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Coventry Health Care, Inc. : Coventry Health Care Reports Fourth Quarter Earnings

02/08/2012 | 06:35am US/Eastern
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Announces 2012 EPS Guidance Range of $3.10 - $3.30

Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter and fiscal year ended December 31, 2011. Operating revenues totaled $3.1 billion for the quarter with net earnings of $85.7 million, or $0.60 earnings per diluted share (EPS). These results include a favorable impact from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product of $0.02 EPS. Excluding the impact of MA-PFFS results(1), core earnings for the quarter were $82.1 million, or $0.58 EPS.

For the year ended December 31, 2011, total operating revenues were $12.2 billion with net earnings of $543.1 million, or $3.70 EPS. These results include EPS of $0.15 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), core earnings for the year were $419.5 million, or $2.87 EPS.

"We spent much of 2011 focused on seizing growth opportunities for 2012 and beyond, and I am very pleased with the strong growth in Medicaid and Medicare as we enter the first quarter of 2012," said Allen F. Wise, chairman and chief executive officer of Coventry. "As we wrap up 2011, we turn our focus towards 2012 with a forecast of double digit revenue growth coupled with operating earnings and EPS growth. We are hard at work to deliver on 2012 commitments while laying the foundation to seize opportunities for the future."

Fourth Quarter and Full Year 2011 Consolidated Highlights

  • Implemented a Medicaid contract with the Commonwealth of Kentucky effective November 1, 2011
    • Providing services to approximately 221,000 new members at year-end
  • Closed the acquisition of Children's Mercy's Family Health Partners effective January 1, 2012, adding approximately 210,000 Medicaid members
  • Successful execution during the 2012 Annual Enrollment Period resulting in enrollment gains of approximately 28,000, or 13%, in Medicare-CCP and just under 300,000, or 25%, in Medicare Part D
  • Reduced selling, general, and administrative (SG&A) expense as a percentage of revenue from 16.9% in 2010 to 16.5% in 2011
  • Repurchased 3.2 million shares for $100.0 million during the fourth quarter and 10.7 million shares for $327.7 million for the full year
    • Increased the share repurchase authorization by 14.4 million shares in the fourth quarter, with authorization remaining at year-end of 16.5 million shares
  • Approximately $900 million of deployable free cash at the parent at January 31, 2012
  • Entered into a new $750 million, five-year unsecured revolving credit facility during the second quarter of 2011 which remains undrawn at year-end

Selected Fourth Quarter and Full Year 2011 Highlights

  • Commercial Risk(3). As of December 31, 2011, commercial risk membership was 1,635,000, a decrease of 6,000 members from the prior year-end as approximately 18,000 members associated with the State of Illinois account moved to ASO during 2011. The commercial risk medical loss ratio (MLR) was 83.7% in the quarter and 81.6% for the full year.
  • Medicare Advantage. As of December 31, 2011, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 222,000, an increase of 2,000 members from the prior quarter. The MA-CCP MLR was 82.3% in the quarter, a decrease of 180 bps from the prior year quarter, and 82.9% for the full year. During the fourth quarter, the run-out of the MA-PFFS product line contributed $0.02 EPS and has now contributed $0.15 EPS for the full year. As previously announced, the Company did not renew this product line effective January 1, 2010.
  • Medicare Part D. As of December 31, 2011, Medicare Part D membership was 1,143,000, a decrease of 5,000 members from the prior quarter. The Medicare Part D MLR was 60.5% in the quarter, a decrease of 420 bps from the prior year quarter. The Medicare Part D MLR was 81.7% for the full year, a decrease of 200 bps from the prior full year.
  • Medicaid. As of December 31, 2011, Medicaid membership was 692,000, an increase of 224,000 members from the prior year-end. Coventry commenced operations in Kentucky during the fourth quarter which contributed approximately 221,000 new members. The Medicaid MLR was 94.4% in the quarter and 89.4% for the full year.

2012 FULL YEAR GUIDANCE

  • Risk revenue of $12.75 billion to $12.90 billion
  • Management services revenue of $1.11 billion to $1.15 billion
  • Consolidated revenue of $13.86 billion to $14.05 billion
  • Consolidated MLR of 83.1% to 83.9%
  • Cost of sales expense of $231.0 million to $237.0 million
  • SG&A expense of $2.13 billion to $2.16 billion
  • Depreciation and amortization expense of $136.0 million to $140.0 million
  • Other income of $77.0 million to $83.0 million
  • Interest expense of $98.0 million to $99.0 million
  • Tax rate of 36.7% to 37.3%
  • Diluted share count of 138.0 million to 142.0 million
  • EPS of $3.10 to $3.30
         

2011 EPS RECONCILIATION TABLE

       

 

2011 Actual     Previous Guidance
EPS from core businesses $2.87 $2.82 - $2.87
Impact from non-recurring MA-PFFS(1) $0.15     $0.13
EPS including MA-PFFS $3.02 $2.95 - $3.00
Impact from Q2 2011 litigation adjustment(2) $0.68     $0.68
GAAP EPS $3.70 $3.63 - $3.68
 

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Wednesday, February 8, 2012. To listen to the call, dial toll-free at (888) 312-9865 or, for international callers, (719) 325-2286. 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 4441852.

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 risk 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 legal requirements from recently enacted federal or state laws or regulations, court decisions, or government investigations or 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; 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, unsuccessful bids for business with government agencies or renewal of government contracts on less than favorable terms; failure of independent agents and brokers to continue to market the Company's 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; compromises of the Company's data security; 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; the Company's ability to receive cash from 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.

           

COVENTRY HEALTH CARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

 
Quarters Ended Years Ended
December 31, December 31,
2011     2010 2011     2010
Operating revenues: (unaudited) (unaudited) (unaudited)
Managed care premiums $ 2,841,976 $ 2,730,377 $ 11,014,950 $ 10,414,640
Management services   287,180   294,639   1,171,733   1,173,276
Total operating revenues   3,129,156   3,025,016   12,186,683   11,587,916
 
Operating expenses:
Medical costs 2,331,881 2,156,033 9,041,402 8,265,947
Cost of sales 73,941 64,152 283,544 252,052
Selling, general, and administrative 539,717 531,442 2,016,042 1,961,947
Provider class action - - (159,300) 278,000
Depreciation and amortization   34,674   36,343   136,865   140,685
Total operating expenses   2,980,213   2,787,970   11,318,553   10,898,631
 
Operating earnings 148,943 237,046 868,130 689,285
Operating earnings percentage of total revenues 4.8% 7.8% 7.1% 5.9%
 
Interest expense 28,219 19,705 99,062 80,418
Other income, net   22,833   18,505   89,033   77,667
 
Earnings before income taxes 143,557 235,846 858,101 686,534
 
Provision for income taxes   57,861   85,520   314,996   247,918
Net earnings $ 85,696 $ 150,326 $ 543,105 $ 438,616
 
Net earnings per share:
Basic earnings per share $ 0.61 $ 1.02 $ 3.75 $ 3.00
Diluted earnings per share $ 0.60 $ 1.01 $ 3.70 $ 2.97
 
Weighted average shares outstanding, basic 141,196 146,775 144,775 146,169
Weighted average shares outstanding, diluted 142,858 148,430 146,741 147,579
 
     

COVENTRY HEALTH CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 
December 31, September 30, December 31,
2011 2011 2010
(unaudited) (unaudited)
Assets:
 
Current assets:
Cash and cash equivalents $ 1,579,003 $ 1,986,323 $ 1,853,988
Short-term investments 116,205 222,631 16,849
Accounts receivable, net 270,263 257,720 276,694
Other receivables, net 717,736 496,631 515,882
Other current assets   286,301   262,903   371,528
Total current assets 2,969,508 3,226,208 3,034,941
 
Long-term investments 2,635,309 2,553,792 2,184,606
Property and equipment, net 255,485 262,432 262,282
Goodwill 2,548,834 2,559,605 2,550,570
Other intangible assets, net 367,533 383,582 431,886
Other long-term assets   36,863   38,277   31,300
Total assets $ 8,813,532 $ 9,023,896 $ 8,495,585
 
 
 
Liabilities and Stockholders' Equity:
 
Current liabilities:
Medical liabilities $ 1,308,507 $ 1,224,216 $ 1,237,690
Accounts payable and accrued liabilities 695,235 637,245 942,226
Deferred revenue 114,510 398,756 103,082
Current portion of long-term debt   233,903   233,903   -
Total current liabilities 2,352,155 2,494,120 2,282,998
 
Long-term debt 1,584,700 1,584,578 1,599,396
Other long-term liabilities   365,686   432,603   414,025
Total liabilities   4,302,541   4,511,301   4,296,419
 
Stockholders' equity 4,510,991 4,512,595 4,199,166
       
Total liabilities and stockholders' equity $ 8,813,532 $ 9,023,896 $ 8,495,585
 
   
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
 
Quarter Ended Year Ended
December 31, 2011 December 31, 2011
 
Cash flows from operating activities:
Net earnings $ 85,696 $ 543,105
Adjustments to earnings:
Depreciation and amortization 34,674 136,865
Amortization of stock compensation 10,566 40,530
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 (12,543) 7,287
Other receivables (218,780) (198,479)
Medical liabilities 84,291 68,272
Accounts payable and other accrued liabilities 63,417 68,605
Deferred revenue (284,246) 11,510
Other operating activities   (32,656)   (24,881)
Net cash flows from operating activities   (269,581)   401,159
 
Cash flows from investing activities:
Capital expenditures, net (8,190) (62,085)
Payments for investments, net of sales and maturities (1,738) (532,305)
Payments for acquisitions, net of cash acquired   (3,500)   (7,616)
Net cash flows from investing activities   (13,428)   (602,006)
 
Cash flows from financing activities:
Proceeds from issuance of stock 2,533 44,624
Payments for repurchase of stock (126,614) (336,219)
Proceeds from issuance of debt, net --- 589,867
Repayment of debt --- (380,029)
Excess tax benefit from stock compensation   (230)   7,619
Net cash flows from financing activities   (124,311)   (74,138)
 
Net change in cash and cash equivalents for current period (407,320) (274,985)
Cash and cash equivalents at beginning of period   1,986,323   1,853,988
Cash and cash equivalents at end of period $ 1,579,003 $ 1,579,003
         
 
Cash and Investments:
Cash and cash equivalents $ 1,579,003 $ 1,579,003
Short-term investments 116,205 116,205
Long-term investments   2,635,309   2,635,309
Total cash and investments $ 4,330,517 $ 4,330,517
 
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
           
Total Total
    2011   Q4 2011   Q3 2011   Q2 2011   Q1 2011   2010
Membership by Product (000s)                        
Commercial Risk 1,635 1,636 1,648 1,636 1,641
Health Plan Commercial ASO 700 710 689 688 698
Medicare Advantage CCP 222 220 219 219 224
Medicaid Risk       692     467     467     468     468
Health Plan Total 3,249 3,033 3,023 3,011 3,031
 
Other National ASO       373     376     379     383     459
Total Medical Membership 3,622 3,409 3,402 3,394 3,490
 
Medicare Part D 1,143 1,148 1,150 1,159 1,628
                     
Total Membership       4,765     4,557     4,552     4,553     5,118
                         
Revenues by Product Type (000s)                        
Commercial Risk $ 6,009,848 $ 1,510,768 $ 1,497,133 $ 1,510,849 $ 1,491,099 $ 5,540,470
Commercial Management Services 302,522 71,049 79,615 74,016 77,842 327,084
Medicare Advantage 2,382,330 598,796 591,051 601,240 591,242 2,114,205
Medicaid Risk   1,381,706     448,597     316,255     305,788     311,066     1,133,353
Total Health Plan and Medical Services Businesses 10,076,406 2,629,210 2,484,054 2,491,893 2,471,249 9,115,112
 
Medicare Part D 1,226,734 280,146 271,947 316,196 358,445 1,604,198
Other Premiums 105,597 26,132 26,341 26,709 26,415 100,130
Other Management Services   879,707     219,281     218,393     223,892     218,141     856,072
Total Specialized Managed Care Businesses 2,212,038 525,559 516,681 566,797 603,001 2,560,400
 
Total Premiums 11,106,215 2,864,439 2,702,727 2,760,782 2,778,267 10,492,356
Total Management Services 1,182,229 290,330 298,008 297,908 295,983 1,183,156
Other/Eliminations   (101,761)     (25,613)     (25,192)     (25,644)     (25,312)     (87,596)
Total Revenue $ 12,186,683   $ 3,129,156   $ 2,975,543   $ 3,033,046   $ 3,048,938   $ 11,587,916
                         
Consolidated Coventry                        
 
Operating Income % of Revenues 7.1% 4.8% 6.5% 11.7% 5.6% 5.9%
 
SGA % of Revenues 16.5% 17.2% 16.6% 16.0% 16.4% 16.9%
 
Total Health Plan Medical Liabilities (000s)(4) $ 1,106,174 $ 1,088,989 $ 1,094,021 $ 1,087,137 $ 1,021,667
Health Plan Days in Claims Payable (DCP) (4) 50.45 50.52 50.48 50.40 48.62
 
Total Debt (millions) $ 1,818.6 $ 1,818.5 $ 1,818.4 $ 1,599.5 $ 1,599.4
Total Capital (millions) $ 6,329.6 $ 6,331.1 $ 6,313.2 $ 5,869.3 $ 5,798.6
Debt to Capital 28.7% 28.7% 28.8% 27.3% 27.6%
 
COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
           
Total Total
    2011   Q4 2011   Q3 2011   Q2 2011   Q1 2011   2010
Revenue PMPM                        
Commercial Risk(3) $303.69 $305.70 $303.33 $304.19 $301.54 $298.62
Medicare Advantage $895.54 $896.77 $893.22 $909.10 $883.09 $876.67
Medicare Part D(5) $ 92.41 $ 90.95 $ 94.10 $ 93.72 $ 90.86 $ 87.96
Medicaid $228.85 $244.71 $226.39 $218.28 $221.16 $218.98
 
                         
MLR%                        
Consolidated Total 82.1% 82.1% 81.5% 82.1% 82.6% 79.4%
 
Commercial Risk(3) 81.6% 83.7% 82.1% 80.7% 80.0% 78.4%
Medicare Advantage 82.9% 82.3% 82.0% 82.9% 84.2% 82.0%
Medicare Part D 81.7% 60.5% 76.8% 88.8% 95.8% 83.7%
Medicaid 89.4% 94.4% 88.1% 86.9% 86.0% 85.7%
 
(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) "Commercial Risk" includes the results for all commercial risk business including Individual, Small Group, and Large Group members. Previously, certain metrics reflected the commercial group business only.
 
(4) "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. These statistics 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).
 
(5) Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.

Coventry Health Care, Inc.
Randy Giles
Chief Financial Officer
301-581-5687
or
Drew Asher
SVP, Corporate Finance
301-581-5717


© Business Wire 2012
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