Metropolitan Health Networks (MDF) Reports Record 2009 Results of Operations

WEST PALM BEACH, Fla.–(BUSINESS WIRE)–Metropolitan Health Networks, Inc. (NYSE Amex:MDF), a leading provider of healthcare services in Florida, today announced the financial results for their fourth quarter and year ended December 31, 2009. Highlights include the following:

• Revenue of $354.4 million in 2009, a 11.7% increase compared to 2008;
• Net income of $14.4 million in 2009 or $0.32 per basic share, compared to $10.2 million or $0.21 per basic share in 2008;
• Total customer months increased by 7.2% in 2009 over 2008; and
• Total outstanding shares of common stock reduced by 11.4 million shares since September 30, 2008 to 40.9 million at December 31, 2009; and
• Authorization to increase share repurchase program to 20 million shares of common stock.

Full Year 2009 Financial Highlights:

The Company recognized revenue of $354.4 million for 2009 as compared to $317.2 million for 2008, an increase of $37.2 million or 11.7%. Operating income in 2009 was $23.0 million compared to $16.5 million in 2008. Net income for 2009 was $14.4 million compared to $10.2 million for 2008. Net earnings per share were $0.32 basic and $0.31 diluted for 2009 compared to $0.21 basic and $0.20 diluted for 2008. Weighted average common shares outstanding for 2009 were 44.5 million, basic and 45.9 million, diluted.

Included in the 2009 results was a gain on sale of the HMO of $1.3 million, relating to the settle-up of net equity at the time of sale and included in the 2008 results were the gain on sale of the HMO of $5.9 million and expenses directly related to the sale including employee termination payments and stay bonuses totaling $1.6 million. Operating income adjusted for these items was $21.6 million in 2009 compared to $12.3 million in 2008. These adjusted amounts are non-GAAP measures.

The Company’s consolidated medical expense ratio (“MER”) was 88.5% for 2009 compared to 88.4% in 2008. Year over year medical expense, on a per customer per month basis, increased 4.2% in 2009.

Fourth Quarter Financial Highlights:

The Company recognized revenue of $88.8 million for the fourth quarter as compared to $80.0 million in the 2008 fourth quarter, a 10.9% increase. Operating income was $7.8 million in 2009 compared to $4.9 million in 2008. Net income for the 2009 fourth quarter was $4.8 million or $0.12 per share basic and $0.11 diluted as compared to $2.6 million or $0.05 per share basic and diluted for the same quarter last year.

The Company’s consolidated MER was 84.9% in the fourth quarter of 2009 compared to 88.3% in the same quarter of 2008.

Customer Information:

Medicare Advantage customers increased to 35,500 at December 31, 2009 as compared to 33,000 customers at December 31, 2008, an increase of 2,500 members. Total customer months, the combined total customers for each month of the measurement period, increased by 7.2% to 425,100 in 2009, up from 396,400 in 2008.

Balance Sheet Highlights:

Cash, cash equivalents and short-term investments at December 31, 2009, totaled $33.8 million compared to $36.3 million at December 31, 2008. This reduction is primarily a result of posting $5.0 million of short-term investments to secure a $3.0 million line of credit, and reflecting this collateral as a non-current asset at December 31, 2009. As noted below, $15.9 million was used during 2009 to repurchase 7.8 million shares of the Company’s common stock as well as options exercisable to purchase 684,200 share of our common stock. The Company had a working capital surplus of $27.7 million as of December 31, 2009 as compared to a surplus of $34.5 million as of December 31, 2008, a decrease of $6.8 million or 19.7%. The decrease in working capital is primarily attributable to the posting of collateral for the letter of credit and to the stock repurchases. Stockholders’ equity increased approximately $100,000 or 0.2%, from approximately $42.8 million at December 31, 2008 to approximately $42.9 million at December 31, 2009.

Share Repurchase Program:

On February 24, 2010, the Company’s Board of Directors approved a 5 million share increase to its previously announced share repurchase program bringing the total number of shares of common stock authorized for repurchase under the program to 20 million shares. From the inception of the program through December 31, 2009 the Company has repurchased 12.0 million shares of its common stock, and 684,200 options, at an average cost of $1.85 per share. Shares repurchased from January 1 through February 25, 2010 totaled approximately 1.6 million bringing total shares then outstanding to approximately 39.8 million. Approximately 5.7 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.

Michael Earley, Chief Executive Officer of Metropolitan Health Networks, Inc., commented, “2009’s strong financial results are driven by a number of operating strategies and actions initiated over the past few years. Our customer base has continued growing, we’ve strengthened our risk scoring compliance and medical management capabilities, and our operating expenses have been significantly reduced. We took advantage of short-term weakness in the financial markets for the long-term benefit of our shareholders, reducing our outstanding shares from the inception of the share repurchase program by over 23%.

Earley noted further, “Almost three years ago we recognized the need to advance our business model to better serve and meet the demands of the rapidly growing Medicare population. Centered around customer care and delivering better outcomes more efficiently, we saw value in the Patient Centered Medical Home (PCMH) model of care. This model restores primary care physicians and their staffs to the role of providing and coordinating the full range of care for patients, or in our words, customers. We initiated a series of strategic changes to embark on that path.”

“In 2009 we implemented a number of PCMH related initiatives including the addition of nursing professionals to our medical office staffs, the implementation of electronic prescribing and chronic care disease registries, an investment in a comprehensive electronic medical records system that we expect to be fully operational by late 2010, and the adoption of a comprehensive training program aimed at enhancing both customer satisfaction and employee engagement. While many of these achievements may not be readily evident in our numbers, our recently announced PCMH pilot study results and our high customer satisfaction marks indicate these advances are making a difference both in how we are perceived by our customers and in measurable quality of care metrics. In conjunction with our recent receipt of NCQA recognition, we fully expect the investments we are making in these programs to have an ongoing long-term positive impact on our operations,” Earley concluded.

Conference Call Information:

Metropolitan Health Networks will hold a conference call to review its fourth quarter and full year 2009 results on Tuesday, March 2, 2010 at 11:00 a.m. Eastern. The call will be hosted by Michael Earley, Chief Executive Officer. Interested parties may access the conference call by dialing the following numbers: (888) 679-8037 (domestic) or (617) 213-4849 (international), pass code #74394818. The call will also be available via web cast at www.metcare.com, http://www.streetevents.com, or http://www.fulldisclosure.com

Participants may pre-register for the call at:

https://www.theconferencingservice.com/prereg/key.process?key=P9XK4LHXX

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 March 9, 2010, by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international) using confirmation pass code 71738557.

About Metropolitan Health Networks, Inc.:

Metropolitan Health Networks, Inc. with its group of “Metcare of Florida” primary care practices is a growing healthcare organization that provides comprehensive healthcare services for Medicare Advantage customers and other patients in Florida. To learn more about Metropolitan please visit its website at www.metcare.com.

GAAP to Non-GAAP RECONCILIATION

Non-GAAP income from operations is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. Non-GAAP income from operations is calculated by excluding certain GAAP financial items we believe have less significance to the day-to-day operations of our business.

Forward-Looking Statements:

Except for historical matters contained herein, statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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.

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 meet our cost projections under various provider agreements with Humana; (ii) our failure to accurately estimate incurred but not reported medical benefits expense; (iii) pricing pressures exerted on us by managed care organizations and the level of payments we indirectly receive under governmental programs or from other payors; (iv) future legislation and changes in governmental regulations; (v) the impact of Medicare Risk Adjustments on payments we receive for our managed care operations; (vi) 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. The Company is also subject to the risks and uncertainties described in its filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, and its Annual Report on Form 10-K for the year ended December 31, 2009, which is anticipated to be filed within several business days.

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
				December 31,
					2009			2008
ASSETS
CURRENT ASSETS
	Cash and equivalents			$	6,794,809		$	2,701,243
	Investments, at fair value				27,036,310			33,641,140
	Accounts receivable from patients, net of allowance of $583,000 and $490,000
	in 2009 and 2008, respectively				517,314			286,003
	Due from Humana, net				–			2,823,355
	Inventory				216,170			315,811
	Prepaid expenses				427,985			570,792
	Deferred income taxes				510,816			262,874
	Other current assets				211,649			266,007
		TOTAL CURRENT ASSETS			35,715,053			40,867,225
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $2,809,000 and $2,324,000 in 2009 and 2008, respectively					1,909,635			1,336,094
RESTRICTED CASH AND INVESTMENTS					6,444,678			1,408,089
DEFERRED INCOME TAXES, net of current portion					1,167,475			980,842
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $877,000 and
$524,000 in 2009 and 2008, respectively					930,569			1,184,142
GOODWILL					4,362,332			2,587,332
OTHER ASSETS					802,500			780,631
		TOTAL ASSETS		$	51,332,242		$	49,144,355
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts payable			$	455,306		$	483,621
	Accrued payroll and payroll taxes				2,959,708			2,288,224
	Income taxes payable				2,271,638			1,865,926
	Due to Humana, net				1,385,200			–
	Accrued termination costs of HMO administrative services agreement				–			1,080,000
	Accrued expenses				618,575			621,854
	Current portion of long-term debt				318,182			–
		TOTAL CURRENT LIABILITIES			8,008,609			6,339,625
LONG-TERM DEBT, net of current portion					397,727			–
		TOTAL LIABILITIES			8,406,336			6,339,625
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
	Preferred stock, par value $.001 per share; stated value $100 per share;
	10,000,000 shares authorized; 5,000 issued and outstanding				500,000			500,000
	Common stock, par value $.001 per share; 80,000,000 shares authorized;
	40,902,391 and 48,251,395 issued and outstanding at December 31, 2009 and
	2008, respectively				40,902			48,251
	Additional paid-in capital				23,329,290			37,649,331
	Retained earnings				19,055,714			4,607,148
		TOTAL STOCKHOLDERS’ EQUITY			42,925,906			42,804,730
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	51,332,242		$	49,144,355
The accompanying notes are an integral part of the consolidated financial statements.

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
					Years Ended December 31,
						2009				2008				2007
REVENUE					$	354,407,100			$	317,211,727			$	277,577,289
MEDICAL EXPENSE
	Medical claims expense					299,039,806				267,983,448				229,420,767
	Medical center costs					14,512,051				12,488,679				11,275,599
Total Medical Expense						313,551,857				280,472,127				240,696,366
			GROSS PROFIT			40,855,243				36,739,600				36,880,923
OTHER OPERATING EXPENSES
	Administrative payroll, payroll taxes and benefits					11,287,110				12,537,118				13,108,160
	General and administrative					7,564,251				10,071,781				11,158,177
	Marketing and advertising					359,249				1,864,822				3,959,220
	Stay bonuses and termination costs of HMO subsidiary					–				1,597,674				–
	Restructuring expense					–				–				583,795
Total Other Operating Expenses						19,210,610				26,071,395				28,809,352
OPERATING INCOME (LOSS) BEFORE GAIN ON SALE OF HMO						21,644,633				10,668,205				8,071,571
	Gain on sale of HMO subsidiary					1,336,470				5,872,769				–
			OPERATING INCOME			22,981,103				16,540,974				8,071,571
OTHER INCOME (EXPENSE)
	Investment income, net					390,183				108,137				1,396,624
	Other income (expense), net					(22,607	)			(30,576	)			(27,457	)
Total other income (expense)						367,576				77,561				1,369,167
INCOME BEFORE INCOME TAXES						23,348,679				16,618,535				9,440,738
INCOME TAX EXPENSE						8,900,113				6,414,068				3,526,740
NET INCOME					$	14,448,566			$	10,204,467			$	5,913,998
EARNINGS PER SHARE:
	Basic				$	0.32			$	0.21			$	0.12
	Diluted				$	0.31			$	0.20			$	0.11
The accompanying notes are an integral part of the consolidated financial statements