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8-K - 8-K - COVENTRY HEALTH CARE INCform8k_10282011.htm

 
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 Contact:  Randy Giles
  Chief Financial Officer
  (301) 581-5687
   
  Drew Asher
  SVP, Corporate Finance
  (301) 581-5717
                   


Coventry Health Care Reports Third Quarter Earnings

BETHESDA, Md. (October 28, 2011) - Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended September 30, 2011.  Operating revenues totaled $3.0 billion for the quarter with net earnings of $122.7 million, or earnings per diluted share (EPS) of $0.84. These results include EPS of $0.02 from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product.

For the nine months ended September 30, 2011, total operating revenues were $9.1 billion with net earnings of $457.4 million, or $3.09 EPS.  These results include EPS of $0.13 from the MA-PFFS product and EPS of $0.68 related to the definitive settlement agreement associated with the provider class action litigation in Louisiana which was approved by the court during the second quarter. Excluding the impact of MA-PFFS results(1) and the provider class action litigation adjustment(2), adjusted net earnings were $337.4 million, or $2.28 EPS.

“I am pleased with the progress the Company has made and the performance of the businesses, such that we can increase 2011 full year guidance for the third time this year,” said Allen F. Wise, chairman and chief executive officer of Coventry.  “More importantly, I am optimistic about the growth opportunities for our Company. Recent examples include the pending Family Health Partners acquisition, the Kentucky Medicaid contract, and our new preferred network Part D product which was approved for 2012.”
 
Consolidated Highlights
·  
Announced an agreement to acquire the business of Family Health Partners, a Medicaid health plan with approximately 155,000 members in Kansas and 55,000 members in Missouri
·  
Awarded approximately 200,000 Medicaid members in Kentucky for a November 1, 2011 contract start date
·  
Commercial risk membership of 1,636,000, an increase of 103,000 members, or 7%, from the prior year quarter
·  
Commercial ASO membership of 710,000, an increase of 21,000 members sequentially
·  
Selling, general, and administrative expense (SG&A) as a percentage of total revenue declined by 40 basis points from the prior year quarter
·  
Approximately $1.15 billion of deployable free cash at the parent at September 30, 2011, net of cash required for the Family Health Partners transaction
·  
Repurchased 4.3 million shares for $127.5 million during the third quarter
o  
Total year-to-date share repurchase of 7.4 million shares for $227.7 million


 
 
Page 1 of 9

 

Selected Third Quarter 2011 Highlights

·  
Health Plan Commercial Risk. As of September 30, 2011, health plan commercial risk membership was 1,636,000, an increase of 103,000 members from the prior year quarter and a decrease of 12,000 members sequentially as expected due to a portion of the State of Illinois account moving to ASO.  The health plan commercial group risk medical loss ratio (MLR) was 82.5% in the quarter and 81.3% year-to-date.


·  
Medicare Advantage. As of September 30, 2011, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 220,000, an increase of 27,000 members from the prior year quarter.  The MA-CCP MLR was 82.0% in the quarter and 83.0% year-to-date.  During the third quarter, the run-out of the MA-PFFS product line contributed $0.02 EPS and has now contributed $0.13 EPS year-to-date. As previously announced, the Company did not renew this product line effective January 1, 2010.


·  
Medicare Part D. As of September 30, 2011, Medicare Part D membership was 1,148,000, approximately flat to the prior quarter.  The Medicare Part D MLR was 76.8% in the quarter, a decrease of 220 basis points from the prior year quarter.  The Medicare Part D MLR was 88.0% year-to-date, a decrease of 120 basis points from the prior year-to-date.


·  
Medicaid. As of September 30, 2011, Medicaid membership was 467,000, an increase of 5,000 members from the prior year quarter.  The Medicaid MLR was 88.1% in the quarter and 87.0% year-to-date.








 
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2011 Full Year Guidance
·  
Risk revenue of $10.90 billion to $10.98 billion
·  
Management services revenue of $1.180 billion to $1.195 billion
·  
Consolidated revenue of $12.080 billion to $12.175 billion
·  
Consolidated MLR of 82.0% to 82.4%
·  
Cost of sales expense of $277.0 million to $281.0 million
·  
SG&A of $2.01 billion to $2.03 billion
·  
Settlement of provider class action of $159.3 million, or $0.68 EPS
·  
Depreciation and amortization expense of $135.0 million to $137.0 million
·  
Other income of $83.0 million to $85.0 million
·  
Interest expense of $98.0 million to $99.0 million
·  
Tax rate of 35.5% to 36.5%
·  
Diluted share count of 146.5 million to 147.5 million
·  
GAAP EPS of $3.63 to $3.68
o  
$2.95 to $3.00 EPS, excluding the $0.68 litigation adjustment(2)




2011 GUIDANCE PROGRESSION TABLE

   
Current Guidance
Previous Guidance
EPS from core businesses
 
$2.82 - $2.87
$2.69 - $2.84
     Impact from non-recurring MA-PFFS(1)
 
$0.13
$0.11
EPS range including MA-PFFS
 
$2.95 - $3.00
$2.80 - $2.95
     Impact from Q2 2011 litigation adjustment(2)
 
$0.68
$0.68
GAAP EPS range
 
$3.63 - $3.68
$3.48 - $3.63










 
 
 
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Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, October 28, 2011.  To listen to the call, dial toll-free at 888-208-1812 or, for international callers, 719-457-2713. Callers will be asked to identify themselves and their affiliations.  The conference call will also be webcast from Coventry’s Investor Relations site at www.coventryhealthcare.com.  Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission.  A replay of the call will be available for one week at (888) 203-1112 or, for international callers, (719) 457-0820. The access code is 9406396.

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are defined as statements that are not historical facts and include those statements relating to future events or future financial performance, including the guidance herein. Actual performance may be significantly impacted by certain risks and uncertainties including those described in Coventry’s Annual Report on Form 10-K for the year ended December 31, 2010, and Coventry’s subsequent filings with the Securities and Exchange Commission.  Among the factors that may materially affect Coventry’s business, operations or financial condition are the ability to accurately estimate and control future health care costs; the ability to increase premiums to offset increases in the Company’s health care costs; general economic conditions and disruptions in the financial markets; changes in laws or regulations or government investigations; potential state guaranty fund assessments; changes in government funding and various other risks associated with our participation in Medicare and Medicaid programs; a reduction in the number of members in the Company’s health plans; the Company’s ability to acquire additional managed care businesses and the Company’s ability to successfully integrate acquired businesses into its operations; an ability to attract new members or to increase or maintain premium rates; the non-renewal or termination of the Company’s government contracts, or unsuccessful bids for business with government agencies; failure of the Company’s independent agents and brokers to continue to market its products to employers; a failure to obtain cost-effective agreements with a sufficient number of providers that could result in higher medical costs and a decrease in membership; negative publicity regarding the managed health care industry generally or the Company in particular; a failure to effectively protect, maintain, and develop our information technology systems; periodic reviews, audits and investigations under the Company’s contracts with federal and state government agencies; litigation, including litigation based on new or evolving legal theories; volatility in the Company’s stock price and trading volume; the Company’s indebtedness, which imposes certain restrictions on its business and operations; an inability to generate sufficient cash to service the Company’s indebtedness; a substantial amount of Coventry’s cash flow is generated by its regulated subsidiaries; the Company’s certificate of incorporation and bylaws and Delaware law, which could delay, discourage or prevent a change in control of the Company that its stockholders may consider favorable; and an impairment of the Company’s intangible assets.  Coventry undertakes no obligation to update or revise any forward-looking statements.

Coventry Health Care (www.coventryhealthcare.com) is a diversified national managed healthcare company based in Bethesda, Maryland, operating health plans, insurance companies, network rental and workers’ compensation services companies.  Coventry provides a full range of risk and fee-based managed care products and services to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators.
 
 
 
 
 

 
Page 4 of 9 

 

COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)

   
Quarters Ended
     Nine Months Ended  
     September 30,      September 30,  
   
2011
   
2010
   
2011
   
2010
 
Operating revenues:
                       
Managed care premiums
  $ 2,680,044     $ 2,543,180     $ 8,172,974     $ 7,684,263  
Management services
    295,499       292,601       884,553       878,637  
Total operating revenues
    2,975,543       2,835,781       9,057,527       8,562,900  
                                 
Operating expenses:
                               
Medical costs
    2,185,568       1,963,016       6,709,521       6,109,914  
Cost of sales
    71,511       64,638       209,603       187,900  
Selling, general, and administrative
    492,855       481,345       1,476,325       1,430,505  
Provider class action
    -       -       (159,300 )     278,000  
Depreciation and amortization
    32,996       34,839       102,191       104,342  
Total operating expenses
    2,782,930       2,543,838       8,338,340       8,110,661  
                                 
Operating earnings
    192,613       291,943       719,187       452,239  
Operating earnings percentage of total revenues
    6.5 %     10.3 %     7.9 %     5.3 %
                                 
Interest expense
    28,227       20,388       70,844       60,713  
Other income, net
    22,913       20,667       66,201       59,162  
                                 
Earnings before income taxes
    187,299       292,222       714,544       450,688  
                                 
Provision for income taxes
    64,618       102,277       257,135       162,398  
Net earnings
  $ 122,681     $ 189,945     $ 457,409     $ 288,290  
                                 
Net earnings per share:
                               
     Basic earnings per share
  $ 0.85     $ 1.30     $ 3.13     $ 1.98  
     Diluted earnings per share
  $ 0.84     $ 1.29     $ 3.09     $ 1.96  
                                 
Weighted average shares outstanding, basic
    144,415       146,167       145,982       145,965  
Weighted average shares outstanding, diluted
    146,286       147,294       148,048       147,293  








 
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COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)



   
September 30,
   
June 30,
   
December 31,
 
   
2011
   
2011
   
2010
 
   
(unaudited)
   
(unaudited)
       
Assets:
                 
                   
Current assets:
                 
   Cash and cash equivalents
  $ 1,986,323     $ 1,645,616     $ 1,853,988  
   Restricted cash – litigation escrow
    -       150,500       -  
   Short-term investments
    222,631       254,166       16,849  
   Accounts receivable, net
    257,720       264,846       276,694  
   Other receivables, net
    496,631       588,653       515,882  
   Other current assets
    262,903       268,389       371,528  
Total current assets
    3,226,208       3,172,170       3,034,941  
                         
Long-term investments
    2,553,792       2,461,548       2,184,606  
Property and equipment, net
    262,432       260,462       262,282  
Goodwill
    2,559,605       2,552,348       2,550,570  
Other intangible assets, net
    383,582       399,641       431,886  
Other long-term assets
    38,277       37,824       31,300  
Total assets
  $ 9,023,896     $ 8,883,993     $ 8,495,585  
                         
                         
                         
Liabilities and Stockholders’ Equity:
                       
                         
Current liabilities:
                       
   Medical liabilities
  $ 1,224,216     $ 1,278,647     $ 1,237,690  
   Accounts payable and accrued liabilities
    637,245       702,973       942,226  
   Deferred revenue
    398,756       158,185       103,082  
   Current portion of long-term debt
    233,903       233,903       -  
Total current liabilities
    2,494,120       2,373,708       2,282,998  
                         
Long-term debt
    1,584,578       1,584,456       1,599,396  
Other long-term liabilities
    432,603       431,007       414,025  
Total liabilities
    4,511,301       4,389,171       4,296,419  
                         
Stockholders’ equity
    4,512,595       4,494,822       4,199,166  
                         
Total liabilities and stockholders’ equity
  $ 9,023,896     $ 8,883,993     $ 8,495,585  


 
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COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)

   
Quarter Ended
   
Nine Months Ended
 
   
September 30, 2011
   
September 30, 2011
 
             
Cash flows from operating activities:
           
   Net earnings
  $ 122,681     $ 457,409  
   Adjustments to earnings:
               
      Depreciation and amortization
    32,996       102,191  
      Amortization of stock compensation
    11,449       29,964  
      Provider class action – release
    ---       (159,300 )
      Provider class action – deferred tax adjustment
    ---       58,145  
   Changes in assets and liabilities:
               
      Provider class action – settlement
    ---       (150,500 )
      Accounts receivable, net
    7,126       19,830  
      Medical liabilities
    (56,723 )     (16,019 )
      Accounts payable and other accrued liabilities
    20,578       5,187  
      Deferred revenue
    240,571       295,756  
   Other operating activities
    105,556       28,077  
   Net cash flows from operating activities
    484,234       670,740  
                 
Cash flows from investing activities:
               
   Capital expenditures, net
    (18,900 )     (53,895 )
   Payments for investments, net of sales and maturities
    (26,326 )     (530,567 )
   Payments for acquisitions, net of cash acquired
    (116 )     (4,116 )
   Net cash flows from investing activities
    (45,342 )     (588,578 )
                 
Cash flows from financing activities:
               
   Proceeds from issuance of stock
    4,577       42,091  
   Payments for repurchase of stock
    (102,781 )     (209,605 )
   Proceeds from issuance of debt, net
    (438 )     589,867  
   Repayment of debt
    ---       (380,029 )
   Excess tax benefit from stock compensation
    457       7,849  
   Net cash flows from financing activities
    (98,185 )     50,173  
                 
Net change in cash and cash equivalents for current period
    340,707       132,335  
Cash and cash equivalents at beginning of period
    1,645,616       1,853,988  
Cash and cash equivalents at end of period
  $ 1,986,323     $ 1,986,323  
                 
                 
                 
Cash and Investments:
               
Cash and cash equivalents
  $ 1,986,323     $ 1,986,323  
Short-term investments
    222,631       222,631  
Long-term investments
    2,553,792       2,553,792  
Total cash and investments
  $ 4,762,746     $ 4,762,746  
 
 
 
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COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
 (Unaudited)


      Q3 2011       Q2 2011       Q1 2011    
Total
2010
      Q4 2010       Q3 2010  
Membership by Product (000s)
                                             
Health Plan Commercial Risk
    1,636       1,648       1,636             1,641       1,533  
Health Plan Commercial ASO
    710       689       688             698       636  
Medicare Advantage CCP
    220       219       219             224       193  
Medicaid Risk
    467       467       468             468       462  
Health Plan Total
    3,033       3,023       3,011             3,031       2,824  
                                               
Other National ASO
    376       379       383             459       462  
Total Medical Membership
    3,409       3,402       3,394             3,490       3,286  
                                               
Medicare Part D
    1,148       1,150       1,159             1,628       1,618  
                                               
Total Membership
    4,557       4,552       4,553             5,118       4,904  
                                               
Revenues by Product Type (000s)
                                             
Commercial Risk
  $ 1,497,133     $ 1,510,849     $ 1,491,099     $ 5,540,470     $ 1,475,773     $ 1,380,019  
Commercial Management Services
    79,615       74,016       77,842       327,084       81,861       79,869  
Medicare Advantage
    591,051       601,240       591,242       2,114,205       579,329       522,202  
Medicaid Risk
    316,255       305,788       311,066       1,133,353       312,359       286,762  
Total Health Plan and Medical Services Businesses
    2,484,054       2,491,893       2,471,249       9,115,112       2,449,322       2,268,852  
                                                 
Medicare Part D
    271,947       316,196       358,445       1,604,198       357,941       348,784  
Other Premiums
    26,341       26,709       26,415       100,130       24,770       25,054  
Other Management Services
    218,393       223,892       218,141       856,072       215,279       215,185  
Total Specialized Managed Care Businesses
    516,681       566,797       603,001       2,560,400       597,990       589,023  
                                                 
Total Premiums
    2,702,727       2,760,782       2,778,267       10,492,356       2,750,172       2,562,821  
Total Management Services
    298,008       297,908       295,983       1,183,156       297,140       295,054  
Other/Eliminations
    (25,192 )     (25,644 )     (25,312 )     (87,596 )     (22,296 )     (22,094 )
Total Revenue
  $ 2,975,543     $ 3,033,046     $ 3,048,938     $ 11,587,916     $ 3,025,016     $ 2,835,781  
                                                 
Consolidated Coventry
                                               
                                                 
Operating Income % of Revenues
    6.5 %     11.7 %     5.6 %     5.9 %     7.8 %     10.3 %
                                                 
SGA % of Revenues
    16.6 %     16.0 %     16.4 %     16.9 %     17.6 %     17.0 %
                                                 
Total Health Plan Medical Liabilities (000s)(3)
  $ 1,088,989     $ 1,094,021     $ 1,087,137             $ 1,021,667     $ 952,810  
Health Plan Days in Claims Payable (DCP) (3)
    50.52       50.48       50.40               48.62       51.70  
                                                 
Total Debt (millions)   $ 1,818.5     $ 1,818.4     $ 1,599.5             $ 1,599.4     $ 1,599.3  
Total Capital (millions)
  $ 6,331.1     $ 6,313.2     $ 5,869.3             $ 5,798.6     $ 5,655.7  
Debt to Capital
    28.7 %     28.8 %     27.3 %             27.6 %     28.3 %
                                                 
                                                 
 
Page 8 of 9 

 


COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
 (Unaudited)


      Q3 2011       Q2 2011       Q1 2011    
Total
 2010
      Q4 2010       Q3 2010  
Revenue PMPM
                                             
Health Plan Commercial Group Risk
  $ 321.43     $ 322.83     $ 320.97     $ 314.58     $ 316.34     $ 315.82  
Medicare Advantage(4), (5)
  $ 893.22     $ 909.10     $ 883.09     $ 876.67     $ 857.39     $ 899.89  
Medicare Part D(6)
  $ 94.10     $ 93.72     $ 90.86     $ 87.96     $ 85.74     $ 87.56  
Medicaid
  $ 226.39     $ 218.28     $ 221.16     $ 218.98     $ 223.54     $ 215.51  
                                                 
                                                 
MLR%
                                               
Consolidated Total
    81.5 %     82.1 %     82.6 %     79.4 %     79.0 %     77.2 %
                                                 
Health Plan Commercial Group Risk
    82.5 %     81.1 %     80.2 %     79.2 %     81.3 %     76.8 %
Medicare Advantage(5)
    82.0 %     82.9 %     84.2 %     82.0 %     84.1 %     77.0 %
Medicare Part D
    76.8 %     88.8 %     95.8 %     83.7 %     64.7 %     79.0 %
Medicaid
    88.1 %     86.9 %     86.0 %     85.7 %     85.4 %     89.0 %





(1)  
The Company did not renew the MA-PFFS product line effective January 1, 2010 and is in the process of paying claims liabilities related to prior dates of service.  The Company believes that disclosing adjusted earnings, which exclude the 2011 impact of the MA-PFFS results, provides a more meaningful measure of its operating results for comparison to future periods and previously announced guidance.

(2)  
On May 31, 2011, the Company announced that it will record a non-recurring pre-tax adjustment to earnings in the second quarter of 2011 in the amount of $159.3 million, or $0.68 per diluted share related to such litigation.  The Company believes that disclosing adjusted earnings figures which exclude the impact of this litigation provides a more meaningful measure of its operating results for comparison to future periods and previously announced guidance.
 
(3)  
“Total Health Plan Medical Liabilities” and “Health Plan Days in Claims Payable” are calculated consistent with prior disclosures to exclude MA-PFFS for all periods presented due to the Company’s non-renewal of this product line effective January 1, 2010.

(4)  
Revenue PMPM excludes the impact of revenue ceded to external parties.

(5)  
Beginning with Q1 2010, Medicare Advantage revenue and medical cost statistics represent the MA-CCP business only as the Company did not renew the MA-PFFS product line effective January 1, 2010.

(6)  
Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.

 
 

 
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