MINNEAPOLIS, May 10 /PRNewswire-FirstCall/ -- Health Fitness
Corporation (OTC Bulletin Board: HFIT) today reported financial results for
its first quarter ended March 31, 2006. Comparative results for the first
quarter of 2006 and 2005 respectively, were:
-- Total revenue increased 8.2% to $14.6 million from $13.5 million;
-- Operating income decreased 65.3% to $0.4 million from $1.1 million;
-- Net earnings applicable to common shareholders decreased 10.3% to
$0.56 million from $0.63 million; and
-- Diluted earnings per share decreased to $0.01 per share from $0.04 per
share.
"We are performing close to plan for our first quarter," said Jerry
Noyce, President and Chief Executive Officer. "First quarter results
include the planned investment we made in late 2005 and the first quarter
of 2006 to enhance and strengthen the operational capabilities of our
corporate health management business. We hired several new associates to
oversee the development and execution of our health management business
plan, in addition to welcoming eighteen new employees from our December
2005 acquisition of HealthCalc.Net. These additional expenses resulted in a
decline of our operating profit. At this point, we believe these
investments have begun to realize results. We recently launched our health
management program to two new Fortune 500 customers and experienced an
increase in the number of invitations to propose our health management
services to large companies, which otherwise would not have occurred
without this investment. These are positive indications that our plan to
expand beyond fitness management into a broader platform involving
integrated health management services is moving in the right direction. To
improve our future competitive position, and ensure our plan achieves
long-term revenue and profitability growth for our investors, it is
imperative that we continue to prudently invest in people and technology.
The health of the American population is at its lowest levels, and
employers are scrambling to find solutions to stem the rising cost of
employee healthcare. We look forward as we improve our capabilities and
market position to capitalize on the opportunities that are developing in
corporate health management."
First Quarter Performance
Revenue was $14,567,261 for the first quarter, up $1,102,160, or 8.2%,
compared to $13,465,101 for the first quarter last year. Gross profit was
$3,604,480 for the quarter, an increase of $162,678, or 4.7%, compared to
$3,441,802 for the first quarter last year. Gross profit as a percent of
revenue was 24.7% for the quarter compared with 25.6% for the same period
last year. A non-cash benefit of $434,521 was recorded during the first
quarter due to a change in the fair value of warrants we issued in 2005 to
new investors. Net earnings applicable to common shareholders were
$563,263, a decrease of $64,671, or 10.3%, compared to $627,934 for the
same quarter last year.
Noyce commented further about financial results for the first quarter:
-- "Revenue from our Health Management Program Services increased
$779,302, or 206.0%, to $1,157,564, from $378,262 for the first
quarter of 2005. This increase is due to revenue of $590,864 from
HealthCalc, a company we acquired in December 2005. The remaining
revenue increase of $188,438 is due to the start-up of two new health
management contracts in the energy industry.
-- Revenue from fitness and health management staffing contracts
increased by $81,000 and $21,000 respectively, compared to the first
quarter of last year. These increases are due primarily to price
increases and revenue from new management contracts outpacing the
revenue lost from contracts that canceled during the first quarter of
2005.
-- Revenue from Program Services offered at our managed fitness centers
increased 45.7% to $703,434, from $482,671 for the first quarter of
2005. This increase is due primarily to increased service penetration
at managed sites.
-- Gross profit as a percent of revenue fell to 24.7% for the quarter,
from 25.6% for the first quarter of 2005. This decrease is due
primarily to start-up costs for a large fitness management contract in
the automotive industry, and two new health management contracts in
the energy industry. Our experience indicates that as large contracts
enter into full production, gross margins typically improve.
-- Operating expenses increased $879,165, or 37.5%, to $3,223,537, from
$2,344,372 for the first quarter of 2005. Of this increase,
approximately $509,000 is due to salaries, other operating expenses
and asset depreciation related to our acquisition of HealthCalc. In
addition, we incurred approximately $75,000 of stock option
compensation expense in the first quarter of 2006 in connection with
our adoption of FAS 123R on January 1, 2006. The remaining cost
increase of $295,000 is primarily due to additional staff we hired
during 2005 to further develop and better execute our health
management business plan. We will continue to incur these expenses on
a quarterly basis.
-- For the quarter ended March 31, 2006, we recorded $435,000 of non-cash
income related to a change in fair value for 1,530,000 warrants we
issued in connection with the sale of $10.2 million of our Series B
Convertible Preferred Stock in November 2005. At the time of this
financing, the warrants were deemed a derivative liability, which we
have reflected on our balance sheet. On a quarterly basis, we are
required to revalue these warrants, and the resulting change in value
will be reflected in our statement of operations as non-cash income or
expense. This warrant liability will remain until the warrants are
exercised, expire, or other events take place, the timing of which may
be outside our control," Noyce concluded.
About The Company
Health Fitness Corporation is a leading provider of fitness and health
management 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 health management strategic
plan is moving in the right direction, management's belief that long-term
revenue and profitability growth can be achieved, and management's belief
that our investments in corporate health management has begun to realize
results, are forward-looking statements. 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 "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 EARNINGS
(Unaudited)
Three Months Ended
March 31,
2006 2005
REVENUE $14,567,261 $13,465,101
COSTS OF REVENUE 10,962,781 10,023,299
GROSS PROFIT 3,604,480 3,441,802
OPERATING EXPENSES
Salaries 1,678,834 1,387,923
Selling, general and administrative 1,436,241 736,866
Amortization of intangible assets 108,462 219,583
Total operating expenses 3,223,537 2,344,372
OPERATING INCOME 380,943 1,097,430
OTHER INCOME (EXPENSE)
Interest expense (1,680) (11,923)
Change in fair value of warrants 434,521 -
Other, net (4,010) (1,650)
EARNINGS BEFORE INCOME TAX EXPENSE 809,774 1,083,857
INCOME TAX EXPENSE 150,101 434,323
NET EARNINGS 659,673 649,534
Dividend to preferred shareholders 96,410 21,600
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $563,263 $627,934
NET EARNINGS PER COMMON SHARE:
Basic $0.04 $0.05
Diluted 0.01 0.04
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 15,001,832 12,619,603
Diluted 19,666,941 16,614,522
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2006 2005
ASSETS
CURRENT ASSETS
Cash $416,597 $1,471,505
Trade and other accounts receivable, less
allowances of $205,300 and $200,700 9,138,011 8,839,046
Prepaid expenses and other 557,211 509,273
Deferred tax assets 353,300 337,800
Total current assets 10,465,119 11,157,624
PROPERTY AND EQUIPMENT, net 394,955 347,820
OTHER ASSETS
Goodwill 12,983,762 12,919,689
Software, less accumulated amortization
of $88,100 and $0 1,735,815 1,762,000
Customer contracts, less accumulated
amortization of $1,686,300 and $1,626,100 128,681 188,889
Trademark, less accumulated amortization
of $171,800 and $147,000 321,244 346,057
Other intangible assets, less accumulated
amortization of $110,000 and $88,000 419,052 441,086
Deferred tax assets 567,401 374,500
Other 41,269 47,105
$27,057,298 $27,584,770
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $739,339 $687,125
Accrued salaries, wages, and payroll taxes 1,853,831 2,693,927
Other accrued liabilities 855,811 763,115
Accrued self funded insurance 357,918 250,000
Deferred revenue 1,732,764 1,868,446
Total current liabilities 5,539,663 6,262,613
LONG-TERM OBLIGATIONS - -
COMMITMENTS AND CONTINGENCIES - -
WARRANT OBLIGATION 1,776,367 2,210,889
PREFERRED STOCK, $0.01 par value;
5,000,000 shares authorized, 0 and
1,000 issued and outstanding - 8,623,546
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value;
25,000,000 shares authorized;
18,930,368 and 13,787,349 shares
issued and outstanding 189,304 137,874
Additional paid-in capital 24,266,420 15,625,425
Accumulated comprehensive income (898) 1,245
Accumulated deficit (4,713,558) (5,276,822)
19,741,268 10,487,722
$27,057,298 $27,584,770
SOURCE Health Fitness Corporation
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Related links:
http://www.hfit.com
CONTACT:
Wes Winnekins, CFO of Health Fitness
Corporation, +1-952-897-5275, or wwinnekins@hfit.com ; or Dennis
B. McGrath of McGrath Buckley Communications Counseling,
+1-651-646-4115, or dennis@mcgrath-buckley.com
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