Healthways (HWAY) reported third-quarter 2010 earnings per share of 30 cents, beating the Zacks Consensus Estimate of 28 cents and the year-ago figure of 26 cents. Net income rose 19% year-over-year to $10.5 million.

Revenue

Revenues came in at $170.5 million, down 6% year-over-year, falling short of the Zacks Consensus Estimate of $173 million. Sales declined due to alterations or terminations of pre-existing domestic contracts.

Request for Proposal (RFP) volume slowed in the third quarter, reflecting several negative issues such as, high unemployment and anemic economic growth. The public’s concern about the macro economic health of the nation was compounded by uncertainty emanating from the recently legislated health care reform as well as the impact of the November elections in the U.S. The company’s burgeoning international business did well in the quarter.

Margins

Healthways’ operating income increased 6.4% year over year to $20.6 million in the third quarter. Operating margin improved to 12.1% from 10.7% a year-ago.

Balance Sheet and Cash Flow

Healthways generated net cash flow from operation of $41.8 million (down 0.7% year over year) and spent $8.9 million (down 34%) in capital expenditure. The company reduced debt by $24 million during the quarter, thereby, yielding a debt to capitalization ratio of 36.1%, lower than 42.1% at the end of the year-ago quarter.

The company had cash and cash equivalents of $2 million on September 30, 2010, down 13% year over year. Long-term debt stood at $231.6 million, down 12.2% year over year.

Outlook

Healthways provided a fresh revenue guidance for 2010, in the range of $695 million to $708 million compared with its prior range of $695 million to $718 million. The new range assumes revenues from domestic operations of about $668 million to $675 million versus the earlier estimate of $668 million to $685 million. International revenues target continues to be in the range of $27 million to $33 million.

The company provided fourth-quarter 2010 adjusted earnings guidance of 21 cents to 28 cents a share. It also guided adjusted earnings per share in a range of $1.07 to $1.14 (earlier $1.07 to $1.18) for 2010, higher than 99 cents achieved in 2009.

 
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