Metropolitan Heath Networks (MDF)

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MDF Reports 2006 Results of Operations
Tuesday March 27, 7:00 am ET


WEST PALM BEACH, Fla.--(BUSINESS WIRE)--Metropolitan Health Networks, Inc. (AMEX: MDF - News), a leading provider of healthcare services in Florida, today announced the financial results for their quarter and year ended December 31, 2006.

Total revenue for 2006 increased 24% to $228.2 million as compared to $183.8 million for 2005. Net income for the year amounted to $473,000 or $0.01 per diluted share as compared to $2.4 million or $0.05 per diluted share in 2005. 2006 results included a segment profit before allocated overhead and income taxes for the company's core PSN business segment of $19.9 million and a segment loss before allocated overhead and income taxes for the company's Medicare Advantage HMO of $11.7 million. Corporate overhead totaled $7.4 million.

Revenue for the fourth quarter of 2006 increased 18.4% to $55.7 million as compared to $47.1 million for the same period of 2005. Net loss for the quarter was $2.7 million or $0.05 per diluted share as compared to a net loss of $545,000, or $0.01 per diluted share for the same period in 2005. Fourth quarter 2006 results included a segment profit before allocated overhead and income taxes for the company's core PSN business of $3.7 million and a segment loss before allocated overhead and income taxes of $5.6 million for the HMO, due primarily to planned advertising spending and to higher than expected medical costs.

Year over year, the company reported a 48% increase in cash and equivalents to $23.1 million at December 31, 2006. Working capital decreased by $1.5 million in 2006 to a total of $19.6 million at year-end. Shareholders' equity improved from $29.7 million at December 31, 2005 to $30.9 million at December 31, 2006, and the company reported no outstanding long-term debt.

December 2006 enrollment in the company's HMO stood at approximately 3,800 while membership being served by the PSN segment stood at approximately 25,600. These numbers compare to 1,400 and 26,200 for the HMO and PSN segments, respectively, in December 2005.

As previously reported by the company, in late February 2007 the Centers for Medicare and Medicaid Services ("CMS") revised certain risk corridor calculation formulas utilized in determining the 2006 Part D reconciliation between health plans and CMS. The need to recalculate these formulas delayed the company's receipt of certain information necessary to complete the accounting for the PSN business for 2006. As a result, the company reported its 2006 results later than had been previously anticipated. These formula corrections resulted in a reduction in fourth quarter operating income of $1.2 million, all in the company's PSN segment.

Michael Earley, Chairman and Chief Executive Officer of Metropolitan Health Networks, commented, "2006 was a year of mixed results for Metropolitan. Our core PSN business, accounting for 86.9% of our 2006 revenues, performed as well as it ever has in terms of profitability and cash flow. These results were offset by difficulties in managing the medical expenses and operational growth at METCARE Health Plans, Inc, our own Medicare Advantage HMO, and its AdvantageCare(sm) product. Our consolidated medical expense ratio was 90.1% in 2006, 88.4% in the PSN and 102.4% in the HMO. While we expect volatility in our HMO medical expense ratio at our current membership levels, we are not pleased with its bottom line performance in 2006. We believe that we are taking the necessary steps to improve our medical expense ratio and we expect these improvements will show results as we move through 2007."

Earley continued, "Based on our current sales activity we anticipate that the April 1, 2007 enrollment in our HMO will exceed 5,000 customers. This projected enrollment takes into account an estimate of future disenrollments and cancellations that can be caused by a variety of reasons. The current Medicare Advantage open enrollment extends through March 31, 2007."

Looking to the future, Earley stated, "We continue to work very hard to maintain and to improve the performance of our core PSN business. With regard to the HMO, we are continuing to pursue our strategy of taking this business and its products to Florida's underserved non-urban markets, but we are aggressively challenging and changing our medical management strategies. In addition to medical expenses, we are working to reduce our overall cost structure and marketing approach for this new business. We look forward to reporting our progress throughout 2007."

Conference Call Information:

Metropolitan Health Networks will hold a conference call to review its fourth quarter and full year 2006 results on Tuesday, March 27, 2007 at 11:00 a.m. Eastern. Michael Earley, Chairman and Chief Executive Officer will host the call. Interested parties may access the conference call by dialing [phone] (domestic) or 617-224-4326 (international), pass code # 85373525. The call will also be available via web cast at www.metcare.com, http://www.streetevents.com, http://www.fulldisclosure.com

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 April 3, 2007, by dialing [phone] (domestic) or [phone] (international) using confirmation pass code 70007051.