Metropolitan Health Networks Reports 2008 Second Quarter Results

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Metropolitan Health Networks Reports 2008 Second Quarter Results
WEST PALM BEACH, Fla., Aug. 5 /PRNewswire-FirstCall/ -- Metropolitan Health Networks, Inc. (Amex: MDF), a leading providerof healthcare services in Florida, today announced financialresults for the six months and quarter ended June 30, 2008.
On July 28, 2008 the company reported that in the three monthsended June 30, 2008, the company's Medicare Advantage HMO and itsPSN realized retroactive mid-year Medicare Risk Adjustment ("MRA")premium increases totaling $6.6 million resulting from improvedrisk scores. Approximately half of this increase applied topremiums earned in the first half of 2008. As a result, theretroactive premium payments for the first quarter of 2008 werehigher than the company's estimate of $500,000 at March 31, 2008,and had a significant impact in the second quarter of 2008 on bothrevenue and the medical expense ratio ("MER"). On a segment basis,the retroactive mid-year premium increases were $5.8 million and$848,000 for the PSN and HMO, respectively.
Six Months Year to Date Financial Highlights:
For the six months ended June 30, 2008, the company's revenuetotaled $158.2 million compared to $138 million in the prior yearperiod, an increase of 14.6%. Net income was $3.4 million comparedto $1.8 million for the same period of 2007, an increase of 91%.Fully diluted earnings per share were $0.06 and $0.03 for the sixmonths ended June 30, 2008 and 2007, respectively.
Year to date results for the company's core PSN business includes asegment gain of $13.6 million before allocated overhead and incometaxes. This compares to a $13.1 million segment gain beforeallocated overhead and income taxes in the prior year period. Thecompany's HMO realized a year to date segment loss of $3.3 millionbefore allocated overhead and income taxes, which compares to asegment loss of $5.6 million before allocated overhead and incometaxes for the same period last year. As discussed below, theCompany has entered into a definitive agreement for the sale of itsHMO. Corporate overhead for the first six months of 2008 totaled$4.9 million compared to $4.5 million for the same period in 2007.
Second Quarter Financial Highlights:
The company recognized revenue of $82.2 million for the secondquarter as compared to $69.9 million in the 2007 second-quarter, a17.6% increase. Net income for the 2008-second quarter was $3.7million or $0.07 per share, diluted as compared to $1.5 million or$0.03 per share, diluted for the same quarter last year.
The company's PSN realized a segment gain of $8.9 million beforeallocated overhead and income taxes in the 2008 second-quarter.This compares to a segment gain of $6.6 million before allocatedoverhead and income taxes in the prior year's second quarter. Thecompany's HMO realized a segment loss of $690,000 before allocatedoverhead and income taxes, which compares to a segment loss of $1.7million before allocated overhead and income taxes in the secondquarter of 2007. Corporate overhead for the second quarter totaled$2.3 million in both 2008 and 2007.
Customer Information:
The number of Medicare Advantage customers increased by 2,700between June 2007 and June 2008 to 33,100 as of June 30, 2008.Total customers at June 30, 2008 for each of the Company's segmentswere approximately 25,700 for the core PSN business and 7,400 forthe Medicare Advantage HMO launched mid-year 2005. Customer months,the combined total customers for each month of the measurementperiod, increased to 99,400 in the second quarter of 2008, up from91,800 in the 2007 period.
Medical Expense Ratio Highlights:
The company's consolidated MER decreased from 87.9% in the firsthalf of 2007 to 87.7% in the first six months of 2008. The MER forthe PSN business segment was 86.9% in the first six months of both2008 and 2007. The HMO's MER decreased to 90.5% in the six monthsended Junes 30, 2008 compared to 92.4% for the same period in 2007.
Balance Sheet Highlights:
Cash and equivalents at June 30, 2008 totaled $37.5 million ascompared to $38.7 million at December 31, 2007. The company had aworking capital surplus that increased to approximately $35.1million at quarter end, compared to a surplus of approximately$29.2 million as of December 31, 2007. The mid-year adjustmentstotaling approximately $6.6 million discussed above were accrued atJune 30 and subsequently received in July. The company has nooutstanding debt and stockholders' equity totaled $42.4 million atJune 30, 2008.
Sale of the HMO:
As announced on June 30, the company is selling its HMO to Humanafor an estimated $14 million, the transaction expected to close byOctober 1, 2008. In the transaction, the company is retaining theopportunity to provide care for the HMO's customers, todaynumbering about 7,400. Metropolitan Health Networks istransitioning the HMO's business into its core PSN, or ProviderService Network, business and is significantly expanding itsrelationship and opportunity with Humana in the 13 counties inwhich the HMO operates. The company expects to work in conjunctionwith Humana in exploring new opportunities in additional counties.
In the course of analyzing the proposed sale of the HMO, thecompany developed a range of projections regarding its futureoperating performance after giving effect to the proposed sale ofthe HMO and Metropolitan's entry into new risk provider agreementswith Humana. Based upon these projections, the company believesthat the sale of the HMO and the new risk provider agreements offerit an opportunity to immediately improve upon its potential togenerate positive income from operations in future periods. Mostnotably, the company projects that by utilizing Humana's existingcontracts with various service providers, the new provider riskarrangements will reduce the cost of providing medical services. Itis also believed that the reduced revenue per customer per monthassociated with the new provider risk arrangements will be morethan offset by projected medical cost savings, elimination of asignificant portion of the HMO sales and administrative costs, andreductions in corporate overhead, which, the company expects,should enhance its potential to generate income from operations.
Michael Earley , Chairman and Chief Executive Officer of Metropolitan HealthNetworks, Inc., commented, "We are very pleased with our 2008 firsthalf report. The mid-year risk adjustment payments brought ourpremium levels to expected levels that are more reflective of ourcontinuing commitment to proper risk coding. The MER performance inour core PSN business continues to be very good and the MER of theHMO continues to improve, as we continue to bring down our overheadspending."
Continuing, Earley noted, "2008 is shaping up to be a year oftransformation for Metropolitan as we move forward with the sale toHumana of our HMO and the conversion its 7,400 customers into ourPSN customers. The sale expands our Humana-contracted market from 5Florida counties to 18, significantly increasing the potential forgrowth in both of our organizations. We are once again refocusingour business, our expertise and our resources on our corecompetencies while expanding our market area and our opportunities.As our balance sheet continues to strengthen it will provide theresources necessary to take advantage of this new footprint."
Conference Call Information:
Metropolitan Health Networks will hold a conference call to reviewits second quarter 2008 results on Tuesday, August 5, 2008 at 11:00a.m. Eastern. The call will be hosted by Michael Earley , Chairman and Chief Executive Officer. Interested parties mayaccess the conference call by dialing the following numbers: (866)680-0893 (domestic) or 617-213-4859 (international), pass code #16942500. The call will also be available via web cast at www.metcare.com , http://www.streetevents.com , http://www.fulldisclosure.com
Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PP7CMCVPQ . Pre-registrants will be issued a pin number to use when dialinginto the live call which will provide quick access to theconference by bypassing the operator upon connection.
If you are unable to participate, an audio replay of the call willbe available beginning two hours after the call and will beavailable until 11:59 p.m. on August 12, 2008, by dialing (888)286-8010 (domestic) or (617) 801-6888 (international) usingconfirmation pass code 30673608.
About Metropolitan Health Networks, Inc.:
Metropolitan is a growing healthcare organization in Florida thatprovides comprehensive healthcare services for Medicare Advantagemembers and other patients in South and Central Florida. To learnmore about Metropolitan Health Networks, Inc. please visit itswebsite at www.metcare.com .
Forward Looking Statements:
Except for historical matters contained herein, statements made inthis press release are forward-looking and are made pursuant to thesafe harbor provisions of the Private Securities Litigation ReformAct of 1995. Without limiting the generality of the foregoing,words such as "may", "will", "to", "plan", "expect", "believe","anticipate", "intend", "could", "would", "estimate", or "continue"or the negative other variations thereof or comparable terminologyare intended to identify forward-looking statements.
Investors and others are cautioned that a variety of factors,including certain risks, may affect our business and cause actualresults to differ materially from those set forth in theforward-looking statements. These risk factors include, withoutlimitation, (i) the risk that the sale of the HMO to Humana willnot be completed for a variety of reasons, including, but notlimited to, an inability to obtain necessary governmental approvalsand third party consents and the occurrence of an event which has amaterial adverse effect on the HMO; (ii) our ability to meet ourcost projections under the IPA; (iii) our failure to accuratelyestimate incurred but not reported medical benefits expense; (iv)pricing pressures exerted on us by managed care organizations andthe level of payments we receive under governmental programs orfrom other payors; (v) future legislation and changes ingovernmental regulations; (vi) the impact of Medicare RiskAdjustments on payments we receive for our managed care operations;(vii) a loss of any of our significant contracts or our ability toincrease the number of Medicare eligible patient lives we manageunder these contracts; (viii) our ability to successfully operatethe HMO prior to the closing of its sale to Humana and, if suchsale does not occur, our ability to continuously increaseenrollment and effectively manage expenses in our HMO. The companyis also subject to the risks and uncertainties described in itsfilings with the Securities and Exchange Commission, including itsAnnual Report on Form 10-K for the year ended December 31, 2007,its Quarterly Report on Form 10-Q for the quarter ended March 31,2008, and its Quarterly Report on Form 10-Q for the quarter endedJune 30, 2008.
SOURCE Metropolitan Health Networks, Inc.