Clear Choice Health Plans Reports Financial Results for 2008 Second Quarter, Six Months

BEND, Ore.--(BUSINESS WIRE)--Clear Choice Health Plans, Inc. (OTCBB: CCHN) today reported financial results for the second quarter and six months ended June 30, 2008.

For the 2008 second quarter, total revenue rose 18% to $54.3 million from $46.1 million last year. The company reported net income of $426,000, equal to $.23 per share, for the most recent second quarter, compared with net income of $2.3 million, or $1.24 per share, a year ago.

Clear Choice posted income from operations of $224,000 for the second quarter of 2008, up from $110,000 for the same period a last year. Earnings before taxes for the 2008 second quarter amounted to $750,000, compared with $3.4 million in the corresponding prior year period.

“Excellent progress was made during the second quarter on a number of operational fronts,” said CEO and President Patricia Gibford. “Our management team was strengthened with the addition of Ruth Bauman, vice president of actuarial and underwriting. The commercial sector of our business experienced substantial growth, and we expanded our geographic penetration to the state of Montana with the introduction of individual, Medicare Advantage and family health plans. In May, we moved into our new headquarters facility, and by the end of the quarter, we were able to implement a 19% workforce reduction as a result of completing the initial phase of our claims processing outsourcing program.

“Financial results for the quarter were impacted by investments in our claims system conversion project, which, in turn, significantly increased administrative expenses. We believe additional investments in our infrastructure programs will further enhance operating efficiencies and grow our higher margin business lines.

“In a challenging environment for national health care, Clear Choice seeks to provide greater transparency for members by better equipping them with more information to determine costs and outcomes in making their personal health care decisions,” Gibford added. “At the same time, management remains committed to supporting the company’s growth initiatives and enhancing shareholder value.”

For the first half of 2008, revenue advanced 15% to $106.8 million from $92.9 million last year. Net income for the first six months of 2008 amounted to $1.3 million, equal to $.69 per share, compared with $3.6 million, or $1.95 per share, for the comparable prior year period. Income from operations of $34,000 was achieved for the first half of 2008, versus $1.4 million last year. Earnings before taxes for the 2008 six-month period amounted to $2.2 million, compared with $5.6 million for the same period of 2007.

At June 30, 2008, total membership increased 7% to 46,600 from 43,700 a year ago. An increase in fully insured commercial lives again led the growth, with a 22% increase in membership compared with the prior year, surpassing Medicare enrollment for the first time. Following is a breakdown of membership by category:

		6/30/2008		6/30/2007
Medicare		11,300		11,300
Medicaid		22,000		18,800
Commercial		11,300		9,300
TPA		2,000		4,300
		46,600		43,700

During the second quarter, the company purchased 65,740 shares of common stock at prices ranging from $12.50 to $13.00 per share, as part of the previously announced stock repurchase program.

Review of Operations

Revenue rose in the 2008 second quarter over the prior year period principally because of an increase in membership, as well as higher premiums in the government sector and an increase in commercial rates assessed on groups with higher medical utilization over the prior year.

Medical expenses as a percent of net premium revenue declined for the 2008 second quarter to 86.6% from 88.7% in the corresponding prior year period and 88.7% for the preceding first quarter of 2008. Administrative expense of $7.1 million represented 13.0% of total revenue in the 2008 second quarter, compared with $5.1 million, or 11.1% of total revenue, for the 2007 second quarter. As expected, the increase in administrative expense is the direct result of the significant costs incurred as the company continues the transition of its claims administrative system to a new platform.

Investment income declined to $526,000 in the second quarter of 2008 from $3.3 million a year ago, primarily because the investment portfolio rebalancing gains recognized in the second quarter of 2007 did not recur in the second quarter of 2008.

Balance Sheet Review

At June 30, 2008, total assets had grown to $99.8 million from $91.3 million at December 31, 2007 and $90.8 million at June 30, 2007. Stockholders’ equity at the close of the 2008 second quarter was $50.5 million, versus $51.4 million at the end of 2007 and $52.6 million at June 30 last year. Cash and cash equivalents at June 30, 2008 were $12.8 million, compared with $6.2 million at December 31, 2007 and $17.5 million at June 30, 2007.

Total debt was $10.2 million at June 30, 2008, compared with $6.1 million at year-end, and primarily consisted of mortgage debt on the company’s new building. Property, plant and equipment increased to $19.5 million at the close of the 2008 second quarter, versus $14.1 million at December 31, 2007, and $8.3 million at June 30, 2007, with the increase also associated with the company’s new building. Clear Choice occupied its new 78,000-square-foot office building in May 2008.

About Clear Choice Health Plans

Clear Choice offers affordable health plans to meet the needs of employers, providers and consumers. The company provides health insurance, including Medicare Advantage plans, commercial plans, individual plans and administrative services to individuals and businesses throughout the region. The company also offers life, disability, dental, vision and voluntary benefits programs. Clear Choice is dedicated to the development of community-based health insurance plans. For information call 888-677-5852, visit www.clearchoicehp.com.

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this press release are forward-looking in nature and involve a number of risks and uncertainties. Such forward-looking statements, including, but not limited to, achieving greater operating efficiencies, more favorable patient outcomes and returns for shareholders, are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “appears,” “will,” and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements.

Clear Choice Health Plans, Inc.
Condensed Consolidated Income Statement
(Dollars in thousands)		Quarter Ended								Year to Date
(unaudited)		06/30/2008				06/30/2007				06/30/2008				06/30/2007
Premium Revenue		$	54,226			$	45,965			$	106,540			$	92,677
Other Revenues			118				110				265				224
Total Revenue			54,344				46,075				106,805				92,901
Medical Expenses			(47,054	)			(40,854	)			(93,285	)			(81,669	)
Medical Loss Ratio			(86.6	%)			(88.7	%)			(87.3	%)			(87.9	%)
Administration Expense			(7,066	)			(5,111	)			(13,486	)			(9,823	)
Administrative Expense Ratio			(13.0	%)			(11.1	%)			(12.6	%)			(10.6	%)
Income from Operations			224				110				34				1,409
Investment Income			526				3,332				2,129				4,171
Earnings Before Taxes			750				3,442				2,163				5,580
Income Taxes			(324	)			(1,145	)			(891	)			(1,992	)
Net Income		$	426			$	2,297			$	1,272			$	3,588
Basic Earnings per Share		$	0.23			$	1.24			$	0.69			$	1.95
Weighted Average Shares Outstanding
Basic			1,832,425				1,853,833				1,843,381				1,842,706

Clear Choice Health Plans, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)		06/30/08			12/31/07
(unaudited)
ASSETS
Current assets:
Cash & cash equivalents		$	12,796		$	6,184
Investments - current			3,336			2,583
Accounts and other receivables			12,439			12,051
Deferred income taxes, net			1,232			503
Other assets			287			317
Total current assets			30,090			21,638
Investments, net of current portion			46,214			52,019
Property, plant and equipment, net			19,476			14,101
Restricted security			4,031			3,517
Total assets		$	99,811		$	91,275
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Claims and withhold payable		$	28,329		$	28,454
Accounts payable and accrued liabilities			7,182			4,168
Premiums received in advance			3,607			483
Construction Loan			10,153			6,125
Total current liabilities			49,271			39,230
Deferred tax liability, net			0			624
Total liabilities			49,271			39,854
Stockholders' equity:
Stock			11,599			12,251
Retained earnings and accumulated other			38,941			39,170
Total stockholders' equity			50,540			51,421
Total liabilities and stockholders' equity		$	99,811		$	91,275