NationsHealth Announces 2006 Fourth Quarter and Annual Financial Results

  
    
  
  
    
      NationsHealth, Inc. (Nasdaq: NHRX; NHRXW; NHRXU) today announced its 
      financial results for its fourth quarter and year ended December 31, 
      2006.
    
    
      Revenue for the quarter ended December 31, 2006 was $22.8 million 
      compared to $25.2 million for the corresponding period in 2005. Net 
      income for the quarter ended December 31, 2006 was $1.2 million, or 
      $0.04 per diluted share, compared to a net loss of $17.9 million, or 
      $0.67 per share, for the corresponding period in 2005.
    
    
      For the year ended December 31, 2006, revenue was $87.2 million compared 
      to $87.6 million for 2005. Net loss for 2006 was $11.3 million, or $0.40 
      per share, compared to a net loss of $19.8 million, or $0.75 per share, 
      for 2005.
    
    
      Revenue for the year ended December 31, 2005 included approximately 
      $19.0 million from the Company’s respiratory 
      division, which was sold on September 2, 2005. Net loss for 2005 also 
      included a gain of approximately $15.5 million from the sale of the 
      respiratory division. Net loss for 2006 includes a gain of $5.0 million 
      from the sale of the Company’s discount 
      prescription drug card business, which was sold on September 5, 2006.
    
    
      Adjusted EBITDA*, defined as income before interest, taxes, depreciation 
      and amortization, stock based compensation, non-cash impairment charges 
      and gains on the sale of business lines, was $3.8 million for the 
      quarter ended December 31, 2006, compared to adjusted EBITDA of $4.4 
      million for the quarter ended September 30, 2006, which included a gain 
      of approximately $1.0 million on the settlement of a vendor obligation. 
      Adjusted EBITDA for the quarter ended December 31, 2006 includes a $0.5 
      million charge for executive severance and the reversal of approximately 
      $0.8 million related to year-end bonus amounts that had been accrued in 
      prior quarters.
    
    
      The Company’s Insurance Services segment 
      contributed profit of $4.4 million for the quarter ended December 31, 
      2006, compared to profit of $3.7 million for the quarter ended September 
      30, 2006. The Medical Products segment contributed profit of $2.2 
      million for the quarter ended December 31, 2006, compared to profit of 
      $3.4 million for the quarter ended September 30, 2006 including the $1.0 
      million gain on the vendor settlement. For the year ended December 31, 
      2006, the Insurance Services segment contributed profit of $2.6 million 
      and the Medical Products segment contributed profit of $9.5 million.
    
    
      During 2006 and continuing through the fourth quarter, NationsHealth 
      took a number of steps to better align the Company’s 
      focus on its core business segments, improve operating results and cash 
      flow, and strengthen its balance sheet, including the following:
    
    
      
        The Company underwent a management restructuring and implemented a 
        number of cost containment and efficiency initiatives throughout the 
        year, resulting in, among other things, a significant reduction in 
        corporate overhead and improvements in operating margins;
      
      
        In May 2006, the Company amended and restated its agreement with CIGNA 
        whereby it will be reimbursed under a predictable service fee 
        arrangement for services provided to CIGNA starting with the 2007 
        Medicare Part D plan year and beyond. Additionally, the amended 
        agreement permits the Company to provide similar services to other 
        Medicare insurance providers;
      
      
        In September 2006, the Company sold its discount prescription drug 
        card business for $6.0 million. With the widespread adoption of the 
        Medicare Part D program, the discount prescription card business was a 
        declining revenue stream that was no longer core or complementary to 
        the Company’s Medical Products and Insurance 
        Services segments;
      
      
        Also in September 2006, the Company terminated a distribution 
        agreement with a vendor, pursuant to which the Company paid the vendor 
        approximately $4.4 million in full satisfaction of approximately $5.4 
        million due under the agreement and relieved itself of remaining 
        purchase obligations under the agreement totaling approximately $27 
        million;
      
      
        Throughout the second half of 2006, the Company expanded the breadth 
        of offerings to its existing medical products patient base to include 
        insulin and syringes, heating pads and oral medications. In addition, 
        the Company began accepting patients who have Medicaid as their 
        primary insurance and added relationships with managed care 
        organizations, thereby expanding opportunities to increase its patient 
        base;
      
      
        As permitted under the amended agreement with CIGNA, during the fourth 
        quarter of 2006, the Company entered into agreements to provide 
        Medicare insurance related services to four new clients, resulting in 
        revenue of approximately $3.3 million for the quarter.
      
    
    
      “We are extremely pleased that the changes we 
      implemented in our business operations in 2006 enabled us to generate 
      net income and positive cash from operations in the fourth quarter of 
      2006,” said Timothy Fairbanks, the Company’s 
      Chief Financial Officer. “During 2007 we will 
      continue to focus on our core competencies and expanding our product 
      offerings and payor sources within our two existing business segments.”
    
    
      As previously announced, NationsHealth will host a conference call at 
      2:00 p.m. EDT today to review its financial results for the quarter and 
      year ended December 31, 2006.
    
    Access Information:
Date:                                   March 15, 2007
Time:                                   2:00 p.m. ET
U.S./Canada dial-in number:             877-704-5386
International dial-in number:           913-312-1302
Participant passcode:                   4855030
Live webcast:                           www.nationshealth.com
    
      Replay Access Information:
    
    
      A recording of the conference call will be available three hours after 
      completion until March 22, 2007 at midnight ET at 888-203-1112 (U.S.) 
      and 719-457-0820 (International). The replay passcode is 4855030. The 
      webcast will be archived for on demand listening for 30 days on the 
      NationsHealth’s website, www.nationshealth.com.
    
    
      About NationsHealth, Inc.
    
    
      NationsHealth seeks to improve the delivery of healthcare to Medicare 
      and managed care beneficiaries by providing medical products and 
      prescription related services. NationsHealth provides home delivery of 
      diabetes supplies, medications and other medical products to patients 
      across the nation. NationsHealth is also the provider of diabetes 
      supplies to Medicare beneficiaries at over 1,100 Kmart pharmacies. In 
      addition to its medical products business, NationsHealth also provides 
      education, marketing, enrollment and patient service to insurers 
      offering Medicare Part D prescription drug plans and other Medicare 
      insurance coverage. NationsHealth has an agreement with CIGNA to service 
      its Medicare Part D prescription drug plans nationally. For more 
      information please visit http://www.nationshealth.com.
    
    
      * Use of Non-GAAP Financial Measures
    
    
      In its earnings releases, conference calls, slide presentations or 
      webcasts, the Company may use or discuss adjusted EBITDA, which is a 
      non-GAAP financial measure as defined by SEC Regulation G. Management 
      regularly reviews adjusted EBITDA as an analytical indicator of the 
      Company’s financial performance and believes 
      that it is useful to investors in evaluating operating performance. In 
      addition, the Company uses adjusted EBITDA as a measure of performance 
      for its business segments and for incentive compensation purposes. The 
      Company does not intend for adjusted EBITDA to be considered in 
      isolation or as a substitute for any GAAP measure. Adjusted EBITDA, as 
      presented, may not be comparable to similarly titled measures of other 
      companies.
    
    
      Net income is the GAAP financial measure most directly comparable to 
      adjusted EBITDA. A reconciliation of adjusted EBITDA to net income is as 
      follows (in thousands):
    
    
      
        
        
        
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          
            December 31,2006
          
        
        
        
        
          
            September 30,2006
          
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          1,229 
        
        
        
        
          $
        
        
          6,020 
        
      
      
        
          Interest, net
        
        
        
        
        
        
          829 
        
        
        
        
        
        
          778 
        
      
      
        
          Depreciation and amortization
        
        
        
        
        
        
          467 
        
        
        
        
        
        
          488 
        
      
      
        
          Amortization of deferred contract acquisition costs
        
        
        
        
        
        
          
            969 
          
        
        
        
        
        
        
          
            969 
          
        
      
      
        
          Stock-based compensation
        
        
        
        
        
        
          334 
        
        
        
        
        
        
          585 
        
      
      
        
          Non-cash impairment charge
        
        
        
        
        
        
          - 
        
        
        
        
        
        
          559 
        
      
      
        
          Gain on sale of business line
        
        
        
        
           
        
        
          - 
        
        
        
        
           
        
        
          (5,000)
        
      
      
        
          Adjusted EBITDA
        
        
        
        
          $
        
        
          3,828 
        
        
        
        
          $
        
        
          4,399 
        
      
    
    
      This press release contains forward-looking statements about 
      NationsHealth, including statements regarding management initiatives, 
      efforts to streamline operations and reduce costs and new product and 
      market opportunities, none of which should be construed in any manner as 
      a guarantee that such results will in fact occur. In addition, other 
      written or oral statements that constitute forward-looking statements 
      may be made by us or on our behalf. Forward-looking statements are 
      statements that are not historical facts, and in some cases may be 
      identified by the words “anticipate,” 
      “project,” “expect,” 
      “plan,” “intend,” 
      “may,” “should,” 
      “will,” and 
      similar words or phrases. Such forward-looking statements, based upon 
      the current beliefs and expectations of NationsHealth’s 
      management, are subject to risks and uncertainties, which could cause 
      actual results to differ from the forward-looking statements. The 
      following factors, among others, could cause actual results to differ 
      from those set forth in the forward-looking statements: our ability to 
      maintain our existing customer base; our dependence on Medicare 
      reimbursement; our customers’ desire to take 
      advantage of our Part D and specialty pharmacy services; uncertainty in 
      our costs incurred in administering the Part D program; changes in 
      Medicare, Medicaid, Tricare, Champus and any other state or 
      national-based reimbursement program, including competitive bidding for 
      durable medical equipment and supplies; changing interpretations of 
      generally accepted accounting principles; outcomes of government reviews 
      of NationsHealth’s business practices; 
      inquiries and investigations and related litigation; continued 
      compliance with government regulations; legislation or regulatory 
      requirements or changes adversely affecting the businesses in which 
      NationsHealth is engaged; fluctuations in customer demand; management of 
      rapid growth; our ability to compete effectively; timing and market 
      acceptance of new products sold by NationsHealth; general economic 
      conditions; and geopolitical events, regulatory changes and other risks 
      and uncertainties described in NationsHealth’s 
      Annual Report on Form 10-K for the year ended December 31, 2005, 
      Quarterly Report on Form 10-Q for the quarters ended March 31, 2006, 
      June 30, 2006 and September 30, 2006 and NationsHealth’s 
      other reports filed with the Securities and Exchange Commission. The 
      information set forth herein should be read in light of such risks. 
      NationsHealth cautions investors not to place undue reliance on the 
      forward-looking statements contained herein. These statements speak only 
      as of the date of this press release and, except as required by 
      applicable law, NationsHealth assumes no obligation to update the 
      information contained herein.
    
    
      
        
          
            SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
          
          
            (Unaudited)
          
          
            (In thousands, except per share data)
          
        
      
      
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months EndedDecember 31,
        
      
      
        
        
        
        
        
           
        
        
          2006 
        
        
        
        
           
        
        
          2005 
        
      
      
        
          Revenue:
        
        
        
        
        
        
        
        
        
      
      
        
          Net product sales
        
        
        
        
          $
        
        
          11,233 
        
        
        
        
          $
        
        
          13,389 
        
      
      
        
          Prescription drug card revenue
        
        
        
        
        
        
          -- 
        
        
        
        
        
        
          2,292 
        
      
      
        
          Service revenue
        
        
        
        
           
        
        
          11,556 
        
        
        
        
           
        
        
          9,469 
        
      
      
        
        
        
        
        
        
        
          22,789 
        
        
        
        
        
        
          25,150 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cost of product sales
        
        
        
        
        
        
          4,430 
        
        
        
        
        
        
          6,241 
        
      
      
        
          Cost of services
        
        
        
        
           
        
        
          6,222 
        
        
        
        
           
        
        
          20,908 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross Profit (Loss)
        
        
        
        
           
        
        
          12,137 
        
        
        
        
           
        
        
          (1,999)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating Expenses:
        
        
        
        
        
        
        
        
        
      
      
        
          Patient acquisition and related costs
        
        
        
        
        
        
          590 
        
        
        
        
        
        
          101 
        
      
      
        
          Patient service and fulfillment
        
        
        
        
        
        
          1,903 
        
        
        
        
        
        
          3,009 
        
      
      
        
          General and administrative
        
        
        
        
        
        
          5,512 
        
        
        
        
        
        
          11,130 
        
      
      
        
          Provision for doubtful accounts
        
        
        
        
        
        
          781 
        
        
        
        
        
        
          -- 
        
      
      
        
          Depreciation and amortization
        
        
        
        
        
        
          324 
        
        
        
        
        
        
          327 
        
      
      
        
          Amortization of deferred contract acquisition costs
        
        
        
        
           
        
        
          969 
        
        
        
        
           
        
        
          646 
        
      
      
        
        
        
        
        
           
        
        
          10,079 
        
        
        
        
           
        
        
          15,213 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (Loss) from Operations
        
        
        
        
        
        
          2,058 
        
        
        
        
        
        
          (17,212)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other Expense, net
        
        
        
        
           
        
        
          (829)
        
        
        
        
           
        
        
          (725)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Income (Loss)
        
        
        
        
          $
        
        
          1,229 
        
        
        
        
          $
        
        
          (17,937)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Earnings (loss) per share – basic and 
          diluted
        
        
        
        
          $
        
        
          0.04 
        
        
        
        
          $
        
        
          (0.67)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares outstanding - basic and
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          diluted
        
        
        
        
        
        
          27,964 
        
        
        
        
        
        
          26,742 
        
      
    
    
      
        
          
            SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
          
          
            (In thousands, except per share data)
          
        
      
      
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Year EndedDecember 31,
        
      
      
        
        
        
        
        
           
        
        
          2006 
        
        
        
        
           
        
        
          2005 
        
      
      
        
        
        
        
        
          (Unaudited)
        
        
        
        
        
      
      
        
          Revenue:
        
        
        
        
        
        
        
        
        
      
      
        
          Net product sales
        
        
        
        
          $
        
        
          44,788 
        
        
        
        
          $
        
        
          68,688 
        
      
      
        
          Prescription drug card revenue
        
        
        
        
        
        
          3,983 
        
        
        
        
        
        
          8,619 
        
      
      
        
          Service revenue
        
        
        
        
           
        
        
          38,445 
        
        
        
        
           
        
        
          10,249 
        
      
      
        
        
        
        
        
        
        
          87,216 
        
        
        
        
        
        
          87,556 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cost of product sales
        
        
        
        
        
        
          18,854 
        
        
        
        
        
        
          29,689 
        
      
      
        
          Cost of services
        
        
        
        
           
        
        
          31,907 
        
        
        
        
           
        
        
          22,219 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross Profit
        
        
        
        
           
        
        
          36,455 
        
        
        
        
           
        
        
          35,648 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating Expenses:
        
        
        
        
        
        
        
        
        
      
      
        
          Patient acquisition and related costs
        
        
        
        
        
        
          3,382 
        
        
        
        
        
        
          18,077 
        
      
      
        
          Patient service and fulfillment
        
        
        
        
        
        
          8,286 
        
        
        
        
        
        
          14,427 
        
      
      
        
          General and administrative
        
        
        
        
        
        
          27,940 
        
        
        
        
        
        
          26,323 
        
      
      
        
          Provision for doubtful accounts
        
        
        
        
        
        
          3,625 
        
        
        
        
        
        
          7,575 
        
      
      
        
          Depreciation and amortization
        
        
        
        
        
        
          1,353 
        
        
        
        
        
        
          980 
        
      
      
        
          Amortization of deferred contract acquisition costs
        
        
        
        
        
        
          3,878 
        
        
        
        
        
        
          646 
        
      
      
        
          Impairment of investment in joint venture
        
        
        
        
        
        
          1,292 
        
        
        
        
        
        
          -- 
        
      
      
        
          Gain on sales of business lines
        
        
        
        
           
        
        
          (5,000)
        
        
        
        
           
        
        
          (15,508)
        
      
      
        
        
        
        
        
           
        
        
          44,756 
        
        
        
        
           
        
        
          52,520 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss from Operations
        
        
        
        
        
        
          (8,301)
        
        
        
        
        
        
          (16,872)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other Expense, net
        
        
        
        
           
        
        
          (2,977)
        
        
        
        
           
        
        
          (2,947)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Loss
        
        
        
        
          $
        
        
          (11,278)
        
        
        
        
          $
        
        
          (19,819)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss per share – basic and diluted
        
        
        
        
          $
        
        
          (0.40)
        
        
        
        
          $
        
        
          (0.75)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Weighted average shares outstanding - basic and diluted
          
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
           
        
        
          27,895 
        
        
        
        
           
        
        
          26,345 
        
      
    
    
      
        
          SUMMARY CONSOLIDATED BALANCE SHEETS
        
      
      
        
          (In thousands)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          December 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
        
        
        
        
          (Unaudited)
        
        
        
        
        
      
      
        
          ASSETS
        
        
        
        
        
        
        
        
        
      
      
        
          Current Assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and short-term investments
        
        
        
        
          $
        
        
          4,224 
        
        
        
        
          $
        
        
          14,894 
        
      
      
        
          Accounts receivable, net
        
        
        
        
        
        
          6,075 
        
        
        
        
        
        
          7,908 
        
      
      
        
          Inventory
        
        
        
        
        
        
          1,636 
        
        
        
        
        
        
          1,285 
        
      
      
        
          Costs related to billings in process, net
        
        
        
        
        
        
          565 
        
        
        
        
        
        
          874 
        
      
      
        
          Other receivables
        
        
        
        
        
        
          219 
        
        
        
        
        
        
          1,877 
        
      
      
        
          Prepaid expenses and other current assets
        
        
        
        
           
        
        
          529 
        
        
        
        
           
        
        
          750 
        
      
      
        
          Total current assets
        
        
        
        
        
        
          13,248 
        
        
        
        
        
        
          27,588 
        
      
      
        
          Property and equipment, net
        
        
        
        
        
        
          3,557 
        
        
        
        
        
        
          3,747 
        
      
      
        
          Investment in joint venture
        
        
        
        
        
        
          -- 
        
        
        
        
        
        
          1,488 
        
      
      
        
          Deferred contract acquisition costs, net
        
        
        
        
        
        
          11,632 
        
        
        
        
        
        
          15,510 
        
      
      
        
          Other assets, net
        
        
        
        
           
        
        
          1,951 
        
        
        
        
           
        
        
          1,526 
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          30,388 
        
        
        
        
          $
        
        
          49,859 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          LIABILITIES AND STOCKHOLDERS' EQUITY
        
        
        
        
        
      
      
        
          Current Liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Accounts payable
        
        
        
        
          $
        
        
          3,026 
        
        
        
        
          $
        
        
          13,387 
        
      
      
        
          Accrued expenses
        
        
        
        
        
        
          9,069 
        
        
        
        
        
        
          12,030 
        
      
      
        
          Deferred revenue, current portion
        
        
        
        
        
        
          -- 
        
        
        
        
        
        
          235 
        
      
      
        
          Line of credit
        
        
        
        
           
        
        
          2,500 
        
        
        
        
        
        
          2,500 
        
      
      
        
          Total current liabilities
        
        
        
        
           
        
        
          14,595 
        
        
        
        
        
        
          28,152 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Long-Term Liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Deferred revenue
        
        
        
        
        
        
          -- 
        
        
        
        
        
        
          1,100 
        
      
      
        
          Convertible notes, related party, net
        
        
        
        
        
        
          6,316 
        
        
        
        
        
        
          5,176 
        
      
      
        
          Promissory note payable, net
        
        
        
        
        
        
          1,328 
        
        
        
        
        
        
          -- 
        
      
      
        
          Other long-term liabilities
        
        
        
        
           
        
        
          782 
        
        
        
        
           
        
        
          1,414 
        
      
      
        
          Total long-term liabilities
        
        
        
        
           
        
        
          8,426 
        
        
        
        
           
        
        
          7,690 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Stockholders' Equity
        
        
        
        
           
        
        
          7,367 
        
        
        
        
           
        
        
          14,017 
        
      
      
        
          Total liabilities and stockholders' equity
        
        
        
        
          $
        
        
          30,388 
        
        
        
        
          $
        
        
          49,859