MDF Metropolitan Health Networks Common Stock

Metropolitan Health Networks, Inc. (NYSE AMEX: MDF), (“Metropolitan”) a leading provider of health care services in Florida, today reported the company’s financial results for the quarter and nine months ended September 30, 2011. Highlights include the following:

• Revenue of $92.7 million for the quarter, $284.7 million for the nine month period;
• operating income of $11.7 million for the third quarter compared to $10.8 million in the prior year period;
• operating income of $34.9 million for the nine months ended September 30, 2011 compared to $31.3 million in the year ago period;
• cash, cash equivalents and investments of approximately $63.4 million at September 30, 2011 compared to $49.5 million at December 31, 2010.

Third Quarter Financial Highlights:

The company recognized revenue of $92.7 million for the third quarter of 2011, compared to $91.2 million in the 2010 third quarter, a 1.6% increase. Net income for the 2011 third quarter was $6.0 million or $0.15 per basic and $0.14 per diluted share, compared to $6.8 million or $0.17 per basic share and $0.16 per diluted share for the same quarter last year. Net income for the third quarter of 2011 was reduced by $1.3 million representing transaction costs, net of tax benefit, related to the acquisition of Continucare (the “Merger”); additionally, these transaction costs reduced basic and diluted earnings per share by $0.03 in the quarter. Weighted average common shares outstanding used to compute diluted earnings per share for the three month periods ended September 30, 2011 and 2010 were 42.2 million and 41.4 million, respectively.

The company’s medical expense ratio (“MER”) was 80.3% in the third quarter of 2011 compared to 81.3% in the same quarter of 2010. Operating expenses increased 5.3% from $6.2 million in the third quarter of 2010 to $6.6 million in the same period in 2011.

Nine Months Year to Date Financial Highlights:

For the nine months ended September 30, 2011, the company’s revenue totaled $284.7 million compared to $276.8 million in the prior year period, an increase of 2.8%. Net income was $19.9 million compared to $19.7 million for the same period of 2010. Earnings per share were $0.50 per basic share and $0.47 per diluted share, compared to $0.50 per basic share and $0.48 per diluted share for the nine months ended September 30, 2011 and 2010, respectively. Net income in the 2011 period was reduced by $1.9 million representing transaction costs, net of tax benefit, incurred in connection with the Merger; additionally, the transaction costs reduced basic and diluted earnings per share by $0.05 in the period. Weighted average common shares outstanding used to compute diluted earnings per share for the nine month periods ended September 30, 2011 and 2010 were 42.1 million and 41.3 million, respectively.

The company’s MER was 81.0% in the first nine months of 2011 compared to 82.3% in the first nine months of 2010. Operating expenses increased 8.4% from $17.7 million in the first nine months of 2010, to $19.2 million in the same period in 2011.

Customer Information:

The number of Medicare Advantage customers served by the company was 34,400 at September 30, 2011 compared to 35,000 a year ago and 34,000 at June 30, 2011. Total customer months, the combined total customers for each month of the measurement period, decreased by 3.1% to 307,600 in the first nine months of 2011, down from 317,400 in the 2010 period.

Balance Sheet Highlights:

Cash, cash equivalents and short-term investments at September 30, 2011, were approximately $63.4 million. This compares to $49.5 million at December 31, 2010. The company had working capital of approximately $71.9 million at September 30, 2011 compared to $54.2 million as of December 31, 2010. Stockholders’ equity was approximately $89.7 million at September 30, 2011.

Continucare Acquisition Completion:

On October 4, 2011, Metropolitan completed the previously announced Merger. Metropolitan paid an aggregate of $405.5 million in cash and issued an aggregate of 2.5 million shares of its common stock to Continucare’s stockholders and option holders in consideration for their shares of Continucare common stock and options to purchase shares of Continucare common stock. The total value of the transaction was $417.0 million, excluding transaction expenses and financing fees.

Concurrently with the completion of the Merger, Metropolitan entered into a $240 million First Lien Credit Agreement, a $40 million Revolving Credit Facility and a $75 million Second Lien Credit Agreement. In order to fund the cash portion of the Merger, Metropolitan used $123.2 million of its and Continucare’s cash on hand at the close date and borrowed a total of $315.0 million under the First Lien Credit Agreement and the Second Lien Credit Agreement. The acquisition will result in a substantial amount of identifiable intangible assets and goodwill.

Share Repurchase Program:

The Company’s Board of Directors has authorized the repurchase of up to 25 million shares of common stock. From the inception of the program through September 30, 2011, the company has repurchased 14.0 million shares, and options exercisable to purchase 684,200 shares, at an average cost of $1.93 per share. Shares repurchased from January 1, 2011 through September 30, 2011 totaled approximately 71,000 reducing total shares outstanding to approximately 41.1 million at September 30, 2011. Approximately 10.3 million shares remain available for purchase under the plan. The number of shares to be repurchased and the timing of the purchases will be influenced by a number of factors, including the then prevailing market price of the common stock of the company, other perceived opportunities that may become available to the company, and regulatory requirements. From June 26, 2011, through August 23, 2011, the share repurchase program was suspended while the shareholders of Continucare voted on and approved the Merger.

“The results of the quarter continue to validate our investments in the delivery of preventative and evidence-based medicine to our customers”… commented Michael Earley, Metropolitan’s Chairman and Chief Executive Officer.

Commenting on the results of the quarter, Michael Earley, Chairman and Chief Executive Officer of Metropolitan Health Networks, Inc., stated, “We’re very pleased to report another great quarter in all facets of our organization. Operationally we continue to fire on all cylinders, driven by our overarching initiatives to deliver better clinical outcomes, achieve high levels of customer satisfaction, and generate greater cost efficiencies, the triple aim of health care reform. The results of the quarter continue to validate our investments in the delivery of preventative and evidence-based medicine to our customers through our primary care patient-centric model of care.”

“Metropolitan has taken a monumental step in positioning itself as a leader in the delivery of coordinated medical care…” stated Earley.

“Our organization now owns and operates 33 medical centers and manages a network of more than 250 contracted, independent, primary care practices serving over 68,000 Medicare Advantage and Medicaid customers. With the completion of the Continucare acquisition, Metropolitan has taken a monumental step in positioning itself as a leader in the delivery of coordinated medical care. In conjunction with our health plan partners, our model embodies the concept of a high-functioning accountable care organization that not only works in Florida, but also has the potential for expansion beyond Florida’s borders.”

“The demand for the provision of high quality care for seniors continues to grow and Metropolitan is set to meet those needs…” Earley maintains.

“The growing demographics of the senior population are undeniable and there is a shortage of providers. With more customers entering the Medicare system, many with chronic disease, the demand for high quality care for seniors continues to grow and Metropolitan is set to meet those needs. Rising health care costs, concerns over quality of care, and increased pressure on funding are driving a need for better coordination of care among providers. Metropolitan brings coordination to a disorganized market place. From early on this has set us apart from most providers and positions us to help bend the cost curve and provide solutions to what ails the health care industry. We are very excited about the future prospects of our business,” Earley concluded.

Conference Call Information:

Metropolitan Health Networks will hold a conference call to review its third quarter 2011 results on Wednesday, November 2, 2011 at 11:00 a.m. Eastern. The call will be hosted by Michael Earley, Chairman and Chief Executive Officer. Interested parties may access the conference call by dialing the following numbers: (888) 713-4217 (domestic) or (617) 213-4869 (international), pass code # 55847412. The call will also be available via web cast at www.metcare.com, http://www.streetevents.com, http://www.fulldisclosure.com

Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PVC4J9XVK. Pre-registrants will be issued a pin number to use when dialing into the live call which will provide quick access to the conference by bypassing the operator upon connection.

If you are unable to participate, an audio replay of the call will be available beginning two hours after the call and will be available until 11:59 p.m. on November 9, 2011, by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international) using confirmation pass code 70678387.

About Metropolitan Health Networks, Inc.:

Metropolitan is a growing health care company that provides and coordinates comprehensive health care services for Medicare Advantage, Medicaid, and other customers in Florida through its primary care-centric businesses, MetCare of Florida, Inc. and Continucare Corporation. Metropolitan currently owns and operates 33 medical centers and contracts with more than 250 primary care practices. To learn more about Metropolitan Health Networks, Inc. please visit its website at www.metcare.com

Forward Looking Statements:

Except for historical matters contained herein, statements made in this press release are forward-looking statements. Forward looking statements include statements regarding Metropolitan’s expectations with respect to the results of the merger between Metropolitan and Continucare. Without limiting the generality of the foregoing, words such as “may”, “will”, “to”, “plan”, “expect”, “believe”, “anticipate”, “intend”, “could”, “would”, “estimate”, or “continue,” or the negative other variations thereof or comparable terminology, are intended to identify forward-looking statements. In addition, statements regarding the prospects for our business and/or our industry as a whole are forward looking statements.

Investors and others are cautioned that a variety of factors, including certain risks, may affect our business and cause actual results to differ materially from those set forth in the forward-looking statements. These risk factors include, without limitation, (i) our ability to integrate the acquired operations of Continucare and to realize the anticipated revenues, economies of scale, cost synergies and productivity gains in connection with the merger and any other acquisitions that we may undertake, as and when planned, including the potential for unanticipated issues, expenses and liabilities associated with those acquisitions and the risk that Continucare fails to meet its expected financial and operating targets; (ii) the potential for diversion of management time and resources in seeking to integrate Continucare’s operations; (iii) the impact of our significantly increased levels of indebtedness on our funding costs, operating flexibility and ability to fund ongoing operations with additional borrowings, particularly in light of ongoing volatility in the credit and capital markets; (iv) our ability to operate pursuant to the terms of our debt obligations; (v) the calculations of the acquisition price in accordance with the methodologies of the provisions of the authoritative guidance for business combinations, the allocation of this acquisition price to the net assets acquired, and the effect of this allocation on future results, including our earnings per share, when calculated on a GAAP basis; (vi) our ability to meet our cost projections under various provider agreements with Humana; (vii) our failure to accurately estimate incurred but not reported medical benefits expense; (viii) pricing pressures exerted on us by managed care organizations and the level of payments we indirectly receive under governmental programs or from other payors; (ix) a loss of any of our significant contracts or our ability to increase the number of Medicare eligible patient lives we manage under these contracts; (x) our still limited ability to predict the direct and indirect effects of the health care reform laws adopted in 2010; (xi) future legislation and changes in governmental regulations; and (xii) the impact of Medicare Risk Adjustments on payments we receive from Humana. Metropolitan and Continucare are also subject to the risks and uncertainties described in their respective filings with the Securities and Exchange Commission, including Metropolitan’s Annual Report on Form 10-K for the year ended December 31, 2010, its Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which is expected to be filed shortly and Continucare’s Annual Report on Form 10-K for the year ended June 30, 2011.

    METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS   September 30, 2011 December 31, (unaudited) 2010 (in thousands, except share amounts)

ASSETS

CURRENT ASSETS Cash and equivalents $ 62,381 $ 10,596 Investments, at fair value 991 38,949 Due from Humana, net 12,818 9,067 Deferred income taxes 702 517 Prepaid expenses and other current assets   2,999   1,845 TOTAL CURRENT ASSETS 79,891 60,974   PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $3,516 and $3,443 in 2011 and 2010, respectively 4,379 1,973 RESTRICTED CASH AND INVESTMENTS 3,000 4,386 DEFERRED FINANCING COSTS 1,736 - DEFERRED INCOME TAXES, net of current portion 1,686 1,571 IDENTIFIABLE INTANGIBLE ASSETS, net of accumulated amortization of $1,124 and $1,238 in 2011 and 2010, respectively 388 570 GOODWILL 5,885 4,362 OTHER ASSETS   776   888 TOTAL ASSETS $ 97,741 $ 74,724  

LIABILITIES AND STOCKHOLDERS' EQUITY

  CURRENT LIABILITIES Accounts payable $ 1,178 $ 436 Accrued payroll and payroll taxes 2,950 5,158 Accrued expenses 3,115 903 Income taxes payable 88 - Current portion of long-term debt   612   318 TOTAL CURRENT LIABILITIES 7,943 6,815   LONG-TERM DEBT, net of current portion   117   159 TOTAL LIABILITIES 8,060 6,974   COMMITMENTS AND CONTINGENCIES   STOCKHOLDERS' EQUITY Series A preferred stock, par value $.001 per share; stated value $100 per share; 10,000,000 shares authorized; 5,000 issued and outstanding 500 500 Common stock, par value $.001 per share; 80,000,000 shares authorized; 41,112,000 and 40,750,000 issued and outstanding at September 30, 2011 and December 31, 2010, respectively 41 41 Additional paid-in capital 24,494 22,453 Retained earnings   64,646   44,756 TOTAL STOCKHOLDERS' EQUITY   89,681   67,750 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 97,741 $ 74,724           METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME   Three Months Ended September 30, Nine Months Ended September 30, 2011 2010 2011 2010 (unaudited)   (unaudited) (unaudited)   (unaudited) (in thousands, except per share amounts) REVENUE $ 92,664 $ 91,163 $ 284,650 $ 276,772   MEDICAL EXPENSE

Medical claims expense

69,418 70,237 216,630 215,962 Medical practice costs   4,947     3,893     13,951     11,810   Total Medical Expense   74,365     74,130     230,581     227,772   GROSS PROFIT 18,299 17,033 54,069 49,000   OPERATING EXPENSES Payroll, payroll taxes and benefits 4,078 3,862 12,039 11,228 General and administrative 2,144 2,260 6,678 6,195 Marketing and advertising   336     106     456     269   Total Operating Expenses   6,558     6,228     19,173     17,692   OPERATING INCOME 11,741 10,805 34,896

 

31,308 OTHER INCOME (EXPENSE) Transaction costs (2,064 ) - (3,079 ) - Investment income, net 96 145 559 392 Other (expense)   (10 )   (10 )   (23 )     (21 ) Total Other (Expense) Income   (1,978 )   135     (2,543 )     371   INCOME BEFORE INCOME TAX EXPENSE 9,763 10,940 32,353 31,679 INCOME TAX EXPENSE   3,767     4,150     12,464     11,999   NET INCOME $ 5,996   $ 6,790   $ 19,889   $ 19,680     EARNINGS PER SHARE Basic $ 0.15   $ 0.17   $ 0.50   $ 0.50   Diluted $ 0.14   $ 0.16   $ 0.47   $ 0.48