American Healthways Acquires StatusOne Health Systems; Sets Fiscal 2004 Earnings Guidance at $1.40 to $1.44 Per Diluted Share.Business Editors/Health/Medical Writers NASHVILLE, Tenn.--(BUSINESS WIRE)--Sept. 8, 2003 American Healthways (Nasdaq:AMHC AMHC Association of Mental Health Clergy AMHC Aviation Structural Mechanic Hydraulics Chief ), the nation's leading provider of comprehensive disease management and care enhancement services, today announced the completion of the $65 million cash purchase of Massachusetts-based StatusOne Health Systems, the market-leading provider of health management services for high-risk high-risk adjective Referring to an ↑ risk of suffering from a particular condition Infectious disease Referring to an ↑ risk for exposure to blood-borne pathogens, which occurs with blood bank technicians, dental professionals, dialysis unit populations of health plans and integrated systems nationwide. Strategic Fit "StatusOne is an ideal strategic fit that will benefit our customers and their members," said Ben R. Leedle Jr., president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of American Healthways. "We welcome the StatusOne executive team and their highly skilled clinicians into our organization and look forward to the positive impact their addition will have on our programs and on the Company. This winning combination of product offerings will allow us to immediately meet the market demand for additional approaches for initiating and expanding total population health management. As a result, we expect this transaction to strengthen American Healthways' leadership position in the disease management industry, while significantly broadening our capabilities as the single-source solution for health plans' care enhancement needs." Using its proprietary predictive modeling technology, StatusOne identifies those individuals at highest risk of incurring in·cur tr.v. in·curred, in·cur·ring, in·curs 1. To acquire or come into (something usually undesirable); sustain: incurred substantial losses during the stock market crash. 2. significant medical costs within the next 12 months and creates a customized care-support system. In contrast to American Healthways programs, which typically provide continuing support to all or most of those members with one or more of 17 chronic diseases or conditions, StatusOne's programs are focused on high-intensity intervention A procedure used in a lawsuit by which the court allows a third person who was not originally a party to the suit to become a party, by joining with either the plaintiff or the defendant. across 160 disease conditions for the 0.5 percent to 1 percent of members who are identified as being at highest risk for imminent acute and high-cost health episodes. Both companies are focused on helping patients, their families and their physicians bridge the gaps in the health-care system. Matt Kelliher, chairman and CEO of StatusOne, added: "Our focus on improving health among a health plan's sickest members is a natural complement to American Healthways' focus on improving health among people with chronic diseases and longer-term health care needs. We are pleased to join forces with American Healthways to deliver the market-leading offering and look forward to working together to reduce the rising cost of care that is threatening health care coverage for millions of Americans." Accretive Transaction StatusOne, which has experienced rapid growth since its founding, expects revenues to almost double for the 12 months ended Aug. 31, 2003, when compared with the prior year. StatusOne recorded annual run-rate revenues of $25 million based on the three months ended July 31, 2003. StatusOne has been profitable since inception, with percent operating and net income margins consistent with those of American Healthways. The $65 million purchase price represents approximately 11.2 times trailing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become and 7 to 7.5 times projected fiscal 2004 EBITDA. Leedle said, "We expect the transaction to be modestly accretive in fiscal 2004. Based on internal growth, the absence of customer overlap o·ver·lap n. 1. A part or portion of a structure that extends or projects over another. 2. The suturing of one layer of tissue above or under another layer to provide additional strength, often used in dental surgery. v. and the potential for cross-selling opportunities, we expect significantly accretive results in fiscal 2005 as a result of this transaction. Additional consideration could be paid in fiscal 2005 based on actual fiscal 2004 operating results exceeding expectations, which we expect would make the transaction increasingly accretive." Transaction Financing The transaction was financed through a new syndicated bank facility of $100 million, of which $60 million is structured as a term loan and $40 million as a revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. . The additional $5 million of purchase price was provided out of the Company's existing cash of $36 million as of Aug. 31, 2003. Having acquired a company with a strong strategic fit, high revenue and earnings growth and strong cash flow, American Healthways' balance sheet remains strong. Post transaction, the Company has approximately $31 million in cash, a $40 million line of credit and, based on traditional ratios, a still conservative balance sheet. Fiscal 2004 Financial Guidance American Healthways also today established its earnings guidance for fiscal 2004. Based on its current business, backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. , pipeline of potential new contracts and contract extensions, and expectations for StatusOne, the Company anticipates its earnings per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share for fiscal 2004 to be in the range of $1.40 to $1.44. Earnings per diluted share for first quarter fiscal 2004 are expected to be in the range of $0.20 to $0.21, compared to $0.23 for first quarter of fiscal 2003 ($0.03 of which related to incentive bonuses), due to the impact of initial StatusOne transaction and integration costs. In addition, the Company anticipates ramp-up of contract costs ahead of revenue recognition for new American Healthways' health plan contracts expected to start in the first or second quarters of fiscal 2004. American Healthways also expects fiscal 2004 revenues to be in a range of $245 million to $255 million. Company guidance does not include any impact of incentive bonuses. American Healthways will hold a conference call to discuss the announcement today at 10:00 a.m. Eastern time. Investors will have the opportunity to listen to the conference call live over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the by going to www.americanhealthways.com and clicking Investor Relations Investor relations The process by which the corporation communicates with its investors. or by going to www.streetevents.com at least 15 minutes early to register, download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available on the Company's Web site for the next 12 months. Any material information disclosed on the conference call that has not been previously disclosed publicly will be available on the Company's website at www.americanhealthways.com. About StatusOne Founded in 1997, StatusOne is the market-leading provider of health management services for high-risk populations of health plans and integrated systems nationwide. StatusOne's programs are designed to address the highest risk and highest cost components of its customers' membership with the objectives of enhancing their care and reducing their cost of care. StatusOne's systematic approach identifies people at risk for high-cost care and provides them with evidence-based information, tools and personal support to develop and follow a plan of care. StatusOne is based in Westboro, Mass., with operations in San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. and Aliso Viejo, Calif. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Provisions This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that are based upon current expectations and involve a number of risks and uncertainties. In order for the Company to utilize the "safe harbor" provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, investors are hereby cautioned that these statements may be affected by the important factors, among others, set forth below, and consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The important factors include: the Company's ability to integrate the operations of StatusOne into the Company's business; the Company's ability to achieve the expected financial results for StatusOne; Company's ability to sign and execute new contracts for health plan disease management services and care enhancement services and to sign and execute new contracts for hospital-based diabetes services; the risks associated with a significant concentration of the Company's revenues with a limited number of health plan customers; the Company's ability to effect cost savings and clinical outcomes improvements under health plan disease management and care enhancement contracts and reach mutual agreement with customers with respect to cost savings, or to effect such savings and improvements within the time frames contemplated by the Company; the Company's ability to accurately forecast performance under the terms of its health plan contracts ahead of data collection and reconciliation; the ability of the Company to collect contractually earned incentive performance bonuses; the ability of the Company's health plan customers to provide timely and accurate data that is essential to the operation and measurement of the Company's performance under the terms of its health plan contracts; the Company's ability to resolve favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. contract billing and interpretation issues with its health plan customers; the ability of the Company to effectively integrate new technologies such as those encompassed in its care enhancement initiatives into the Company's care management information technology platform; the Company's ability to renew and/or maintain contracts with its customers 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 ability of the Company to implement its care enhancement strategy within expected cost estimates; the ability of the Company to obtain adequate financing to provide the capital that may be needed to support the growth of the Company's health plan operations and to support or guarantee the Company's performance under new health plan contracts; unusual and unforeseen patterns of health care utilization by individuals with diabetes, cardiac, respiratory and/or other diseases or conditions for which the Company provides services, in the health plans with which the Company has executed a disease management contract; the ability of the health plans to maintain the number of covered lives enrolled in the plans during the terms of the agreements between the health plans and the Company; the Company's ability to attract and/or retain and effectively manage the employees required to implement its agreements with hospitals and health plan organizations; the impact of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. involving the Company; the impact of future state and federal health care legislation and regulations on the ability of the Company to deliver its services and on the financial health of the Company's customers and their willingness to purchase the Company's services; and general economic conditions. The Company undertakes no obligation to update or revise any such forward-looking statements. About American Healthways American Healthways (AMHC) is the nation's leading and largest provider of specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. , comprehensive disease management and care enhancement services to health plans, physicians, medical management organizations and hospitals. The Company's programs have been reviewed and approved for clinical excellence by Johns Hopkins Noun 1. Johns Hopkins - United States financier and philanthropist who left money to found the university and hospital that bear his name in Baltimore (1795-1873) Hopkins 2. and have been certified See certification. or accredited accredited recognition by an appropriate authority that the performance of a particular institution has satisfied a prestated set of criteria. accredited herds cattle herds which have achieved a low level of reactors to, e.g. by the National Committee on Quality Assurance (NCQA NCQA National Committee on Quality Assurance, see there ), the Joint Commission on Accreditation accreditation, n a process of formal recognition of a school or institution attesting to the required ability and performance in an area of education, training, or practice. of Health Care Organizations (JCAHO JCAHO Joint Commission on Accreditation of Healthcare Organizations, see there ), and the American Accreditation Healthcare Commission The Healthcare Commission is an independent body, set up to promote and drive improvement in the quality of healthcare and public health in England and Wales. It aims to achieve this by becoming an authoritative and trusted source of information and by ensuring that this (URAC URAC Utilization Review Accreditation Commission (health care accreditation & certification) URAC University Recreation & Aquatic Centre Ltd (Australia) URAC Union Regional de Apoyo Campesino ). American Healthways has contracts to provide disease and care management programs to 844,000 equivalent lives in all 50 states, the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). , Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. and Guam. The Company also operates diabetes management This article is about the management of diabetes mellitus. For more on the disease itself see diabetes mellitus. Diabetes is a chronic disease with no cure as of 2007. It is associated with an impaired glucose cycle, altering metabolism. programs in hospitals nationwide. For more information visit www.americanhealthways.com.
STATUSONE HEALTH SYSTEMS
Reconciliation of EBITDA to Income from Continuing Operations
Unaudited
(Dollars in thousands)
12 Months Ended
July 31, 2003
---------------
Historical EBITDA(1):
Income from continuing operations $ 5,607
Add:
Depreciation and amortization 190
----------
EBITDA $ 5,797
==========
Purchase price multiple(2) 11.2
==========
12 Months Ended
August 31, 2004
------------------------------
Projected EBITDA(1) range:
Income from continuing operations $ 8,200 $ 8,785
Add:
Depreciation and amortization 465 500
========== ==========
EBITDA $ 8,665 $ 9,285
========== ==========
Purchase price multiple(2) 7.5 7.0
========== ==========
(1) EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization. While you should not
consider EBITDA in isolation or as a substitute for income
from continuing operations, net income, operating cash flows
or other cash flow statement data determined in accordance
with accounting principles generally accepted in the United
States, management believes that EBITDA is commonly used as an
analytical indicator within the health care industry and also
serves as a measure of leverage capacity and debt service
ability. In addition, the Company uses EBITDA as a measure of
operating profitability and for valuation purposes. EBITDA, as
presented, may not be comparable to similarly titled measures
of other companies.
(2) Purchase price multiple based on $65 million purchase price
divided by EBITDA.
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