Attached files
| file | filename |
|---|---|
| 8-K - 8-K - COVENTRY HEALTH CARE INC | cvhq420128-k.htm |
Contact: | Randy Giles |
EVP, Chief Financial Officer | |
(301) 581-5687 | |
Drew Asher | |
SVP, Corporate Finance | |
(301) 581-5717 | |
Coventry Health Care Reports Fourth Quarter Earnings
BETHESDA, Md. (February 6, 2013) - Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter and fiscal year ended December 31, 2012. Operating revenues totaled $3.4 billion for the quarter with net earnings of $119.3 million, or earnings per diluted share (EPS) of $0.88. For the year ended December 31, 2012, total operating revenues were $14.1 billion with net earnings of $487.1 million, or $3.52 EPS.
“I am very pleased with the Company’s strong fourth quarter and full year 2012 results, significantly exceeding our previous guidance,” said Allen F. Wise, chairman and chief executive officer of Coventry. “We continue to make progress in our Kentucky Medicaid business as evidenced by the sequential improvement in fourth quarter results. In addition, the Company recently completed the 2013 Medicare Annual Enrollment Period with an outstanding organic growth result in our Medicare Advantage Coordinated Care Plans. We look forward to combining our strengths with those of Aetna to further our shared commitment to improving the health and well-being of our members.”
Fourth Quarter and Full Year 2012 Consolidated Highlights
• | Fourth quarter total revenues up 10% from the prior year quarter |
◦ | Full year 2012 total revenues up 16% from the prior year |
• | Total membership of 5,362,000, an increase of 597,000 members from the prior year, driven by growth across the Company’s Government Programs businesses in Medicare Advantage Coordinated Care Plans (MA-CCP), Medicare Part D, and Medicaid |
• | Sequential enrollment growth in MA-CCP and Medicare Part D |
• | Successful execution during the 2013 MA-CCP Annual Enrollment Period resulting in growth for January 2013 of approximately 48,000 members, or 18% |
• | Awarded Kentucky Region 3 Medicaid contract with implementation effective January 1, 2013, representing approximately 20,000 additional members |
• | Awarded four regions for the Florida Long-Term Care Program to be phased in during 2013 and 2014 |
• | Reduced selling, general, and administrative (SG&A) expense as a percentage of total revenue from 16.5% in 2011 to 14.7% in 2012 |
◦ | Fourth quarter SG&A expense of 16.0% of total revenue, a decline of 120 basis points (bps) from the prior year quarter, includes costs of $7.7 million, or $0.03 EPS, associated with the pending Aetna transaction |
• | GAAP cash flows from operations were $249.4 million, or 209% of net income in the quarter |
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Selected Fourth Quarter and Full Year 2012 Highlights
Medicare Advantage
• | As of December 31, 2012, MA-CCP membership was 259,000, an increase of 37,000 members, or 17%, from the prior year quarter and an increase of 3,000 members from the third quarter of 2012 |
• | The MA-CCP Medical Loss Ratio (MLR) was 83.9% in the quarter and 81.1% for the full year |
• | Excluding the impact of the Risk Adjustment Data Validation (RADV) audit reserve reduction during the first quarter of 2012, the full year MLR was 83.5% |
Medicare Part D
• | As of December 31, 2012, Medicare Part D membership was 1,578,000, an increase of 435,000 members, or 38%, from the prior year quarter and an increase of 33,000 members from the third quarter of 2012 |
• | The Medicare Part D MLR was 70.7% in the quarter and 85.4% for the full year |
• | Reduction in Coventry’s auto-assign footprint resulted in a loss of 143,000 members for January 2013 compared to year-end 2012 |
Medicaid
• | As of December 31, 2012, Medicaid membership was 974,000, an increase of 282,000 members, or 41%, from the prior year quarter and a net decrease of 24,000 members from the third quarter of 2012 due to membership attrition during the Kentucky open enrollment period offset by growth in other markets |
• | The Medicaid MLR was 90.4% in the quarter, a decrease of 260 bps from the third quarter of 2012, and 94.1% for the full year |
• | The Company’s Kentucky Medicaid business produced an MLR of 96.7% in the fourth quarter, an improvement of 1,170 bps from the third quarter of 2012 and an improvement of 1,990 bps from the prior year quarter. The significant sequential improvement was driven by receipt of the Company’s contractual 2012 rate increase of 5.3% effective 10/1/12, implementation of member co-payments, and the impact of the Company’s ongoing medical cost initiatives. |
Commercial Risk
• | As of December 31, 2012, commercial risk membership was 1,474,000, a decrease of 15,000 members, or 1%, from the third quarter of 2012 |
• | The commercial risk MLR was 82.2% in the quarter, a decrease of 150 bps from the prior year quarter, and 81.7% for the full year |
Balance Sheet
• | Investment portfolio in a net unrealized gain position of $111 million as of December 31, 2012, a decrease of $18 million from the third quarter of 2012 |
• | Repurchased 9.9 million shares, or 7% of total shares outstanding, for $328.0 million during 2012 |
• | $950 million in free cash at the parent at year-end |
• | Board of Directors approval of the Company’s fourth quarterly cash dividend paid on January 7, 2013 |
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Cautionary Statement Regarding Forward-Looking Statements
Among the risk factors that may materially affect our 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 our health care costs; general economic conditions and disruptions in the financial markets; changes in legal requirements and healthcare industry practices from recently enacted federal or state laws or regulations, court decisions, or government audits, investigations and proceedings; guaranty fund assessments under state insurance guaranty association law; changes in government funding and various other risks associated with our participation in Medicare and Medicaid programs; our ability to effectively implement and manage new or less seasoned markets, such as our Kentucky Medicaid program, including the implementation of appropriate risk adjustment revenue and management of the associated medical costs and the effect on our medical loss ratio; a reduction in the number of members in our health plans; the ability to acquire additional managed care businesses, enter into new markets and to successfully integrate acquired businesses into our operations, particularly while our merger with Aetna is pending; an ability to attract new members or to increase or maintain our premium rates; the non-renewal or termination of our government contracts, unsuccessful bids for business with government agencies or renewal of government contracts, unsuccessful bids for business with government agencies or renewal of government contracts on less favorable terms; failure of independent agents and brokers to continue to market our 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 our membership; negative publicity regarding the managed health care industry generally or our Company in particular; a failure to effectively protect, maintain and develop our information technology systems; compromises of our data security; periodic reviews, audits and investigations under our contracts with federal and state government agencies; litigation including litigation based on new or evolving legal theories; volatility in our stock price and trading volume; our indebtedness, which imposes certain restrictions on our business and operations; an inability to generate sufficient cash to service our indebtedness; our ability to receive cash from our regulated subsidiaries; an impairment of our intangible assets; our certificate of incorporation, our bylaws and Delaware law, which could delay, discourage or prevent a change in control of our Company that our stockholders may consider favorable; and our proposed merger with Aetna, including, but not limited to, risks related to our failure to complete the merger with Aetna, our ability to attract, retain and motivate our key employees and executives in light of the pending merger, and limitations on our ability to conduct our business between now and the closing of the merger.
Coventry Health Care (www.coventryhealthcare.com) is a diversified national managed health care company based in Bethesda, Maryland, dedicated to delivering high-quality health care solutions at an affordable price. Coventry provides a full portfolio of risk and fee-based products including Medicare and Medicaid programs, group and individual health insurance, workers’ compensation solutions, and network rental services. With a presence in every state in the nation, Coventry’s products currently serve approximately 5 million individuals helping them receive the greatest possible value for their health care investment.
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COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Quarters Ended | Years Ended | |||||||||||||||||
December 31, | December 31, | |||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Operating revenues: | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||
Managed care premiums | $ | 3,161,792 | $ | 2,841,976 | $ | 12,926,375 | $ | 11,014,950 | ||||||||||
Management services | 284,025 | 287,180 | 1,186,988 | 1,171,733 | ||||||||||||||
Total operating revenues | 3,445,817 | 3,129,156 | 14,113,363 | 12,186,683 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Medical costs | 2,613,570 | 2,331,881 | 10,853,774 | 9,041,402 | ||||||||||||||
Cost of sales | 65,444 | 73,941 | 266,803 | 283,544 | ||||||||||||||
Selling, general, and administrative | 551,752 | 539,717 | 2,080,236 | 2,016,042 | ||||||||||||||
Provider class action - release | — | — | — | (159,300 | ) | |||||||||||||
Depreciation and amortization | 36,517 | 34,674 | 152,859 | 136,865 | ||||||||||||||
Total operating expenses | 3,267,283 | 2,980,213 | 13,353,672 | 11,318,553 | ||||||||||||||
Operating earnings | 178,534 | 148,943 | 759,691 | 868,130 | ||||||||||||||
Operating earnings percentage of total revenues | 5.2 | % | 4.8 | % | 5.4 | % | 7.1 | % | ||||||||||
Interest expense | 24,622 | 28,219 | 99,468 | 99,062 | ||||||||||||||
Other income, net | 37,174 | 22,833 | 124,312 | 89,033 | ||||||||||||||
Earnings before income taxes | 191,086 | 143,557 | 784,535 | 858,101 | ||||||||||||||
Provision for income taxes | 71,745 | 57,861 | 297,472 | 314,996 | ||||||||||||||
Net earnings | $ | 119,341 | $ | 85,696 | $ | 487,063 | $ | 543,105 | ||||||||||
Net earnings per share: | ||||||||||||||||||
Basic earnings per common share | $ | 0.89 | $ | 0.60 | $ | 3.54 | $ | 3.70 | ||||||||||
Diluted earnings per common share | $ | 0.88 | $ | 0.60 | $ | 3.52 | $ | 3.67 | ||||||||||
Weighted average common shares outstanding, basic | 133,329 | 141,196 | 136,042 | 144,775 | ||||||||||||||
Weighted average common shares outstanding, diluted | 134,109 | 142,037 | 136,778 | 145,873 | ||||||||||||||
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COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31, | September 30, | December 31, | ||||||||||
2012 | 2012 | 2011 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Assets: | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 1,399,162 | $ | 1,262,078 | $ | 1,579,003 | ||||||
Short-term investments | 121,742 | 165,811 | 116,205 | |||||||||
Accounts receivable, net | 272,077 | 289,951 | 270,263 | |||||||||
Other receivables, net | 892,815 | 1,014,567 | 717,736 | |||||||||
Other current assets | 196,323 | 192,203 | 286,301 | |||||||||
Total current assets | 2,882,119 | 2,924,610 | 2,969,508 | |||||||||
Long-term investments | 2,658,582 | 2,563,559 | 2,635,309 | |||||||||
Property and equipment, net | 266,818 | 258,378 | 255,485 | |||||||||
Goodwill | 2,591,488 | 2,590,465 | 2,548,834 | |||||||||
Other intangible assets, net | 318,592 | 335,103 | 367,533 | |||||||||
Other long-term assets | 33,389 | 34,548 | 36,863 | |||||||||
Total assets | $ | 8,750,988 | $ | 8,706,663 | $ | 8,813,532 | ||||||
Liabilities and Stockholders’ Equity: | ||||||||||||
Current liabilities: | ||||||||||||
Medical liabilities | $ | 1,418,914 | $ | 1,503,691 | $ | 1,308,507 | ||||||
Accounts payable and other accrued liabilities | 488,175 | 480,582 | 695,235 | |||||||||
Deferred revenue | 137,981 | 123,841 | 114,510 | |||||||||
Current portion of long-term debt | — | — | 233,903 | |||||||||
Total current liabilities | 2,045,070 | 2,108,114 | 2,352,155 | |||||||||
Long-term debt | 1,585,190 | 1,585,067 | 1,584,700 | |||||||||
Other long-term liabilities | 397,813 | 387,159 | 365,686 | |||||||||
Total liabilities | 4,028,073 | 4,080,340 | 4,302,541 | |||||||||
Stockholders’ equity | 4,722,915 | 4,626,323 | 4,510,991 | |||||||||
Total liabilities and stockholders’ equity | $ | 8,750,988 | $ | 8,706,663 | $ | 8,813,532 | ||||||
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COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
Quarter Ended | Year Ended | |||||||
December 31, 2012 | December 31, 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 119,341 | $ | 487,063 | ||||
Adjustments to earnings: | ||||||||
Depreciation and amortization | 36,517 | 152,859 | ||||||
Amortization of stock compensation | 5,865 | 29,643 | ||||||
RADV Release | — | (132,977 | ) | |||||
RADV Release - deferred tax adjustment | — | 50,531 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | 17,874 | 22,508 | ||||||
Other receivables, net | 121,782 | (168,479 | ) | |||||
Medical liabilities | (84,777 | ) | 57,073 | |||||
Accounts payable and other accrued liabilities | (1,195 | ) | (76,561 | ) | ||||
Deferred revenue | 14,140 | 23,471 | ||||||
Other operating activities | 19,847 | 25,513 | ||||||
Net cash flows from operating activities | 249,394 | 470,644 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures, net | (27,989 | ) | (89,064 | ) | ||||
(Payments for) / Proceeds from sales and maturities net of payments for investments | (59,189 | ) | 19,061 | |||||
Payments for acquisitions, net of cash acquired | (6,465 | ) | (54,945 | ) | ||||
Net cash flows from investing activities | (93,643 | ) | (124,948 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of stock | 23,171 | 87,671 | ||||||
Payments for repurchase of stock | (28,770 | ) | (339,985 | ) | ||||
Repayment of debt | — | (233,903 | ) | |||||
Excess tax benefit from stock compensation | 3,668 | 12,210 | ||||||
Payments for cash dividends | (16,736 | ) | (51,530 | ) | ||||
Net cash flows from financing activities | (18,667 | ) | (525,537 | ) | ||||
Net change in cash and cash equivalents for current period | 137,084 | (179,841 | ) | |||||
Cash and cash equivalents at beginning of period | 1,262,078 | 1,579,003 | ||||||
Cash and cash equivalents at end of period | $ | 1,399,162 | $ | 1,399,162 | ||||
Cash and Investments: | ||||||||
Cash and cash equivalents | $ | 1,399,162 | $ | 1,399,162 | ||||
Short-term investments | 121,742 | 121,742 | ||||||
Long-term investments | 2,658,582 | 2,658,582 | ||||||
Total cash and investments | $ | 4,179,486 | $ | 4,179,486 | ||||
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COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
Total 2012 | Q4 2012 | Q3 2012 | Q2 2012 | Q1 2012 | Total 2011 | |||||||||||||
Membership by Product (000s) | ||||||||||||||||||
Commercial Risk | 1,474 | 1,489 | 1,519 | 1,549 | 1,635 | |||||||||||||
Health Plan Commercial ASO | 730 | 736 | 729 | 725 | 700 | |||||||||||||
Medicare Advantage | 259 | 256 | 253 | 250 | 222 | |||||||||||||
Medicaid Risk | 974 | 998 | 932 | 924 | 692 | |||||||||||||
Other National ASO | 347 | 350 | 354 | 356 | 373 | |||||||||||||
Medicare Part D | 1,578 | 1,545 | 1,494 | 1,458 | 1,143 | |||||||||||||
Total Membership | 5,362 | 5,374 | 5,281 | 5,262 | 4,765 | |||||||||||||
Revenues by Product Type (000s) | ||||||||||||||||||
Commercial Risk | $ | 5,737,626 | $ | 1,403,010 | $ | 1,409,863 | $ | 1,443,478 | $ | 1,481,275 | $ | 6,053,178 | ||||||
Commercial Management Services | 429,209 | 100,736 | 101,138 | 113,558 | 113,777 | 387,949 | ||||||||||||
Total Commercial Products | 6,166,835 | 1,503,746 | 1,511,001 | 1,557,036 | 1,595,052 | 6,441,127 | ||||||||||||
Medicare Advantage | 2,912,143 | 695,815 | 697,724 | 684,291 | 834,312 | 2,382,330 | ||||||||||||
Medicaid Risk | 2,809,579 | 712,845 | 730,996 | 697,679 | 668,060 | 1,381,706 | ||||||||||||
Medicare Part D | 1,514,518 | 363,032 | 343,185 | 394,877 | 413,423 | 1,226,734 | ||||||||||||
Total Government Programs | 7,236,240 | 1,771,692 | 1,771,905 | 1,776,847 | 1,915,795 | 4,990,770 | ||||||||||||
Workers’ Compensation | 757,779 | 183,289 | 187,992 | 194,576 | 191,922 | 783,784 | ||||||||||||
Corporate and Eliminations | (47,491 | ) | (12,910 | ) | (13,115 | ) | (10,663 | ) | (10,802 | ) | (28,998 | ) | ||||||
Total Revenues | $ | 14,113,363 | $ | 3,445,817 | $ | 3,457,783 | $ | 3,517,796 | $ | 3,691,967 | $ | 12,186,683 | ||||||
Consolidated Coventry | ||||||||||||||||||
Operating Income % of Revenues | 5.4 | % | 5.2 | % | 4.6 | % | 4.1 | % | 7.5 | % | 7.1 | % | ||||||
SGA % of Revenues | 14.7 | % | 16.0 | % | 15.1 | % | 14.3 | % | 13.6 | % | 16.5 | % | ||||||
Total Health Plan Medical Liabilities (000s)(1) | $ | 1,258,279 | $ | 1,321,436 | $ | 1,315,078 | $ | 1,313,458 | $ | 1,106,174 | ||||||||
Health Plan Days in Claims Payable (DCP) (1) | 49.04 | 50.90 | 49.77 | 49.47 | 50.45 | |||||||||||||
Total Debt (millions) | $ | 1,585.2 | $ | 1,585.1 | $ | 1,584.9 | $ | 1,584.8 | $ | 1,818.6 | ||||||||
Total Capital (millions) | $ | 6,308.1 | $ | 6,211.4 | $ | 6,091.2 | $ | 6,287.5 | $ | 6,329.6 | ||||||||
Debt to Capital | 25.1 | % | 25.5 | % | 26.0 | % | 25.2 | % | 28.7 | % | ||||||||
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COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
Total 2012 | Q4 2012 | Q3 2012 | Q2 2012 | Q1 2012 | Total 2011 | |||||||||||||
Revenue PMPM | ||||||||||||||||||
Commercial Risk | $ | 310.15 | $ | 310.27 | $ | 308.42 | $ | 309.91 | $ | 311.92 | $ | 303.69 | ||||||
Medicare Advantage(2) | $ | 938.71 | $ | 897.31 | $ | 908.57 | $ | 902.61 | $ | 1,048.93 | $ | 895.54 | ||||||
Medicare Part D(3) | $ | 85.94 | $ | 84.58 | $ | 86.24 | $ | 87.55 | $ | 85.44 | $ | 92.41 | ||||||
Medicaid | $ | 242.35 | $ | 240.38 | $ | 241.92 | $ | 248.48 | $ | 238.74 | $ | 228.85 | ||||||
MLR% | ||||||||||||||||||
Consolidated Total | 84.0 | % | 82.7 | % | 84.4 | % | 85.9 | % | 82.9 | % | 82.1 | % | ||||||
Commercial Risk | 81.7 | % | 82.2 | % | 81.5 | % | 83.0 | % | 79.9 | % | 81.6 | % | ||||||
Medicare Advantage(2) | 81.1 | % | 83.9 | % | 83.1 | % | 84.1 | % | 74.1 | % | 82.9 | % | ||||||
Medicare Part D | 85.4 | % | 70.7 | % | 84.2 | % | 90.0 | % | 94.9 | % | 81.7 | % | ||||||
Medicaid | 94.1 | % | 90.4 | % | 93.0 | % | 93.3 | % | 100.0 | % | 89.4 | % | ||||||
(1) | “Total Health Plan Medical Liabilities” and “Health Plan Days in Claims Payable” are calculated consistent with prior disclosures to exclude the effect of the Kentucky Medicaid business for the fourth quarter of 2011 due to the timing of the contract implementation (November 1, 2011) but include the effect of the Kentucky Medicaid business and the acquired Children’s Mercy’s Family Health Partners business beginning in the first quarter of 2012. |
(2) | First quarter 2012 Medicare Advantage statistics for Revenue PMPM and MLR% include the favorable impact from the release of MA-CCP RADV audit reserves. Excluding this impact, the comparable Revenue PMPM was $923.87 and the comparable MLR% was 82.9% for the first quarter 2012. For the full year, the comparable Revenue PMPM was $907.99 and the comparable MLR% was 83.5%. |
(3) | Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties. |
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