-- Company achieves 21.4% increase in total revenue --
-- Health management revenue expanded 61.2% --
-- Gross profit as a percent of revenue increased to 32.3% --
-- Net earnings to common shareholders grew 131.8% to $1.2 million --
MINNEAPOLIS, Nov. 6 /PRNewswire-FirstCall/ -- Health Fitness
Corporation (OTC Bulletin Board: HFIT), a leading employee health
improvement company, today announced financial results for the third
quarter and nine months ended September 30, 2006.
For the quarter ended September 30, 2006, revenue increased 21.4% to
$16.3 million, from $13.5 million for the same period last year. Gross
profit during the quarter increased 50.9% to $5.3 million, from $3.5
million for the same period last year. Operating income increased 126.6% to
$2.0 million, from $0.9 million for the same period last year. Net earnings
applicable to common shareholders increased 131.8% to $1.2 million, from
$0.5 million for the same period last year. Net earnings per diluted share
increased to $0.06, from $0.03 for the same period last year.
For the nine months ended September 30, 2006, revenue increased 14.5%
to $46.5 million, from $40.6 million for the same period last year. Gross
profit increased 25.5% to $13.0 million, from $10.4 million for the same
period last year. Operating income increased 7.3% to $3.1 million, from
$2.9 million for the same period last year. Net earnings applicable to
common shareholders increased 51.0% to $2.5 million, from $1.6 million for
the same period last year. Net earnings per diluted share was $0.09,
compared to $0.10 for the same period last year. The decrease in earnings
per diluted share 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.
"We are very pleased with our record revenue, earnings and strong
improvement in gross and operating margins for the third quarter," said
Jerry Noyce, Health Fitness Corporation President and CEO. "These results
reflect growth in both of our key business areas, including the significant
expansion of our higher margin health management program offerings.
Specifically, approximately 75% of our growth for the third quarter,
compared to last year, is attributed to the growth of our health management
business area, which has come from existing and new customers."
"Looking ahead, we are very excited about the direction of this growth.
To ensure that future growth opportunities are realized, we will continue
to invest in the development of our health management business area,
including new staff positions to enhance operations, sales and marketing,
new, higher margin programs such as telephonic health advising and
coaching, web-based health coaching and the expansion of our on-site health
assessment programs," continued Mr. Noyce. "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."
"During the third quarter of 2006, we won two new contracts within our
health management business area, which may realize incremental annualized
revenue of approximately $1.0 million. Within our fitness management
business area, we won three new contracts, which may realize incremental
annualized revenue of approximately $0.5 million. This new business is in
addition to the potential annualized revenue of $6.4 million and $2.7
million from health and fitness management contracts, respectively, that we
previously reported through the first six months ended June 30, 2006. The
combined total for new annualized revenue will be offset by a potential
annualized revenue loss of $1.2 million from 2006 contract cancellations."
"Our balance sheet continues to strengthen, with cash of $0.7 million,
working capital of $6.9 million, which is an increase of $2.0 million since
December 31, 2005, no long-term debt and a $12.8 million increase in
stockholders' equity since December 31, 2005. Because of our strong balance
sheet, our internal resources are adequate to fund the investments we are
making to enhance the growth and profitability of our business."
Mr. Noyce concluded, "As we continue to expand client base, we believe
our future growth will come organically through existing and new health
management programs, our existing fitness management customers who desire
to move toward an integrated employee health improvement program and
international expansion as our multi-national customers begin to offer our
services to their entire work force. We are very excited about fulfilling
our mission to help our customers manage their healthcare costs by
improving the health and well-being of their employees."
Financial Highlights for the Third Quarter of 2006
-- Health management revenue grew 61.2% to $5.7 million, from $3.5
million for the same period last year. Of this $2.2 million in
revenue growth, HealthCalc contributed approximately $0.5 million, or
23.7%. Compared to revenue of $5.0 million for the second quarter of
2006, health management revenue grew 14.5%.
-- Fitness management revenue grew 7.2% to $10.7 million, from $9.9
million for the same period last year. Compared to revenue of $10.6
million for the second quarter of 2006, fitness management revenue
grew 0.4%.
-- As a result of the growth in our health management business area, our
total revenue of $16.3 million for the third quarter represents a 4.9%
increase over total revenue of $15.6 million for our second quarter
ended June 30, 2006.
-- For the third quarter, gross profit as a percent of revenue increased
to 32.3%, from 26.0% for the same period last year. Gross profit for
the three months ended September 30, 2006 and 2005 included 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 30.4% and 24.3% for the quarters ending September 30, 2006
and 2005, respectively.
-- Operating expenses as a percent of revenue increased to 20.0% 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 our
investment in 2005 to hire 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 increased to 12.3% for the third quarter, up from
6.6% for the same period last year. Excluding stock option
compensation expense of approximately $0.1 million, operating margin
was 12.7% for the three months ended September 30, 2006.
Financial Highlights for Nine Months Ended September 30, 2006 Compared
to the Same Period Last Year.
-- Health management revenue grew 41.9% to $14.9 million, from $10.5
million. Fitness management revenue grew 4.9% to $31.6 million, from
$30.1 million.
-- Of the $4.4 million revenue growth over 2005 for our health management
business area, $1.5 million, or 34.0%, is attributed to HealthCalc,
and $2.9 million is attributed to new contracts and incremental
business from existing contracts. The growth we've experienced in our
fitness management business area is primarily attributed to new
contracts and lower contract attrition compared to 2005.
-- Gross profit as a percent of revenue increased to 28.1%, from 25.6%
for the same period last year. This increase is predominantly driven
by the increase in health management revenue discussed above. Gross
profit for the nine months ended September 30, 2006 and 2005 included
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 27.4% and 25.0% for the nine months ending
September 30, 2006 and 2005, respectively.
-- Operating expenses as a percent of revenue increased to 21.5% from
18.5% for the same period last year. This increase is primarily due
to an increase in salaries expense, which is attributed to our
investment in 2005 to hire 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 6.6%, down from 7.1% for the same
period last year. Excluding stock option compensation expense of $0.3
million, operating margin was 7.3% for the nine months ended September
30, 2006.
Conference Call
Health Fitness Corporation will host a conference call today, November
6, 2006 at 2:00 p.m. Pacific (5:00 p.m. Eastern). Participating in the call
will be Jerry Noyce, 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 anticipated operational
investments will better position the Company for long-term sustainable
revenue and margin growth, and that growth will come organically from a
number of areas, 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 expect to
generate in 2006, or 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 "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 Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
REVENUE $16,340,380 $13,464,278 $46,482,771 $40,607,994
COSTS OF REVENUE 11,061,752 9,965,464 33,439,649 30,216,762
GROSS PROFIT 5,278,628 3,498,814 13,043,122 10,391,232
OPERATING EXPENSES
Salaries 2,045,284 1,449,297 6,187,653 4,243,782
Other selling,
general and
administrative 1,133,118 945,540 3,471,455 2,625,037
Amortization of
acquired
intangible
assets 96,986 220,095 313,058 659,432
Total operating
expenses 3,275,388 2,614,932 9,972,166 7,528,251
OPERATING INCOME 2,003,240 883,882 3,070,956 2,862,981
OTHER INCOME
(EXPENSE)
Interest expense (1,681) 4,035 (5,831) (24,214)
Change in fair
value of warrants - - 841,215 -
Other, net (2,529) (2,404) 7,532 (4,394)
EARNINGS BEFORE
INCOME TAXES 1,999,030 885,513 3,913,872 2,834,373
INCOME TAX EXPENSE 825,189 354,206 1,352,884 1,133,749
NET EARNINGS 1,173,841 531,307 2,560,988 1,700,624
Dividend to
preferred
shareholders - 24,819 96,410 68,019
NET EARNINGS
APPLICABLE TO
COMMON
SHAREHOLDERS $1,173,841 $506,488 $2,464,578 $1,632,605
NET EARNINGS
PER SHARE:
Basic $ 0.06 $ 0.04 $ 0.14 $ 0.13
Diluted $ 0.06 $ 0.03 $ 0.09 $ 0.10
WEIGHTED AVERAGE
COMMON SHARES:
Basic 18,963,948 12,836,971 17,665,550 12,704,035
Diluted 19,550,662 16,662,753 19,680,363 16,633,799
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
2006 2005
ASSETS
CURRENT ASSETS
Cash $713,043 $1,471,505
Trade and other accounts receivable,
less allowances of $180,000 and
$200,700 10,840,104 8,839,046
Prepaid expenses and other 1,026,142 509,273
Deferred tax assets 347,700 337,800
Total current assets 12,926,989 11,157,624
PROPERTY AND EQUIPMENT, net 537,521 347,820
OTHER ASSETS
Goodwill 13,020,290 12,919,689
Software, less accumulated amortization
of $265,500 and $0 1,774,061 1,762,000
Customer contracts, less accumulated
amortization of $1,796,100 and
$1,626,100 18,890 188,889
Trademark, less accumulated amortization
of $221,500 and $147,000 271,620 346,057
Other intangible assets, less accumulated
amortization of $149,300 and
$88,000 379,774 441,086
Deferred tax assets 394,760 374,500
Other 29,604 47,105
$29,353,509 $27,584,770
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $874,562 $687,125
Accrued salaries, wages, and payroll taxes 2,144,943 2,693,927
Other accrued liabilities 1,009,626 763,115
Accrued self funded insurance 344,288 250,000
Deferred revenue 1,681,077 1,868,446
Total current liabilities 6,054,496 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; 19,001,771 and
13,787,349 shares issued and outstanding 190,017 137,874
Additional paid-in capital 25,921,323 15,625,425
Accumulated comprehensive income (85) 1,245
Accumulated deficit (2,812,242) (5,276,822)
23,299,013 10,487,722
$29,353,509 $27,584,770
SOURCE Health Fitness Corporation
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CONTACT:
Wes Winnekins, CFO of Health Fitness
Corporation, +1-952-897-5275, or, John Mills of Integrated
Corporate Relations, +1-310-954-1105
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