Filed by: Matria Healthcare, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Matria Healthcare, Inc.
Commission File No: 000-20619
On June 25, 2002, Matria Healthcare, Inc. issued the following press
release which, in part, discussed its pending acquisition of Quality Oncology
from LifeMetrix, Inc.:
Marietta, GA, June 25, 2002--Matria Healthcare, Inc. (NASDAQ: MATR) announced
the signing of new disease management contracts and a change in outlook for
its revenue and profit for the year 2002 and provided guidance for 2003.
Matria announced the signing of an agreement with a health plan to provide
disease management services for congestive heart failure, coronary artery
disease, diabetes, chronic obstructive pulmonary disease, and asthma. The
disease management services are to begin the first week of July 2002, and the
name of the health plan will be released following press release approval from
the health plan. In addition, Quality Oncology, which Matria has signed a
definitive agreement to acquire, has signed five new disease management
contracts that are also working their way through the press release approval
process. Quality Oncology is the nation's leading provider of cancer disease
management programs. The new contracts with Matria's Health Enhancement
Division and Quality Oncology represent over 1.4 million covered lives and
have expected start dates ranging from July through October 2002.
Commenting on the new contracts, Matria's Chairman, President and CEO, Parker
H. Petit stated, "We are pleased to be awarded this multi-disease contract and
to see our sales efforts produce our first cardiovascular disease management
contract. Also, I am encouraged to see that Quality Oncology is signing the
contracts they expected. Both organizations are looking forward to gaining
additional synergies from our future joint sales and marketing activities."
The Company announced a decrease in its 2002 financial outlook and now expects
full year revenues in the range of $277 to $283 million, earnings per share in
the range of $0.68 to $0.75, and earnings before interest, taxes, depreciation
and amortization ("EBITDA") in the range of $32 to $33.5 million. For the
second quarter of 2002, the Company forecasts revenues of approximately $69
million, earnings per share in the range of $0.10 to $0.12 and EBITDA in the
range of $6.7 to $7.0 million. The updated guidance excludes certain one-time
items, including those previously reported and those discussed below. The
primary factor contributing to the lower 2002 outlook is information system
constraints in the pharmacy, laboratory and supplies component of the
Company's Health Enhancement segment. This operation has grown rapidly over
the last 18 months and, since last fall, has been in the process of
implementing a state-of-the-art customer relationship management, billing,
inventory and pharmacy system. The planned July 1st launch of the new system
has been moved to October 1, 2002. Manual processes and personnel have been
added, pending full implementation of the new information system; however, the
increased labor costs will result in a temporary reduction in gross profit and
operating profit margins in this business. Petit added, "I want to reiterate
that this issue is production oriented because the information system
constraints have made it difficult and expensive to process and ship the
increased volume of orders and maintain appropriate service levels. Some of
our disease management contracts have substantial unfilled order potential
because of our inability to efficiently enroll members, maintain appropriate
contact, and process orders. We underestimated the system constraints that
growth would cause, and we were late in initiating the start of our new
information technology project. We do not expect to receive the full benefit
of the new information system until the first quarter of 2003." Matria
reported the second factor affecting profit growth in its Health Enhancement
segment relates to Facet Technologies, the Company's manufacturing operation.
Facet Technologies' major customers are requiring more "just-in-time"
inventory and supply chain management processes. This has required Facet to
package more of its diabetes products in its own facilities. Facet
Technologies is transitioning to full automation of these processes; however,
Facet is accomplishing these packaging operations manually until the automated
line is in full production in July. Consequently, Facet increased its labor
costs in the second quarter resulting in reduced gross profit margins. Facet's
gross margins are also negatively affected by lower than anticipated price
concessions from its major supplier. Additional downward pressure on Matria's
gross profit margins is being caused by a significant increase in the price of
one of the key drugs used for the control of preterm labor. The drug was
recently sold to another pharmaceutical company who has doubled the wholesale
price of the drug. After lengthy negotiations with its supplier, Matria agreed
on a price increase that will be retroactive to April 1, 2002. The price
increase will cause a reduction in gross profit margins for the Company's
Women's Health Division of approximately two percentage points beginning in
the second quarter. In the near term, the increase in the cost of the drug
cannot be offset by the Company through price increases to health plans. The
revised 2002 outlook for the Health Enhancement segment is for revenues of
$177 to $183 million and operating earnings of $17 to $18 million. To achieve
the high end of this range, the Company must quickly realize improvements from
its new information system in the fourth quarter. In addition, Facet
Technologies' new packaging line needs to be efficiently operating from July
2002 forward, allowing for major reductions in labor costs and improvement in
gross profit margins. Health Enhancement revenues include approximately $5
million in revenues from Quality Oncology spread over the last four months of
the year. Health Enhancement revenues will be negatively impacted by the
recently declared bankruptcy of a health plan with which the Company has a
respiratory disease management contract. The annual revenue loss from this
customer will be approximately $800,000. Matria estimates its Women's Health
Division will finish 2002 with revenues of about $100 million, which assumes a
slight improvement from current trends in the second half of the year.
Operating earnings are expected to be approximately $15 million. This estimate
assumes no major change in reimbursement patterns and no additional revenue
associated with disease management contracts, such as the one recently
announced with the Healthplan Southeast. However, the Women's Health Division
does have numerous contract proposals and negotiations underway. General
corporate expenses are expected to be about $8.3 million for 2002. Interest
expense for 2002 is forecasted to be approximately $13.3 million. The Company
reported that its second quarter results will include two additional charges
that are not included in the earnings guidance. In response to the lower
operating results, the Company will be implementing a number of cost reduction
initiatives. Severance and related costs associated with the actions will be
recognized in the second quarter, but the amount of these charges has not been
finalized at this time. The Company's second quarter results will also include
a non-cash charge relating to the retirement of a note held by a former
executive of Tokos Medical that existed at the time of the 1996 merger with
Healthdyne Maternity Management that formed Matria Healthcare. This note had a
book value of $3.5 million and was secured with 125,000 shares of Matria
common stock. The note, which matures on June 30, 2002, stipulates that the
balance can be settled in full by the surrender of the collateral. If Matria's
stock price is below $28.00 on June 30, a charge equal to the difference
between $28.00 and the closing June 30 stock price times the 125,000 shares
will be recorded. The 125,000 shares will be retired as of June 30, 2002. The
Company announced its initial guidance for 2003. Revenues are expected to be
in the range of $315 to $335 million. Health Enhancement revenues are
forecasted to be $220 to $235 million. This improved growth is expected to
come from new disease management contracts, increased growth in the pharmacy,
laboratory and supplies unit, and improved growth in Facet Technologies.
Operating margins for Health Enhancement are expected to increase to 14 to 15
percent as the benefits of our technology and infrastructure investments are
realized. Women's Health 2003 revenues are expected to be $96 to $103 million.
The Company is encouraged by the initial response to the repositioning of
Women's Health to a disease management model. The success of this transition
will be the primary driver of improvement in Women's Health revenues for 2003.
Operating margins in Women's Health are expected to improve back to about 17
percent. In 2003, the Company will include in its fully diluted share count an
estimate of the number of shares to be issued for the Quality Oncology
earnout, which is payable in mid-2004. Based upon current assumptions, the
Company believes that earnings per share will be in the range of $1.15 to
$1.55 for 2003. EBITDA for 2003 is forecasted to be approximately $44 to $52
million. Petit further commented, "The temporary factors that are causing a
turndown in our growth rates, revenues, and profits are basically unrelated to
the demand for disease management services. Our disease management services
are broader than our competition's because of our ability to provide pharmacy,
laboratory, and supplies to diabetic and respiratory patients. It is
unfortunate we misjudged the timing of our new system implementation, which is
primarily causing our reduction in growth. Our outlook for the opportunities
in disease management is still very positive. One of the key issues in
healthcare today is the lack of timely and accurate clinical information and
outcomes that can be quickly related to costs. That is exactly what our
disease management programs offer health plans and employers. Therefore, we
expect the demand for our disease management services to continue to broaden,
and we believe our investment in our information technology systems will
provide advantages in the future. This year is becoming a "transition" year
for Matria Healthcare because of our major emphasis on completing our
technology and call center infrastructure. We will prepare ourselves in every
way possible to rebuild shareholder values by finishing the 2002 build out and
resuming good growth in 2003. We believe that we are making decisions that
will optimize intermediate and long-term shareholder value." The management
team will discuss the preliminary results and updated guidance in a web cast
on June 26, 2002 at 9:00 a.m. (Eastern Time). Please access the Company's
website for more information.
Matria has filed a registration statement on Form S-4 and other documents with
the Securities and Exchange Commission (SEC) in connection with its pending
acquisition of Quality Oncology from LifeMetrix, Inc. The registration
statement contains (i) a prospectus of Matria relating to the common stock to
be issued in the acquisition of Quality Oncology, (ii) a proxy statement of
Matria relating to Matria's annual meeting of its stockholders, including a
proposal for Matria stockholders to approve the issuance of the common stock
in the acquisition and (iii) a consent solicitation statement of LifeMetrix
relating to the solicitation of consents from LifeMetrix stockholders for the
approval of the acquisition. The proxy statement/consent solicitation
statement/prospectus will be mailed to stockholders of Matria and LifeMetrix
only after the registration statement is declared effective by the SEC.
Investors and stockholders are urged to read the proxy statement/consent
solicitation statement/prospectus and any other relevant documents filed with
the SEC when they become available because they will contain important
information. Investors and stockholders will be able to receive the proxy
statement/consent solicitation statement/prospectus and other documents filed
by Matria free of charge at the SEC's web site, www.sec.gov or from Matria
Investor Relations at 1850 Parkway Place, Suite 1200, Marietta, Georgia 30067,
Attention: Roberta McCaw.
Matria and its directors and executive officers will be participants in the
solicitation of proxies from the stockholders of Matria in connection with the
approval of the issuance of Matria common stock in the acquisition and the
other matters set forth in the proxy statement/consent solicitation
statement/prospectus. Information about the directors and executive officers
of Matria and their ownership of Matria stock is set forth in Matria's Form
10-K, as amended, for the year ended December 31, 2001. Investors may obtain
additional information regarding the interests of such participants by reading
the proxy statement/consent solicitation statement/prospectus when it becomes
available.
Matria is the leading provider of comprehensive disease management programs to
health plans and employers for women's health and the chronic conditions of
diabetes, cardiovascular disease and respiratory disorders. Headquartered in
Marietta, Georgia, Matria has more than 40 offices in the United States and
internationally. More information about Matria can be found online at
www.matria.com.
This press release contains forward-looking statements. Such statements
include, but are not limited to, the Company's ability to achieve its
financial projections in 2002 and 2003, the assumed closing of the acquisition
of Quality Oncology and the amount of the earnout, the synergies to be
achieved from the future joint sales activities of the Company and Quality
Oncology, the unfilled order potential of the Company's disease management
contracts, the timing and extent of benefits from the Company's new
information system, the timing and extent of cost reductions resulting from
automation of Facet Technologies' packaging processes, the improvement in the
Company's Women's Health revenues in the second half of 2002, stability in
health plan reimbursement patterns, the effectiveness of the Company's cost
reduction initiatives, the expected growth of the Company's Health Enhancement
Division, the effect of the repositioning of the Women's Health business on
the Division's revenues, the demand for disease management services, the
advantages from the Company's investment in its information technology
systems, and the impact on shareholder value of the Company's decisions. Among
the important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements include developments
in the healthcare industry, third-party actions over which Matria does not
have control, regulatory requirements appicable to Matria's business, and the
risk factors detailed from time to time in Matria's periodic reports and
registration statements filed with The Securities and Exchange Commission,
including Matria's Annual report on Form 10-K for the year ended December 31,
2001. By making these forward-looking statements, Matria does not undertake to
update them in any manner except as may be required by Matria's disclosure
obligations in filings it makes with the Securities and Exchange Commission
under the federal securities laws.
Matria has filed a registration statement on Form S-4 and other documents with
the Securities and Exchange Commission (SEC) in connection with its pending
acquisition of Quality Oncology from LifeMetrix, Inc. The registration
statement contains (i) a prospectus of Matria relating to the common stock to
be issued in the acquisition of Quality Oncology, (ii) a proxy statement of
Matria relating to Matria's annual meeting of its stockholders, including a
proposal for Matria stockholders to approve the issuance of the common stock
in the acquisition and (iii) a consent solicitation statement of LifeMetrix
relating to the solicitation of consents from LifeMetrix stockholders for the
approval of the acquisition. The proxy statement/consent solicitation
statement/prospectus will be mailed to stockholders of Matria and LifeMetrix
only after the registration statement is declared effective by the SEC.
Investors and stockholders are urged to read the proxy statement/consent
solicitation statement/prospectus and any other relevant documents filed with
the SEC when they become available because they will contain important
information. Investors and stockholders will be able to receive the proxy
statement/consent solicitation statement/prospectus and other documents filed
by Matria free of charge at the SEC's web site, www.sec.gov or from Matria
Investor Relations at 1850 Parkway Place, Suite 1200, Marietta, Georgia 30067,
Attention: Roberta McCaw.
Matria and its directors and executive officers will be participants in the
solicitation of proxies from the stockholders of Matria in connection with the
approval of the issuance of Matria common stock in the acquisition and the other
matters set forth in the proxy statement/consent solicitation
statement/prospectus. Information about the directors and executive officers of
Matria and their ownership of Matria stock is set forth in Matria's Form 10-K,
as amended, for the year ended December 31, 2001. Investors may obtain
additional information regarding the interests of such participants by reading
the proxy statement/consent solicitation statement/prospectus when it becomes
available.