Fourth Quarter 2006 Highlights
-- Total revenue increased 19.3% --
-- Health management revenue expanded 68.4% --
-- Gross profit margin increased 290 basis points to 26.8% --
Year-end 2006 Highlights
-- Total revenue increased 15.7% --
-- Health management revenue grew 48.9% --
-- Gross profit margin increased 260 basis points to 27.7% --
MINNEAPOLIS, March 5 /PRNewswire-FirstCall/ -- Health Fitness
Corporation (OTC Bulletin Board: HFIT), a leading employee health
improvement company, today announced financial results for the fourth
quarter and year ended December 31, 2006.
For the quarter ended December 31, 2006, revenue increased 19.3% to
$17.1 million, from $14.3 million for the same period last year. Gross
profit during the quarter increased 33.9% to $4.6 million, from $3.4
million for the same period last year. Operating income decreased 7.0% to
$0.61 million, from $0.65 million for the same period last year, primarily
due to operational investments and non-cash, stock-based compensation
expense. Net earnings applicable to common shareholders increased to $0.46
million, from a net loss applicable to common shareholders of $0.43 million
for the same period last year. Net earnings per diluted share increased to
$0.02, from a net loss per diluted share of $0.03 for the same period last
year.
For the year ended December 31, 2006, revenue increased 15.7% to $63.6
million, from $54.9 million for the prior year. Gross profit increased
27.6% to $17.6 million, from $13.8 million for the prior year. Operating
income increased 4.6% to $3.7 million, from $3.5 million for the prior
year. Net earnings applicable to common shareholders, which includes a $0.8
million non-cash gain related to a change in fair value of warrants,
increased 143.1% to $2.9 million, from $1.2 million for the prior year. Net
earnings per diluted share was $0.11 on 19.7 million weighted average
common shares outstanding, compared to $0.08 for the prior year on 16.9
million weighted average common shares outstanding. The increase in
weighted average common shares outstanding is attributed to an additional
2.9 million shares issued in connection with the Company's PIPE financing
in November 2005, and 847,281 shares issued in connection with the
Company's acquisition of HealthCalc.Net, Inc. in December 2005.
"The fourth quarter of 2006 marked another quarter of solid sales
growth and improving profitability, led by the performance of our health
management business," commented Gregg Lehman, Ph.D., President and Chief
Executive Officer. "These results are reflective of the success we have
experienced in assembling a competitive portfolio of health management
products and services, including a robust eHealth platform, telephonic and
web-based health coaching and biometric screening services."
"2006 was a very important year for Health Fitness as we focused on
enhancing our service capability to better help self-insured employers
address the rising cost of employee healthcare. The successful integration
of our HealthCalc acquisition was instrumental in establishing a solid
technology foundation for our health management business. During the fourth
quarter, we began to invest additional resources into the development of
our proprietary web-based and telephonic health coaching programs. We also
strengthened our account services and service delivery infrastructure to
improve our ability to implement these new programs, and drive employee
participation and health improvement."
Dr. Lehman concluded, "Looking at 2007, we will continue to make
prudent, strategic investments in our health management business.
Specifically, we will continue to invest in people, systems and
infrastructure to enhance our ability to scale, gain greater cost
efficiencies and provide a broader base of services. In future quarters,
when these anticipated investments are made, our operating margins may be
lower than current levels, but we believe these investments will better
position us for long-term, sustainable revenue and margin growth. One of
our most important growth strategies for 2007 is to introduce our full
suite of health improvement services to our fitness management customers,
who have been the foundation of our company for years. Our fitness
management associates, one of the largest collections of health and
wellness professionals in our industry, are completely dedicated to
fulfilling our mission of improving health. We believe that our past
efforts, and those we expect in the future, will position Health Fitness as
a leading provider of employee health improvement services. We are very
excited about our ability to compete for new opportunities during 2007."
Financial Highlights for the Fourth Quarter of 2006
-- Health management revenue grew 68.4% to $6.4 million, from $3.8 million
for the same period last year. Of this $2.6 million in revenue growth,
HealthCalc contributed approximately $0.4 million, or 14.6%. The
remaining $2.2 million is primarily attributed to new 2006 contracts
and incremental business from existing contracts. Compared to revenue
of $5.7 million for the third quarter of 2006, health management
revenue grew 13.2%.
-- Fitness management revenue grew 1.4% to $10.7 million, from
$10.5 million for the same period last year. Compared to revenue of
$10.7 million for the third quarter of 2006, fitness management revenue
remained flat.
-- As a result of the growth in our health management business area, our
total revenue of $17.1 million for the fourth quarter represents a 4.6%
increase over total revenue of $16.3 million for our third quarter
ended September 30, 2006.
-- During the quarter, we added four new contracts in our health
management business area, which may realize incremental annualized
revenue of approximately $0.8 million. In our fitness management
business area, we won five new contracts, which may realize incremental
annualized revenue of approximately $0.6 million. The combined total
for this potential annualized revenue is offset by a potential
annualized revenue loss of $0.9 million from contract cancellations
during the quarter.
-- For the fourth quarter, gross profit as a percent of revenue increased
to 26.8%, from 23.9% for the same period last year. The increase was
primarily driven by the increase in health management revenue.
-- Operating expenses as a percent of revenue increased to 23.3%, from
19.4% for the same period last year. This increase is primarily due to
an increase in our salaries expense, which is attributed to past and
current strategic investments in additional staff to execute our health
management business plan, our acquisition of HealthCalc in December
2005 and stock option compensation expense. These expense increases
were partially offset by a decrease in amortization expense related to
a prior acquisition.
-- Operating margin for the fourth quarter was 3.5%, down from 4.5% for
the prior year period. This decrease is due to operational investments
we have made to support our future growth expectations and non-cash,
stock-based compensation expense. Excluding stock option compensation
expense of approximately $0.1 million, operating margin was 3.9% for
the three months ended December 31, 2006.
Financial Highlights for Year Ended December 31, 2006 Compared to the
Prior Year Ended December 31, 2005.
-- Health management revenue grew 48.9% to $21.3 million, from
$14.3 million. Of this $7.0 million in revenue growth, $1.9 million,
or 26.7%, is attributed to HealthCalc. The remaining $5.1 million is
primarily attributed to new 2006 contracts and incremental business
from existing contracts.
-- Fitness management revenue grew 4.0% to $42.2 million, from
$40.6 million. The growth we've experienced in our fitness management
business area is primarily attributed to new contracts and lower
contract attrition compared to 2005.
-- During 2006, we added a total of $8.2 million of potential annualized
revenue from new contracts, and increases to existing contracts, in our
health management business area. We also added a total of $3.8 million
of potential annualized revenue from new contracts, and increases to
existing contracts, in our fitness management business area. The
combined total for this potential annualized revenue is offset by a
potential annualized revenue loss of $2.1 million from 2006 contract
cancellations.
-- Gross profit as a percent of revenue increased to 27.7%, from 25.1% for
the same period last year. This increase is predominantly driven by
the increase in health management revenue discussed above. Gross
profit for the year ended December 31, 2006 and 2005 includes a
$313,000 and $225,000 benefit, respectively, related to a refund of
workers compensation premiums for our 2005 and 2004 plan years.
Excluding the effect of these premium refunds, gross profit as a
percent of revenue would be 27.2% and 24.7% for the years ended
December 31, 2006 and 2005, respectively.
-- Operating expenses as a percent of revenue increased to 21.9%, from
18.8% for the same period last year. This increase is primarily due to
an increase in salaries expense, which is attributed to past and
current strategic investments in additional staff to execute our health
management business plan, our acquisition of HealthCalc in December
2005 and stock option compensation expense. These expense increases
were partially offset by a decrease in amortization expense related to
a prior acquisition.
-- Operating margin for the period was 5.8%, a decrease from 6.4% for the
same period last year. This decrease is due to operational investments
we have made to support our future growth expectations and non-cash,
stock-based compensation expense. Excluding stock option compensation
expense of $0.4 million, operating margin was 6.4% for the year ended
December 31, 2006.
-- We ended the year with approximately $1.0 million of cash, working
capital of $5.8 million, an increase of $0.9 million since December 31,
2005, no long term debt and stockholders' equity of $23.8 million, a
$13.3 million increase since December 31, 2005. We believe our solid
balance sheet, in addition to our existing credit facility, will enable
us to finance our expected 2007 operational investments without having
to raise additional capital.
At December 31, 2006, we have recorded a liability of $1,475,000 in
favor of the former shareholders of HealthCalc. In accordance with the
Stock Purchase Agreement executed in this transaction, we agreed to pay the
shareholders of HealthCalc a contingent earnout payment based upon the
achievement of specific 2006 revenue objectives. We believe this additional
payment confirms our decision to purchase HealthCalc, because the
technology assets we bought enabled us to achieve higher revenue growth in
our health management business area than we otherwise would have achieved.
Conference Call
Health Fitness Corporation will host a conference call today, March 5,
2007 at 2:00 p.m. Pacific (5:00 p.m. Eastern). Participating in the call
will be Dr. Gregg Lehman, President and Chief Executive Officer, and Wes
Winnekins, Chief Financial Officer. To listen to the call from the U.S.
dial 1-800-811- 8824; internationally, dial 1-913-981-4903. The call will
also be broadcast live over the Internet, which is accessible through the
Investor Relations section of the Company's website at http://www.hfit.com
, where the call will be archived for 30 days.
About the Company
Health Fitness Corporation is a leading provider of employee health
improvement services to corporations, hospitals, and communities. Serving
clients for over 30 years, HFC provides fitness and health management
services to more than 400 on-site and remote locations across the U.S. and
Canada. For more information about Health Fitness Corporation, go to
http://www.hfit.com .
Forward Looking Statements
Certain statements in this release, including, without limitation,
those relating to management's belief that its past efforts, and those
expected in the future, and its anticipated operational investments, will
position the Company as a leading provider of employee health improvement
services, and that one of the Company's most important growth strategies in
2007 will involve selling health improvement services to its fitness
management customers , are forward-looking statements. In addition, the
estimated annualized revenue value of our new and lost contracts is a
forward looking statement, which is based upon an estimate of the
anticipated annualized revenue to be realized or lost. Such information
should be used only as an indication of the activity we have recently
experienced in our two business areas. These estimates, when considered
together, should not be considered an indication of the total net,
incremental revenue growth we generated in 2006, or expect to generate in
any year, as actual net growth may differ from these estimates due to
actual staffing levels, participation rates and contract duration, in
addition to other revenue we may lose in the future due to contract
termination. Any statements that are not based upon historical facts,
including the outcome of events that have not yet occurred and our
expectations for future performance, are forward-looking statements. The
words "potential," "believe," "estimate," "expect," "intend," "may,"
"could," "will," "plan," "anticipate," and similar words and expressions
are intended to identify forward-looking statements. Such statements are
based upon the current beliefs and expectations of our management. Actual
results may vary materially from those contained in forward-looking
statements based on a number of factors including, without limitation, our
inability to deliver the health management services demanded by major
corporations, our inability to successfully cross-sell health management
services to our fitness management clients, and other factors disclosed
from time to time in our filings with the U.S. Securities and Exchange
Commission including our Form 10-K for 2005 as filed with the SEC. You
should take such factors into account when making investment decisions and
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. We
undertake no obligation to update any forward-looking statements.
Financial tables follow ...
HEALTH FITNESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Unaudited Unaudited
REVENUE $17,095,769 $14,334,211 $63,578,540 $54,942,205
COSTS OF REVENUE 12,508,307 10,908,269 45,947,956 41,125,031
GROSS PROFIT 4,587,462 3,425,942 17,630,584 13,817,174
OPERATING EXPENSES
Salaries 2,357,232 1,525,300 8,544,885 5,769,082
Other selling,
general and
administrative 1,569,254 1,087,392 5,040,709 3,712,429
Amortization of
acquired intangible
assets 55,560 162,179 368,618 821,611
Total operating
expenses 3,982,046 2,774,871 13,954,212 10,303,122
OPERATING INCOME 605,416 651,071 3,676,372 3,514,052
OTHER INCOME (EXPENSE)
Interest expense (1,681) (1,752) (7,512) (25,965)
Change in fair value
of warrants -- (634,435) 841,215 (634,435)
Other, net 2,114 14,979 9,646 10,585
EARNINGS BEFORE INCOME
TAXES 605,849 29,863 4,519,721 2,864,237
INCOME TAX EXPENSE 142,300 385,196 1,495,184 1,518,946
NET EARNINGS 463,549 (355,333) 3,024,537 1,345,291
Dividend to preferred
shareholders -- 72,871 96,410 140,890
NET EARNINGS
APPLICABLE TO COMMON
SHAREHOLDERS $463,549 $(428,204) $2,928,127 $1,204,401
NET EARNINGS PER SHARE:
Basic $ 0.02 $ (0.03) $ 0.16 $ 0.09
Diluted $ 0.02 $ (0.03) $ 0.11 $ 0.08
WEIGHTED AVERAGE
COMMON SHARES:
Basic 19,085,789 13,008,291 18,023,298 12,780,724
Diluted 19,823,346 13,008,291 19,736,785 16,929,636
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2006 2005
ASSETS
CURRENT ASSETS
Cash $987,465 $1,471,505
Trade and other accounts receivable,
less allowances of $180,000 and $200,700 12,404,856 8,839,046
Prepaid expenses and other 701,889 509,273
Deferred tax assets 217,476 337,800
Total current assets 14,311,686 11,157,624
PROPERTY AND EQUIPMENT, net 767,675 347,820
OTHER ASSETS
Goodwill 14,509,469 12,919,689
Software, less accumulated amortization
of $370,200 and $0 1,658,575 1,762,000
Customer contracts, less accumulated
amortization of $1,815,000 and $1,626,100 -- 188,889
Trademark, less accumulated amortization
of $246,300 and $147,000 246,809 346,057
Other intangible assets, less accumulated
amortization of $166,500 and $88,000 362,528 441,086
Deferred tax assets 437,010 374,500
Other 24,597 47,105
$32,318,349 $27,584,770
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,811,939 $687,125
Accrued salaries, wages, and payroll taxes 3,249,424 2,693,927
Accrued acquisition earnout 1,475,000 --
Other accrued liabilities 120,044 763,115
Accrued self funded insurance 201,053 250,000
Deferred revenue 1,663,121 1,868,446
Total current liabilities 8,520,581 6,262,613
LONG-TERM OBLIGATIONS - -
COMMITMENTS AND CONTINGENCIES - -
WARRANT OBLIGATION - 2,210,889
PREFERRED STOCK, $0.01 par value, 10,000,000
shares authorized, 0 and 1,000 shares issued
and outstanding - 8,623,546
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 50,000,000
shares authorized; 19,220,217 and
13,787,349 shares issued and outstanding 192,202 137,874
Additional paid-in capital 25,989,447 15,625,425
Accumulated comprehensive income (35,186) 1,245
Accumulated deficit (2,348,695) (5,276,822)
23,797,768 10,487,722
$32,318,349 $27,584,770
SOURCE Health Fitness Corporation
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Related links:
http://www.hfit.com
http://www.prnewswire.com/comp/000921.html/
CONTACT:
Wes Winnekins, CFO of Health Fitness
Corporation, +1-952-897-5275, or John Mills, Integrated Corporate
Relations, +1-310-954-1105
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