EX-99.1 6 c00045exv99w1.txt PRESS RELEASE FOR IMMEDIATE RELEASE FROM: Health Fitness Corporation 3600 American Blvd West, Suite 560 Minneapolis, MN 55431 952-831-6830 CONTACT: Wes Winnekins, CFO, 952-897-5275 -- wwinnekins@hfit.com -or-Dennis B. McGrath, McGrath Buckley Communications Counseling 651-646-4115; dennis@mcgrath-buckley.com HEALTH FITNESS ANNOUNCES ITS THIRD QUARTER 2005 RESULTS AND AN EQUITY FINANCING TRANSACTION MINNEAPOLIS, November 16, 2005 --- Health Fitness Corporation (OTC BB: HFIT) today announced its financial results for the third quarter and nine months ended September 30, 2005 and the closing of a $10.2 million equity financing transaction. For the third quarter 2005, revenue grew 2.4% to $13,464,278, from $13,154,340 for the same period last year. Gross profit during the quarter increased 4.5% to $3,498,814, from $3,347,083 for the same quarter last year. Net earnings applicable to common shareholders increased 8.9% to $506,488, from $465,164 for the same quarter last year. Net earnings per diluted share were $0.03, which is unchanged from $0.03 for the same quarter last year. For the nine months ended September 30, 2005, revenue grew 4.3% to $40,607,994, from $38,950,429 for the same period last year. Gross profit increased 5.2% to $10,391,232, from $9,876,378 for the same period last year. Net earnings applicable to common shareholders increased 28.3% to $1,632,605, from $1,272,625 for the same period last year. Net earnings per diluted share were $0.10, which is a 25% increase from $0.08 for the same period last year. "For our third quarter, revenue growth compared to the same period in 2004 was 2.4%, which is lower than the 5.2% revenue growth rate that we realized for the first six months of this year and will likely give us a revenue growth rate between 4% and 4.5% for 2005," said Jerry Noyce, Health Fitness Corporation CEO and President. "This decreased rate of growth is primarily due to revenue lost from contract terminations exceeding revenue added from new contracts, which is a timing issue we often have to deal with in making quarter-over-quarter comparisons." Noyce added that "We generally evaluate revenue trends in our fitness and health management services business based upon 12-to-18 month periods, and we do not view quarterly revenue as necessarily indicative of the Company's outlook or results to be expected in future quarters. During the past two months we have discussed future annual revenue growth rate targets with investors and potential investors based on two different business scenarios that we may follow, and we communicated these targets to the broader investment community in our September 9 Regulation FD disclosure." Noyce said the Company does not plan to revise these future targets as to 2006 and beyond based on 3rd Quarter results and referred investors to the Company's September 9 Regulation FD disclosure for appropriate cautionary statements and risk factors relative to the assumptions underlying these future targets.
REVENUE DATA: Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------- --------------------------------------- 2005 2004 % 2005 2004 % Change Change --------------- ------------- ---------- -------------- -------------- --------- Fitness Management Revenue Staffing Services $9,504,194 $9,855,438 (3.6)% $28,801,495 $29,336,224 (1.8)% Program Services 769,924 470,988 63.5% 2,350,584 1,411,836 66.5% Consulting Services 50,941 43,323 17.6% 163,658 114,588 42.8% --------------- ------------- ---------- -------------- -------------- --------- 10,325,059 10,369,749 (0.4)% 31,315,737 30,862,648 1.5% --------------- ------------- ---------- -------------- -------------- --------- Health Management Revenue Staffing Services 2,982,339 2,659,217 12.2% 8,829,253 7,860,008 12.3% Program Services 146,518 116,525 25.7% 438,211 209,443 109.2% Consulting Services 10,362 8,849 17.1% 24,793 18,330 35.3% --------------- ------------- ---------- -------------- -------------- --------- 3,139,219 2,784,591 12.7% 9,292,257 8,087,781 14.9% --------------- ------------- ---------- -------------- -------------- --------- Total Revenue Staffing Services 12,486,533 12,514,655 (0.2)% 37,630,748 37,196,232 1.2% Program Services 916,442 587,513 56.0% 2,788,795 1,621,279 72.0% Consulting Services 61,303 52,172 17.5% 188,451 132,918 41.8% --------------- ------------- ---------- -------------- -------------- --------- $13,464,278 $13,154,340 2.4% $40,607,994 $38,950,429 4.3% --------------- ------------- ---------- -------------- -------------- ---------
FINANCIAL HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 o The decrease in Fitness Management Staffing revenue for the third quarter and year-to-date is attributed to higher-than-normal revenue attrition from contracts that were acquired in December 2003. Since contract attrition can be unpredictable, the Company generally does not view short-term changes in contract revenue to be indicative of future results, or a trend in the business. New contracts the Company secures may take 90 to 180 days to generate full revenue. At the same time, many of the Company's contracts can be terminated with a 30 day notice. Because this timing difference can temporarily affect revenue results, the Company generally evaluates prospective revenue trends over a 12 to 18 month period. o Fitness Management Program Services are fee-for-service revenues we earn at managed fitness centers for services such as personal training, massage therapy, weight loss programs and specialty fitness classes. The increase for the third quarter and year-to-date is attributed to higher utilization of these services by fitness center members. o The growth of Health Management Staffing Services revenue for the third quarter and year-to-date is due primarily to new contracts to manage corporate wellness programs and growth of existing programs. o Health Management Program Services include revenue derived from providing employee health risk assessments, biometric screening services, health data collection and management and electronic health education platform. The increase for the third quarter and year-to-date is attributed to higher utilization of these services by existing customers as well as new customers. o Gross profit as a percent of revenue increased to 26.0% for the third quarter, from 25.4% for the same period last year. This increase is due primarily to a $225,000 refund of 2004 worker's compensation insurance premiums, which is due to favorable 2004 claims activity. Offsetting this increase were decreases in gross profit associated with contract terminations that had higher margins and higher employee medical costs. Year to date gross profit as a percent of revenue increased to 25.6%, from 25.4% for the same period last year. This increase is due primarily to the refund of 2004 worker's compensation insurance premiums. Offsetting this increase were decreases in gross profit associated with contract terminations that had higher margins and higher costs for employee medical benefits. o Interest expense decreased $122,137 and $356,484 for the third quarter and nine months ended September 30, 2005. This decrease is primarily due to the repayment of our 12%, $2 million Senior Subordinated Note in December 2004. o Long-Term Obligations decreased to $0 for the quarter ended September 30, 2005, from $22,774 for the quarter ended June 30, 2005. $10.2 MILLION EQUITY FINANCING The Company announced that it had completed a $10.2 million private placement of equity securities with institutional investors. The new equity financing resulted in the original issuance of 1,000 shares of Series B Convertible Preferred Stock, with a 5% per annum dividend, payable in cash, based upon the $10.2 million gross proceeds received by the Company. The Series B Convertible Preferred Stock will automatically convert into approximately 5.1 million shares of Common Stock effective on the date the Securities and Exchange Commission declares effective a registration statement to be filed by the Company with respect to the 5.1 million shares of Common Stock issued to the new investors. The registration statement is expected to become effective no later than March 15, 2006. The Company also issued the investors 5-year warrants to purchase approximately 1.5 million shares of Common Stock for $2.40 per share, subject to customary weighted-average anti-dilution adjustments. Noyce commented, "We are excited about the confidence shown by the new investors with respect to our industry, and our business and growth plans. We believe that the financing will help us achieve our stated initiatives and growth plans." The Company anticipates using approximately $5.1 million of the proceeds from the financing to redeem all of its outstanding shares of Series A Convertible Preferred Stock, currently convertible into approximately 2.2 million shares of Common Stock, together with warrants to purchase approximately 916,000 shares of Common Stock that were issued in connection with the Series A Stock. The remaining proceeds are expected to be used for working capital and to finance growth of the Company's business. Banner Capital Markets and Greene, Holcomb & Fischer LLC, acted as placement agents for the Company. ABOUT THE COMPANY Health Fitness Corporation is a leading provider of results-oriented health improvement management services to corporations, hospitals, universities and communities. Serving clients since 1975, the Company provides fitness and health improvement services at more than 400 sites across the U.S. and Canada. For more information about Health Fitness Corporation, go to www.hfit.com FORWARD-LOOKING STATEMENTS Certain statements in this release, including, without limitation, those relating to management's belief that the Company's 2005 revenue growth rate will likely be between 4% and 4.5%, are forward-looking statements. Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements. The words "believe," "estimate," "expect," "intend," "may," "could," "will," "plan," "anticipate," and similar words and expressions are intended to identify forward-looking statements. Such statements are based upon the current beliefs and expectations of our management. Actual results may vary materially from those contained in forward-looking statements based on a number of factors including, without limitation, our inability to meet the growing employee health management demands of major corporations and other factors disclosed from time to time in our filings with the U.S. Securities and Exchange Commission. You should take such factors into account when making investment decisions and are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statements. Financial tables follow ... - MORE - HEALTH FITNESS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- ---------------------------------- 2005 2004 2005 2004 --------------- --------------- ---------------- ---------------- REVENUE $13,464,278 $13,154,340 $40,607,994 $38,950,429 COSTS OF REVENUE 9,965,464 9,807,257 30,216,762 29,074,051 --------------- --------------- ---------------- ---------------- GROSS PROFIT 3,498,814 3,347,083 10,391,232 9,876,378 OPERATING EXPENSES Salaries 1,449,297 1,408,482 4,243,782 4,180,760 Other selling, general and administrative 945,540 784,560 2,625,037 2,438,170 Amortization of acquired intangible assets 220,095 219,583 659,432 658,750 --------------- --------------- ---------------- ---------------- Total operating expenses 2,614,932 2,412,625 7,528,251 7,277,680 --------------- --------------- ---------------- ---------------- OPERATING INCOME 883,882 934,458 2,862,981 2,598,698 OTHER INCOME (EXPENSE ) Interest expense 4,035 (118,102) (24,214) (380,698) Other, net (2,404) 908 (4,394) 2,298 --------------- --------------- ---------------- ---------------- EARNINGS BEFORE INCOME TAXES 885,513 817,264 2,834,373 2,220,298 INCOME TAX EXPENSE 354,206 330,500 1,133,749 882,873 --------------- --------------- ---------------- ---------------- NET EARNINGS 531,307 486,764 1,700,624 1,337,425 Dividend to preferred shareholders 24,819 21,600 68,019 64,800 --------------- --------------- ----------------- ---------------- NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $506,488 $465,164 $1,632,605 $1,272,625 =============== =============== ================= ================ NET EARNINGS PER SHARE: Basic $ $ $ $ 0.04 0.04 0.13 0.10 Diluted 0.03 0.03 0.10 0.08 WEIGHTED AVERAGE COMMON SHARES: Basic 12,836,971 12,550,679 12,704,035 12,482,060 Diluted 16,662,753 16,122,175 16,633,799 16,078,873
See notes to consolidated financial statements. - MORE - HEALTH FITNESS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2005 2004 ----------------- ---------------- ASSETS CURRENT ASSETS Cash $ 38,031 $ 241,302 Trade and other accounts receivable, less allowances of $199,400 and 8,428,337 8,147,430 $210,700 Prepaid expenses and other 840,576 213,954 Deferred tax assets 483,100 1,660,100 ----------------- ---------------- Total current assets 9,790,044 10,262,786 PROPERTY AND EQUIPMENT, net 190,581 150,308 OTHER ASSETS Goodwill 9,022,501 9,022,501 Customer contracts, less accumulated amortization of $1,481,900 and 248,056 854,306 $875,700 Trademark, less accumulated amortization of $129,000 and $75,800 228,068 274,167 Other intangible assets, less accumulated amortization of $86,300 and 11,767 61,493 $81,300 Deferred tax assets 352,000 221,400 Other 55,953 87,015 ----------------- ---------------- $ 19,898,970 $ 20,933,976 ================= ================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 799,167 $ 840,155 Accrued salaries, wages, and payroll taxes 1,885,032 2,768,734 Other accrued liabilities 378,568 495,770 Accrued self funded insurance 184,592 225,500 Deferred revenue 1,814,137 1,977,093 ----------------- ---------------- Total current liabilities 5,061,496 6,307,252 LONG-TERM OBLIGATIONS - 1,612,759 COMMITMENTS AND CONTINGENCIES - - CUMULATIVE CONVERTIBLE PREFERRED STOCK, 10,000,000 shares authorized, 1,111,105 and 1,063,945 issued and outstanding 1,567,715 1,530,232 STOCKHOLDERS' EQUITY Common stock, $0.01 par value; 50,000,000 shares authorized; 12,907,023 and 12,582,170 shares issued and outstanding 129,070 125,822 Additional paid-in capital 17,982,591 17,836,675 Accumulated comprehensive income 6,717 2,459 Accumulated deficit (4,848,619) (6,481,223) ----------------- ---------------- 13,269,759 11,483,733 ----------------- ---------------- $ 19,898,970 $ 20,933,976 ================= ================
See notes to consolidated financial statements. ####