Third Quarter 2007 Highlights
* Total revenue increased 5.0%
* Health management revenue grew 16.3%
* 26 new Requests for Proposal ("RFPs") for Health Management services and
13 for Fitness Management services
* After excluding a workers compensation premium refund of $0.3 million
from third quarter 2006 gross profit, gross margin decreased approximately
190 basis points to 28.5%
* Operating income fell to $0.2 million due in large part to unplanned
overhead expenses that are believed to be short-term or non-recurring in
nature
MINNEAPOLIS, Nov. 5 /PRNewswire-FirstCall/ -- Health Fitness
Corporation (OTC Bulletin Board: HFIT), a leading provider of integrated
employee health management programs, today announced financial results for
the third quarter and nine months ended September 30, 2007.
For the quarter ended September 30, 2007, revenue increased 5.0% to
$17.2 million, from $16.3 million for the same period last year. Gross
profit during the quarter decreased 7.5% to $4.9 million, from $5.3 million
for the same period last year. Gross profit for the third quarter of 2006
includes a $0.3 million benefit related to a refund of workers compensation
premiums for our 2005 plan year. Operating income decreased to $0.2
million, from $2.0 million for the same period last year. Net earnings
applicable to common shareholders decreased to $0.02 million, from $1.2
million in the prior year period. Net earnings per diluted share decreased
to $0.00, from net earnings per diluted share of $0.06 for the same period
last year.
For the nine months ended September 30, 2007, revenue increased 9.1% to
$50.7 million, from $46.5 million for the same period last year. Gross
profit during the first nine months increased 10.8% to $14.5 million, from
$13.0 million for the same period last year. Gross profit for the first
nine months of 2006 includes a $0.3 million benefit related to a refund of
workers compensation premiums for our 2005 plan year. Operating income
decreased 51.4% to $1.5 million, from $3.1 million for the same period last
year. Net earnings applicable to common shareholders decreased to $0.7
million, from $2.5 million in the prior year period. Net earnings per
diluted share decreased to $0.03, from net earnings per diluted share of
$0.09 for the same period last year. Net earnings per diluted share for the
nine months ended September 30, 2006 excluded a $0.8 million non-cash gain
related to a change in fair value of warrants.
"During the quarter, we encountered some temporary revenue and expense
challenges. From a revenue perspective, we experienced longer service
implementation schedules for a few of our largest, new health management
customers, which affected our ability to realize revenue growth consistent
with past quarters. The good news is that we have begun to deliver services
to most of these customers, which should lend support to our growth rate in
the fourth quarter and into 2008. On the fitness side, we continue to feel
the effects of the revenue loss attributable to the termination of a large
automotive contract during the first quarter, although we are making good
progress at replacing this loss through new customers," said Gregg Lehman,
Ph.D., President and Chief Executive Officer.
"In the quarter, we received 26 new RFPs for health management services
and 13 new RFPs for fitness management services, which represents the
highest number we have received this time of the year, and compares to only
8 health management and 8 fitness management RFPs for our third quarter of
2006. Although RFPs represent contract opportunities, rather than contract
commitments, we believe this increased activity indicates that demand for
integrated lifestyle improvement services is very strong, and that
HealthFitness is considered a primary provider. With a total of 43 active
proposals in various stages of the decision process, we are optimistic that
we will win a number of these proposals. When the potential revenue from
new customers that may result from these RFPs is added to the revenue
backlog for existing new customers, we believe we are positioned to
experience growth acceleration during 2008."
"During the quarter, we obtained four new health management commitments
and one new fitness management commitment, compared to two health
management and three fitness management commitments in the third quarter of
2006. Compared to the higher number of commitments we received in the prior
two quarters, this lower number for the third quarter is typical of a
slow-down we generally experience during the summer months. Year to date,
however, we are pleased with our total of 32 new commitments, which
represents one of our best years for new business development."
Dr. Lehman continued, "In addition to the planned investments we have
made to strengthen our service capabilities, we incurred approximately $0.4
million of unplanned expenses during the quarter. Of this amount,
approximately $0.3 million is attributed to the non-cash stock and stock
option expense for two new board members, in addition to costs to enhance
and improve our corporate governance and compliance procedures. The
remaining $0.1 million of unplanned expenses is due to higher legal and
business consulting services, which were largely non-recurring in nature."
Dr. Lehman concluded, "Although our financial results for the quarter
are lower compared to previous quarters, we believe these results are
short-term in nature, and are primarily due to service timing delays,
revenue loss from unforeseen contract terminations, the seasonality of new
customer wins and unplanned, non-recurring operating expenses. There is a
tremendous need in the employer market to improve employee health and
contain rising healthcare costs, and the investments we have made will
enable us to better help employers achieve these objectives. We will
continue to aggressively execute our strategic plan to generate additional
momentum, and believe we are in a position to achieve higher levels of
revenue and margin growth into 2008 and beyond."
Financial Highlights for the Third Quarter of 2007
-- Health management segment revenue grew 16.3% to $6.5 million, from
$5.6 million for the same period last year. Of this revenue growth,
staffing services revenue grew 10.0% to $4.0 million, from
$3.7 million for the same period last year, and program and
consulting services revenue grew 28.0% to $2.5 million, from
$2.0 million for the same period last year. Overall, health
management revenue growth is attributed to new customers and the
expansion of existing customers. The increase in program and
consulting services, compared to last year, was primarily driven by
an increase in biometric screening and health coaching services, in
addition to eHealth platform sales and customizations. The decrease
in sequential quarterly revenue growth is primarily due to longer
service implementation schedules for our larger, new customer
commitments we obtained during the first two quarters of 2007.
-- Fitness management segment revenue declined 0.9% to $10.6 million,
from $10.7 million for the same period last year. Of this revenue
decline, staffing services revenue decreased 0.9% to $10.0 million,
from $10.1 million for the same period last year, and program and
consulting services revenue fell 2.4% to $0.58 million, from
$0.59 million for the same period last year. Overall, the slight
decline in fitness management staffing revenue is due to revenue
losses from terminated contracts outpacing revenue from 2007 new
contracts. The revenue decrease for program and consulting services
is primarily due to fewer biometric screening engagements at our
fitness center sites.
-- During the quarter, we obtained four new customer commitments in our
health management segment that may realize incremental annualized
revenue of approximately $2.0 million. In our fitness management
segment, we obtained one new customer commitment that may realize
incremental annualized revenue of approximately $0.6 million. The
$2.6 million total for potential new, incremental annualized revenue
is offset by a potential annualized revenue loss of $1.2 million from
fitness management contract cancellations. Approximately
$0.7 million of these contract cancellations is due to our decision
to not renew an underperforming contract.
We generally evaluate prospective revenue and operating trends over a
12 to 18 month period of time. As a result, we do not view
short-term changes in contract revenue, lower growth rates, or higher
operating expenses to be an indication of future results, or a trend
in our business. We have adopted this view because revenue attrition
can be largely unpredictable as many of our contracts can be
terminated with a 30 day notice. At the same time, new customer
commitments, particularly in our health management segment, may take
90 to 180 days to generate full revenue once the planning process is
complete. All of these events, taken together, can temporarily
affect short-term revenue results and operating margins.
-- Gross margin for our health management segment fell to 37.0%, from
41.5% for the prior year period. This result is due to a gross
margin decrease for staffing services, which fell to 25.8%, from
30.6% last year, and a gross margin decrease for programs and
consulting services, which fell to 54.8%, from 61.6% last year. The
gross margin decrease for staffing services is primarily due to a
workers compensation premium refund in the third quarter of 2006, in
addition to lower pricing for our new 2007 contracts. The gross
margin decrease for programs and consulting is primarily due to a
higher level of unproductive staff time for biometric screening
services, and higher costs attributable to providing our eHealth
platform.
-- Gross margin for our fitness management segment fell to 23.3%, from
27.5% for the prior year period. This result is primarily due to a
gross margin decrease for staffing services, which fell to 21.7%,
from 26.4%. This decline is primarily due to a workers compensation
premium refund in the third quarter of 2006, lower pricing for our
new 2007 contracts, and gross margin loss due to the cancellation of
a large automotive contract effective March 31, 2007. This gross
margin decrease was partially offset by gross margin growth in
programs and consulting services, which grew to 50.7%, from 46.7%.
This margin improvement is primarily due to lower costs for a number
of services we provide at our fitness center sites.
-- Operating expenses as a percent of revenue increased to 27.1%, from
20.0% for the same period last year. This increase is primarily due
to a 25.6% increase in salaries, which excludes a $193,500 increase
in stock-based compensation, and a 61.9% increase in other selling,
general and administrative expenses. These increases are primarily
due to planned investments in additional staff and other operating
expenses within certain operating units, including Research,
Development and Outcomes, Marketing, Technology and Account Services.
During the quarter, we incurred approximately $0.4 million of
unplanned expenses. Of this amount, approximately $0.3 million is
attributed to the non-cash stock and stock option expense for two new
board members, in addition to costs to enhance and improve our
corporate governance and compliance procedures. The remaining
$0.1 million of unplanned expenses is due to higher legal and
business consulting services, which were largely nonrecurring in
nature. These expense increases were partially offset by a decrease
in amortization expense related to a prior acquisition.
-- Operating margin for the third quarter declined to 1.3%, from 12.3%
for the prior year period. Excluding the effect of the $0.3 million
workers compensation premium refund we received in the third quarter
of 2006, operating margin was 10.3% for the third quarter of 2006.
This decrease is primarily due to planned investments we made to
support our future growth plans, in addition to unplanned expenses we
incurred during the third quarter of 2007.
-- We ended the third quarter with approximately $0.3 million of cash,
working capital of $8.0 million, an increase of $2.2 million since
December 31, 2006, no long term debt and stockholders' equity of
$26.2 million, an increase of $2.4 million since the end of 2006. We
believe our strong balance sheet, in addition to our existing credit
facility, will provide sufficient working capital to fund any
additional 2007 capital and operational investments.
Financial Highlights for the Nine Months Ended September 30, 2007
Compared to the Same Period Last Year.
-- Health management segment revenue grew 27.3% to $19.0 million, from
$14.9 million for the same period last year. Of this revenue growth,
staffing services revenue grew 15.4% to $11.6 million, from
$10.1 million for the same period last year, and program and
consulting services revenue grew 52.1% to $7.4 million, from
$4.8 million for the same period last year. Overall, health
management revenue growth is attributed to new customers and the
expansion of existing customers. The significant increase in program
and consulting services, compared to last year, was primarily driven
by an increase in biometric screening and health coaching services
and eHealth platform sales and customizations.
-- Fitness management segment revenue grew 0.5% to $31.7 million, from
$31.6 million for the same period last year. Of this revenue
increase, staffing services revenue increased 0.2% to $29.84 million,
from $29.78 million for the same period last year, and program and
consulting services revenue grew 6.0% to $1.9 million, from
$1.8 million for the same period last year. Overall, the increase in
fitness management segment revenue is attributed to new customers,
the expansion of existing customers, and growth of program revenue at
existing sites, including personal training, weight management
services and massage therapy. This growth was mostly offset by the
previously announced termination of a large automotive contract, in
addition to other customer contracts that were terminated during our
first nine months.
-- Year to date, we obtained 27 new customer commitments in our health
management segment that may realize incremental annualized revenue of
approximately $7.1 million, which includes approximately $0.7 million
of potential annualized revenue from two existing fitness management
customers. In our fitness management segment, we obtained five new
customer commitments, and received a commitment to expand an existing
customer, all of which may realize incremental annualized revenue of
approximately $2.7 million. The $9.8 million combined total for this
potential new, incremental annualized revenue will be offset by a
potential annualized revenue loss of $3.3 million, which is entirely
attributed to the cancellation of fitness management contracts.
Approximately $0.7 million of these contract cancellations is due to
our decision to not renew an underperforming contract.
-- Gross margin for our health management segment increased to 38.4%,
from 36.9% for the prior year period. This increase is primarily due
to the accelerated growth of our higher margin program and consulting
service revenue, despite the slight fall in gross margin to 58.9%,
from 59.0% for 2006. Offsetting this margin expansion was a decrease
of gross margin from staffing services, which fell to 25.5% from
26.4%, due primarily to the refund of workers compensation premiums
in the third quarter of 2006.
-- Gross margin for our fitness management segment decreased to 22.5%,
from 23.9% for the prior year period. This decrease is due in part
to gross margins from staffing services of 21.0%, compared to 22.4%
for the same period last year, which is primarily due to a refund of
workers compensation premiums in the third quarter of 2006, and a
decrease of gross margin for programs and consulting services to
46.2%, from 48.0% for the same period last year, which is primarily
due to slight gross margin decreases for personal training services,
weight management products and eHealth platform services.
-- Operating expenses as a percent of revenue increased to 25.5%, from
21.5% for the same period last year. This increase is primarily due
to a 21.4% increase in salaries, which excludes a $341,500 increase
in stock-based compensation, and a 44.3% increase in other selling,
general and administrative expenses. These increases are primarily
due to planned investments in additional staff and other operating
expenses within certain operating units, including Research,
Development and Outcomes, Marketing, Technology and Account Services,
in addition to the unplanned expenses we incurred during the third
quarter of 2007, which were largely nonrecurring in nature. These
expense increases were partially offset by a decrease in amortization
expense related to a prior acquisition.
-- Operating margin for the nine months ended September 30, 2007
decreased to 2.9%, from 6.6% for the prior year period. Excluding
the effect of the $0.3 million workers compensation premium refund we
received in the third quarter of 2006, operating margin was 5.9% for
the first nine months of 2006. This decrease is primarily due to
planned investments we made to support our future growth plans, in
addition to unplanned expenses we incurred during the third quarter
of 2007.
Conference Call
Health Fitness Corporation will host a conference call today, November
5, 2007 at 2:00 p.m. Pacific (5:00 p.m. Eastern). Participating in the call
will be Gregg Lehman, Ph.D., President and Chief Executive Officer, and Wes
Winnekins, Chief Financial Officer. To listen to the call from the U.S.,
dial 1-888-740-6135; internationally, dial 1-913-312-0940. A replay of the
call will be available until Monday, November 19, 2007, 11:59 p.m. ET. To
access the replay from the U.S., dial 1-888-203-1112 and enter passcode
3634122, from outside the U.S., dial 1-719-457-0820 and enter passcode
3634122. The call will also be broadcast live over the Internet and
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 Health Fitness Corporation
Health Fitness Corporation is a leading provider of integrated employee
health solutions to Fortune 500 companies, the health care industry and
individual consumers. Serving clients for more than 30 years, Health
Fitness Corporation partners with employers to effectively manage their
health care and productivity costs by improving individual health and
well-being. Health Fitness Corporation serves more than 300 clients
globally via on-site management and remotely via Web and telephonic
services. Health Fitness Corporation provides a complete portfolio of
health and fitness management solutions including a proprietary health risk
assessment platform, screenings, EMPOWERED(TM) Health Coaching and delivery
of health improvement programs. Health Fitness Corporation employs more
than 3,000 health and fitness professionals in national and international
locations who are committed to the company's mission of "improving the
health and well-being of the people we serve." For more information on
Health Fitness Corporation, visit http://www.hfit.com.
Forward Looking Statements
Certain statements in this release, including, without limitation,
management's belief that increased service delivery to 2007 new customer
commitments should lend support to the Company's growth rate in the fourth
quarter and into 2008, management's belief that it is making good progress
at replacing the loss of a large automotive contract through new fitness
management customers, management's belief that current RFP activity
indicates that demand for integrated lifestyle improvement services is very
strong, and that the Company is considered a primary provider, that
management is optimistic it will win a number of new proposals, which when
added to the current revenue backlog from existing customers, will position
the Company to experience growth acceleration in 2008, management's belief
that the lower results for the third quarter are short-term in nature and
primarily due to service timing delays, revenue loss from unforeseen
contract terminations, the seasonality of new customer wins and unplanned
operating expenses, management's belief that the Company's investments will
enable it to better help employers improve employee health and contain
rising healthcare costs, management's belief that it is in a position to
achieve higher levels of revenue and margin growth into 2008 and beyond,
and management's belief that our strong balance sheet, in addition to our
existing credit facility, will provide sufficient working capital to fund
our anticipated 2007 capital and operational investments, are
forward-looking statements. In addition, the estimated annualized revenue
value of our new and lost customers 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 segments.
These estimates, when considered together, should not be considered an
indication of the total net, incremental revenue growth we expect to
generate in 2007 or in any year, as actual net growth may differ from these
estimates due to actual staffing levels, participation rates and service
duration, in addition to other revenue we may lose in the future due to
customer 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 and other clients, our inability to successfully cross-sell
health management services to our fitness management clients, our inability
to successfully obtain new business opportunities, our failure to have
sufficient resources to make investments, our ability to make investments
successfully, continued delays in obtaining new commitments and
implementing services, 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 2006 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 (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
REVENUE $17,153,058 $16,340,380 50,722,258 $46,482,771
COSTS OF REVENUE 12,268,332 11,061,752 36,272,205 33,439,649
GROSS PROFIT 4,884,726 5,278,628 14,450,053 13,043,122
OPERATING EXPENSES
Salaries 2,775,532 2,045,284 7,819,407 6,187,653
Other selling,
general and
administrative 1,835,136 1,133,118 5,008,770 3,471,455
Amortization of
acquired
intangible assets 42,771 96,986 128,311 313,058
Total operating
expenses 4,653,439 3,275,388 12,956,488 9,972,166
OPERATING INCOME 231,287 2,003,240 1,493,565 3,070,956
OTHER INCOME (EXPENSE)
Interest expense (16,681) (1,681) (23,371) (5,831)
Change in fair value
of warrants -- -- -- 841,215
Other, net (4,432) (2,529) (1,856) 7,532
EARNINGS BEFORE INCOME
TAXES 210,174 1,999,030 1,468,338 3,913,872
INCOME TAX EXPENSE 193,151 825,189 766,644 1,352,884
NET EARNINGS 17,023 1,173,841 701,694 2,560,988
Dividend to preferred
shareholders -- -- -- 96,410
NET EARNINGS APPLICABLE
TO COMMON
SHAREHOLDERS $17,023 $1,173,841 $701,694 $2,464,578
NET EARNINGS PER SHARE:
Basic $0.00 $0.06 $0.04 $0.14
Diluted 0.00 0.06 0.03 0.09
WEIGHTED AVERAGE
COMMON HARES:
Basic 19,834,858 18,963,948 19,618,221 17,665,550
Diluted 20,866,935 19,550,662 20,577,345 19,680,363
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
2007 2006
ASSETS
CURRENT ASSETS
Cash $251,760 $987,465
Trade and other accounts receivable,
less allowances of $215,300 and $283,100 12,511,532 12,404,856
Inventories 677,592 326,065
Prepaid expenses and other 698,593 375,824
Deferred tax assets 217,476 217,476
Total current assets 14,356,953 14,311,686
PROPERTY AND EQUIPMENT, net 1,171,795 767,675
OTHER ASSETS
Goodwill 14,542,383 14,509,469
Software technology, less accumulated
amortization of $686,400 and $370,200 1,526,783 1,658,575
Trademark, less accumulated amortization
of $320,700 and $246,300 172,372 246,809
Other intangible assets, less accumulated
amortization of $223,800 and $166,500 305,293 362,528
Deferred tax assets 437,010 437,010
Other 14,011 24,597
$32,526,600 $32,318,349
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,154,040 $1,811,939
Accrued salaries, wages, and payroll taxes 2,483,172 3,249,424
Accrued acquisition earnout -- 1,475,000
Other accrued liabilities 366,761 120,044
Accrued self funded insurance 286,981 201,053
Line of credit 848,460 --
Deferred revenue 1,180,252 1,663,121
Total current liabilities 6,319,666 8,520,581
LONG-TERM OBLIGATIONS
-- --
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 50,000,000
shares authorized; 19,913,590 and
19,220,217 shares issued and outstanding 198,990 192,202
Additional paid-in capital 27,708,479 25,989,447
Accumulated comprehensive income (53,534) (35,186)
Accumulated deficit (1,647,001) (2,348,695)
26,206,934 23,797,768
$32,526,600 $32,318,349
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 of Integrated
Corporate Relations, +1-310-954- 1105, for Health Fitness
Corporation
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