•

Revenues increased by 10.0% to $151.5 million compared to revenues of $137.7 million for the third quarter of 2017. 

•

Income from continuing operations increased by 27.5% to $25.4 million, compared to $19.9 million for the third quarter of 2017.

•

Income from continuing operations per diluted share increased by 28.3% to $0.59, compared to $0.46 for the third quarter of 2017.

•

EBITDA was $36.6 million, or 24.2% of revenues, compared to $35.3 million, or 25.7% of revenues, for the third quarter of 2017.  See page 8 for a reconciliation of non-GAAP financial measures.

•

Cash flow from operations was $33.2 million and free cash flow totaled $30.4 million. See page 8 for a reconciliation of non-GAAP financial measures.

Three Months Ended

September 30,

2018

2017

Revenues

$

151.5

137.7

Income from continuing operations, GAAP basis

$

0.59

0.46

Weighted average diluted common shares outstanding

   (in thousands)

42,827

43,527

•

Revenues in a range of $607 million to $610 million, compared to the previous range of $607 million to $625 million;

•

EBITDA in a range of $139 million to $142 million, compared with the previous range of $139 million to $144 million; and

•

Earnings per diluted share in a range of $2.15 to $2.20, compared with the previous range of $2.12 to $2.20.  

•

Depreciation expense of approximately $4 million;

•

Interest expense of approximately $8.5 million, of which approximately $6 million is non-cash expense;

•

An effective tax rate of approximately 26%;

•

Weighted average diluted shares outstanding of approximately 43.5 million;

•

Free cash flow in excess of $100 million (defined as cash flows from operations less capital expenditures); and

•

Capital expenditures of approximately $10 million.

•

the Company’s ability to develop and implement effective strategies;

•

the effectiveness of the reorganization of the Company’s business and its ability to realize the anticipated benefits;  

•

the Company’s ability to sign and implement new contracts with new or existing customers;

•

the Company’s ability to accurately forecast the costs required to successfully implement new contracts;

•

the Company’s ability to renew and/or maintain contracts with its customers and/or its partner locations under existing terms or restructure these contracts on terms that would not have a material negative impact on the Company’s results of operations;

•

the Company’s ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed the Company’s resources;

•

the Company’s ability to accurately forecast its revenues, margins, earnings and net income, as well as any potential charges that the Company may incur as a result of changes in its business and leadership;

•

the Company’s ability to anticipate change and respond to emerging trends for healthcare and the impact of the same on demand for the Company’s services;

•

the risks associated with deriving a significant concentration of revenues from a limited number of customers;

•

the Company’s ability and/or the ability of its customers to enroll participants and to accurately forecast their level of enrollment and participation in the Company’s programs in a manner and within the timeframe anticipated by the Company;

•

the impact of severe or adverse weather conditions on member participation in the Company’s programs;

•

the ability of the Company’s customers to maintain the number of covered lives enrolled in the plans during the terms of its agreements;

•

the Company’s ability to service its debt, make principal and interest payments as those payments become due, and remain in compliance with its debt covenants;

•

the risks associated with changes in macroeconomic conditions;

•

the Company’s ability to integrate new or acquired businesses, services, technologies, solutions, or products into its business and to accurately forecast the related costs;

•

the Company’s ability to anticipate and respond to strategic changes, opportunities and emerging trends in the Company’s industry and/or business and to accurately forecast the related impact on the Company’s revenues and earnings;

•

the impact of any impairment of the Company’s goodwill, intangible assets, or other long-term assets;

•

the Company’s ability to develop and commercially introduce new products;

•

the market’s acceptance of the Company’s new products and services;

•

the Company’s ability to obtain adequate financing to provide the capital that may be necessary to support its current or future operations;

•

the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of our information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties to customer, employee or Company information or member health information and may lead to a disruption in the Company’s business, costs to modify, enhance, or remediate the Company’s cybersecurity measures, enforcement actions, fines or litigation against the Company, or damage to the Company’s business reputation;

•

the impact of any new or proposed legislation, regulations and interpretations relating to Medicare, Medicare Advantage, or Medicare Supplement;

•

current geopolitical turmoil and the continuing threat of domestic or international terrorism;

•

the potential emergence of a health pandemic or infectious disease outbreak;

•

the impact of the Tax Cuts and Jobs Act of 2017 and any additional new or proposed tax legislation;

•

the impact of legal proceedings involving the Company and/or its subsidiaries; and

•

other risks detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and other filings with the Securities and Exchange Commission. 

September 30, 2018

December 31, 2017

Current assets:

Cash and cash equivalents

$

1,643

$

28,440

Accounts receivable, net

67,012

55,113

Prepaid expenses

3,787

3,444

Cash convertible notes hedges

—

134,079

Income taxes receivable

673

39

Other current assets

4,640

2,180

Total current assets

77,755

223,295

Property and equipment, net of accumulated depreciation of

   $31,636 and $28,533, respectively

14,566

10,658

Long-term deferred tax asset

1,354

25,166

Intangible assets, net

29,049

29,049

Goodwill, net

334,680

334,680

Other long-term assets

25,105

13,315

Total assets

$

482,509

$

636,163

Current liabilities:

Accounts payable

$

30,145

$

26,804

Accrued salaries and benefits

5,590

15,018

Accrued liabilities

41,236

34,511

Cash conversion derivative

—

134,079

Current portion of debt

52

145,959

Current portion of long-term liabilities

2,249

2,262

Total current liabilities

79,272

358,633

Long-term debt

52,132

—

Other long-term liabilities

4,525

5,577

Stockholders' equity:

Preferred stock $.001 par value, 5,000,000 shares authorized,

   none outstanding

—

—

Common stock $.001 par value, 120,000,000 shares authorized,

   40,045,663 and 39,729,580 shares outstanding, respectively

40

40

Additional paid-in capital

353,594

349,243

Retained earnings (accumulated deficit)

21,128

(49,148

)

Treasury stock, at cost, 2,254,953 shares in treasury

(28,182

)

(28,182

)

Total stockholders' equity

346,580

271,953

Total liabilities and stockholders' equity

$

482,509

$

636,163

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

Revenues

$

151,467

$

137,703

$

453,261

$

417,588

Cost of services (exclusive of depreciation and

   amortization of $1,071, $699, $3,041 and $2,003,

   respectively, included below)

107,047

94,539

324,346

296,009

Selling, general & administrative expenses

7,817

7,838

24,151

24,376

Depreciation and amortization

1,204

850

3,461

2,426

Restructuring and related charges

—

(16

)

124

669

Operating income

35,399

34,492

101,179

94,108

Interest expense

1,013

4,203

7,948

12,167

Income before income taxes

34,386

30,289

93,231

81,941

Income tax expense

9,029

10,403

23,856

29,334

Income from continuing operations

25,357

19,886

69,375

52,607

Income from discontinued operations, net of

   income tax

—

6,519

901

2,625

Net income

$

25,357

$

26,405

$

70,276

$

55,232

Earnings per share - basic:

Continuing operations

$

0.63

$

0.50

$

1.74

$

1.34

Discontinued operations

$

—

$

0.17

$

0.02

$

0.07

Net income

$

0.63

$

0.67

$

1.76

$

1.41

Earnings per share - diluted:

Continuing operations

$

0.59

$

0.46

$

1.60

$

1.25

Discontinued operations

$

—

$

0.15

$

0.02

$

0.06

Net income

$

0.59

$

0.61

$

1.63

$

1.31

Comprehensive income

$

25,357

$

26,405

$

70,276

$

59,734

Weighted average common shares and equivalents:

Basic

40,010

39,443

39,898

39,254

Diluted

42,827

43,527

43,234

42,253

Nine Months Ended September 30,

2018

2017

Cash flows from operating activities:

Income from continuing operations

$

69,375

$

52,607

Income from discontinued operations

901

2,625

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3,461

2,446

Amortization of deferred loan costs

1,101

2,318

Amortization of debt discount

4,140

5,941

Share-based employee compensation expense

4,913

5,019

Gain on sale of TPHS business

(1,304

)

(4,782

)

Loss on release of cumulative translation adjustment

—

3,044

Deferred income taxes

23,812

27,545

Increase in accounts receivable, net

(12,181

)

(2,986

)

Decrease in other current assets

1,544

2,035

Decrease in accounts payable

(1,285

)

(1,247

)

Decrease in accrued salaries and benefits

(10,626

)

(10,925

)

Decrease in other current liabilities

(11,235

)

(7,487

)

Other

1,912

(2,525

)

Net cash flows provided by operating activities

$

74,528

$

73,628

Cash flows from investing activities:

Acquisition of property and equipment

$

(6,456

)

$

(3,974

)

Proceeds from sale of MeYou Health

1,416

—

Net cash flows used in investing activities

$

(5,040

)

$

(3,974

)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

$

173,350

$

330,700

Payments of long-term debt

(271,923

)

(400,945

)

Proceeds from settlement of cash convertible notes hedges

141,246

—

Payments related to settlement of cash conversion derivative

(141,246

)

—

Payments related to tax withholding for share-based compensation

(2,083

)

(1,798

)

Exercise of stock options

1,521

4,314

Deferred loan costs

—

(2,452

)

Change in cash overdraft and other

2,887

2,083

Net cash flows used in financing activities

$

(96,248

)

$

(68,098

)

Effect of exchange rate changes on cash

$

(37

)

$

1,750

Net increase in cash and cash equivalents

$

(26,797

)

$

3,306

Cash and cash equivalents, beginning of period

$

28,440

$

1,602

Cash and cash equivalents, end of period

$

1,643

$

4,908

Three Months

Ended

September 30, 2018

Three Months

Ended

September 30, 2017

EBITDA, non-GAAP basis ⁽¹⁾

$

36,603

$

35,342

Depreciation and amortization

1,204

850

Interest expense

1,013

4,203

Income tax expense

9,029

10,403

Income from continuing operations, GAAP basis

$

25,357

$

19,886

(1)

EBITDA is a non-GAAP financial measure.  The Company believes it is useful to investors to provide disclosures of its operating results on the same basis as that used by management.  You should not consider EBITDA in isolation or as a substitute for income from continuing operations determined in accordance with U.S. GAAP.

Three Months

Ended

September 30, 2018

Three Months

Ended

September 30, 2017

Free cash flow, non-GAAP basis ⁽²⁾

$

30,444

$

31,838

Acquisition of property and equipment

2,783

1,730

Net cash flows provided by operating activities, GAAP basis

$

33,227

$

33,568

(2)

Free cash flow is a non-GAAP financial measure and is defined by the Company as net cash flows provided by operating activities less acquisition of property and equipment.  The Company believes free cash flow is a useful measure of performance and an indication of the strength of the Company and its ability to generate cash.  The Company believes it is useful to investors to provide disclosures of its results on the same basis as that used by management.  You should not consider free cash flow in isolation or as a substitute for net cash flows provided by operating activities determined in accordance with U.S. GAAP.

Year Ending

December 31, 2018

EBITDA guidance, non-GAAP basis ⁽³⁾

$139 - $142

Depreciation and amortization

(4

)

Interest expense

(8.5

)

Income tax expense

(32.9 – 33.7

)

Net income guidance, GAAP basis

$

$93.6 – 95.8

(3)

EBITDA guidance is a non-GAAP financial measure.  The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management.  You should not consider EBITDA guidance in isolation or as a substitute for net income guidance determined in accordance with U.S. GAAP.