MONTHS ENDED MARCH 31, 2006 AND 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
2006 2005
---------- ----------
Revenue: (Combined)
Premium:
Medicare $ 266,687 $ 144,152
Commercial 32,234 30,956
---------- ----------
Total premium revenue 298,921 175,108
Management and fee revenue 5,635 5,110
Investment income 2,066 740
---------- ----------
Total revenue 306,622 180,958
---------- ----------
Operating Expenses:
Medical Expense:
Medicare 220,433 115,160
Commercial 26,939 23,930
---------- ----------
Total medical expenses 247,372 139,090
Selling, general and administrative 34,609 29,392
Depreciation and amortization 2,423 1,175
Interest 8,361 1,649
---------- ----------
Total operating expenses 292,765 171,306
---------- ----------
Income before equity in earnings of unconsolidated
affiliate, minority interest and income taxes 13,857 9,652
Equity in earnings of unconsolidated affiliate 107 --
---------- ----------
Income before minority interest and income taxes 13,964 9,652
Minority interest (303) (1,331)
---------- ----------
Income before income taxes 13,661 8,321
Income taxes (5,088) (3,745)
---------- ----------
Net income 8,573 4,576
Preferred dividends (2,021) (1,543)
---------- ----------
Net income available to common stockholders and
members $ 6,552 $ 3,033
========== ==========
Net Income per common share:
Basic $ 0.14 --
==========
Diluted $ 0.14 --
==========
Weighted average common shares outstanding:
Basic 46,640,074 --
==========
Diluted 46,740,643 --
==========
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HS Reports First Quarter Results
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May 10, 2006
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW INFORMATION
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006
(IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net income $ 8,573
Adjustments to reconcile net income to
net cash provide by Operating activities
Depreciation and amortization 2,423
Equity in earnings of unconsolidated affiliate (107)
Minority Interest 303
PIK Interest 116
Stock-based compensation 851
Deferred tax benefit (4,170)
Write off of deferred financing cost 5,487
Increase (decrease) in cash and cash equivalents due
to changes in:
Accounts receivable (12,747)
Prepaid expenses and other current assets (1,552)
Medical claims payable 17,123
Accounts payable, accrued expenses and other current
liabilities 6,120
Other long-term liabilities (8)
Deferred revenue 87,059
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 109,471
---------
Cash flows from investing activities:
Purchase of PPE (513)
Purchase of investment securities (2,600)
Sale / maturity of investment securities 2,165
Purchase of restricted investments (1,074)
---------
NET CASH USED IN INVESTING ACTIVITIES (2,022)
---------
Cash flows from financing activities:
Payments on borrowings (188,642)
Proceeds from issuance of common stock 188,897
Funds received for the benefit of members 46,922
Purchase of treasury stock (4)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 47,173
---------
Net increase in cash and cash equivalents 154,622
Cash and cash equivalents at beginning of period 110,085
---------
Cash and cash equivalents at end of period $ 264,707
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May 10, 2006
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME INFORMATION
(IN THOUSANDS)
(UNAUDITED)
PREDECESSOR HEALTHSPRING, INC. COMBINED
------------------ ------------------ ------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 2005 TO MARCH 1, 2005 TO THREE MONTHS ENDED
FEBRUARY 28, 2005 MARCH 31, 2005 MARCH 31, 2005
------------------ ------------------ ------------------
Revenue:
Premium:
Medicare premiums $ 94,764 $ 49,388 $ 144,152
Commercial premiums 20,704 10,252 30,956
------------------ ------------------ ------------------
Premium revenue 115,468 59,640 175,108
Management fee revenue 3,461 1,649 5,110
Investment income 461 279 740
------------------ ------------------ ------------------
Total revenue 119,390 61,568 180,958
Operating Expenses:
Medical expenses 90,843 48,247 139,090
Selling, general and administrative 21,608 7,784 29,392
Depreciation and amortization 315 860 1,175
Interest 42 1,607 1,649
------------------ ------------------ ------------------
Total operating expenses 112,808 58,498 171,306
Income before minority interest and income
taxes 6,582 3,070 9,652
Minority interest (1,248) (83) (1,331)
------------------ ------------------ ------------------
Income before income taxes 5,334 2,987 8,321
Income tax expense (2,628) (1,117) (3,745)
------------------ ------------------ ------------------
Net income before preferred dividends 2,706 1,870 4,576
Preferred dividends -- (1,543) (1,543)
------------------ ------------------ ------------------
Net income available to members and common
stockholders $ 2,706 $ 327 $ 3,033
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