Metropolitan Health Networks Reports Second Quarter 2012 Results

BOCA RATON, Fla.--(BUSINESS WIRE)--

Metropolitan Health Networks, Inc. (NYSE: MDF) (the Company), a leading provider of health care services in Florida, today announced its financial results for the quarter and six months ended June 30, 2012. In addition, the Company announced expansion of its core business outside of Florida. Highlights include:

Second Quarter Financial Highlights:

Revenue for the second quarter of 2012 was $193.4 million compared to $97.3 million for the second quarter of 2011, an increase of $96.1 million or 98.8%. The growth was driven primarily by the acquisition of Continucare in October 2011, the net addition of customers under risk arrangements, and the increased risk scores of the Companys customers.

The increase in the Companys customer base also resulted in an increase in total medical expense from $80.7 million in the second quarter of 2011 to $165.0 million in the second quarter of 2012, providing for a medical expense ratio (MER) of 85.3% compared to 83.0% for the second quarter of 2011. The increase in MER was driven primarily by lower than average risk scores resulting in lower than average revenue and higher claims expense associated with a new Medicare Advantage payor contract (the New Payor Contract) added during the first quarter of 2012. This New Payor Contract represents approximately 6,600 customers and resulted in a pre-tax loss of $3.6 million in the second quarter of 2012 for this customer group. Excluding the revenue and medical costs associated with the New Payor Contract, MER for the second quarter would have been 82.1%, a lower MER than for the same period in 2011. While no amendment to the New Payor Contract is in place, the Medicare Advantage payor has indicated a willingness to amend the agreement. The Company is currently negotiating certain modifications to this New Payor Contract and remains optimistic that the contract modifications will offset these unanticipated financial results. The Company does have the option to terminate the New Payor Contract upon 120 days notice.

Gross profit was $28.4 million for the second quarter of 2012 compared to $16.6 million for the same quarter in 2011, an increase of $11.8 million or 71.1%. Excluding losses from the New Payor Contract, gross profit would have been $32.0 million for the second quarter of 2012, an increase of $15.4 million or 92.8% over the same period of 2011.

Operating expenses increased to $16.0 million for the second quarter of 2012 as compared to $6.2 million for the same period in 2011, an increase of $9.8 million or 158.1%. The increase in operating expenses is primarily due to the additional expenses of Continucare, an increase in amortization expense of $3.1 million related to the amortizable intangible assets recorded with the Continucare acquisition, and $0.9 million of non-recurring legal and accounting fees related to the filing of a shelf registration and other projects.

Other expense increased by $7.4 million due primarily to an increase in interest expense of $8.1 million for the second quarter of 2012 related to the debt used to finance the Continucare acquisition.

Net income was $2.9 million compared to $5.9 million in the second quarter of 2011 resulting in basic and diluted earnings per share of $0.07 for the second quarter of 2012 as compared to $0.15, basic, and $0.14, diluted, for the same period in 2011. The after tax loss on the New Payor Contract and the non-recurring legal, accounting, and other project fees mentioned above, reduced both basic and diluted earnings per share by $0.06. Weighted average common shares outstanding used to compute diluted earnings per share for the second quarters of 2012 and 2011 were 45.6 million and 42.0 million, respectively.

Adjusted EBITDA from continuing operations amounted to $17.6 million for the 2012 second quarter compared to $10.3 million in the 2011 period. Excluding the negative effects of the New Payor Contract, Adjusted EBITDA would have been $21.2 million for the second quarter of 2012. Adjusted EBITDA from continuing operations is not defined under U.S. GAAP and it may not be comparable to similarly titled measures reported by other companies.