Resilient Healthways tops projections

Company raises guidance, suggests strong contract pipeline; 'There's very little visibility'

Email | Print By Erin Lawley

Ben Leedle

Wellness and disease management company Healthways on Thursday afternoon reported third-quarter earnings that, though down compared to 2008, beat its guidance and may point to stabilization in its business.

The company posted net income of $8.8 million, or 26 cents per share – topping its guidance by 2 cents per share. However, the results represented a 44 percent drop compared to Q3 2008.

Total revenue for the quarter also bested projections – coming in at $182 million compared to an average projection of $170 million. Healthways brought in $187 million a year ago.

Art Henderson, a local analyst with Jefferies & Co., said the quarter showed business trends stabilizing. He said he’s impressed with the resilience of the company in light of its position last year.

“It looked a year ago like the world was coming apart,” he said. “They did the right thing by taking down their guidance accordingly and now working their way back up.”

Thomas Carroll, an analyst with Stifel Nicolaus & Co., said his firm expected Healthways to beat its guidance and that the company’s performance shows that, over the past three quarters, it has “adequately captured the difficult operating environment in its guidance for this year.”

However, the company may have set the bar a little low.

“They had taken down the guidance to such a degree that it gave them some padding,” Henderson said.

In the conference call discussing the quarterly results, Healthways CEO Ben Leedle and CFO Mary Chaput said their favorable results stemmed from an increase in billed lives, the realization of performance-based revenue from risk contracts predicted for Q4 or 2010, and 17 new or expanded contracts in the quarter.

One example is an expanded contract with Health Care Services Corp. that makes Healthways’ national fitness center network available to HCSC’s 6.7 million commercial members.

Leedle expressed optimism about the future, citing a year-over-year rise in RFP volume of about 5 percent.

“We think that’s a good sign,” Leedle said. He also noted some increase in unsolicited business opportunities.

The company raised its guidance for 2009 to $708 million to $717 million in revenue, up from the $685 million to $700 million it previously projected. It also revised its guidance for net income, raising the low end the range from 97 cents per share to $1.01 per share. The high end of the range remains at $1.05 per share.

However, Leedle and analysts were cautious about making any predictions for 2010. “There’s very little visibility in this business,” Carroll said. “Right now, everything seems to be on track.”

The company's stock (Ticker: HWAY) traded up about 2.7 percent in after-hours action, more than recouping its losses from regular trading. Year to date, it's up about 40 percent.