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

Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended March 31, 2012. Operating revenues totaled $3.7 billion for the quarter with net earnings of $170.7 million, or earnings per diluted share (EPS) of $1.20. These results include EPS of $0.58 related to the release of Medicare Advantage Risk Adjustment Data Validation (RADV) audit reserves as a result of recent Centers for Medicare & Medicaid Services (CMS) audit methodology changes. Excluding the impact of the RADV prior period reserve release, earnings for the quarter were $88.3 million, or $0.62 EPS.

"Today we reported a strong start to 2012 with six of our seven core businesses performing either at or above our expectations in the quarter," said Allen F. Wise, chairman and chief executive officer of Coventry. "For example, I am very pleased with the Medicare growth and financial performance in the quarter, now representing approximately $4.3 billion of annual revenue, or 30% of the Company's total revenue. We are optimistic about the future and our positioning to seize opportunities across our diversified businesses."

First Quarter 2012 Consolidated Highlights

• Operating revenue of $3.7 billion, an increase of 21% from the prior year quarter
• Total membership of 5,262,000, an increase of 497,000 members from the prior quarter, driven by growth across the Company's government programs in Medicare Advantage, Medicare Part D, and Medicaid
• Awarded contract with the State of Nebraska to provide services to the State's expanded Medicaid managed care program which is expected to commence in the third quarter of 2012
• Awarded renewal contract with the State of Missouri Medicaid program effective July 1, 2012
• Received Letters of Intent to contract with the Commonwealth of Pennsylvania HealthChoices Medicaid program in the New West and New East zones with expected effective dates of September 1, 2012, and March 1, 2013, respectively
• Selling, general, and administrative expense (SG&A) of 13.6% of total revenue, a decline of 280 basis points from the prior year quarter
• Capital Deployment
  • Initiated the first quarterly cash dividend in the Company's history at $0.125 per common share
  • Closed the Children's Mercy's Family Health Partners acquisition effective January 1, 2012
  • Retired $233.9 million of senior notes which came due in January 2012
• Approximately $900 million of deployable free cash at the parent at quarter-end

Selected First Quarter 2012 Highlights

• Commercial Risk. As of March 31, 2012, commercial risk membership was 1,549,000, a decrease of 87,000 members, or 5%, from the prior year quarter which was partially driven by large employer groups converting to self-funded. The commercial risk medical loss ratio (MLR) was 79.9% in the quarter, a decrease of 10 basis points (bps) from the prior year quarter.
• Medicare Advantage. As of March 31, 2012, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 250,000, an increase of 31,000 members, or 14%, from the prior year quarter, driven by successful execution during the 2012 Annual Enrollment Period. The MA-CCP MLR was 74.1% in the quarter, a decrease of 1,010 bps from the prior year quarter driven by the impact of the RADV prior period reserve release coupled with strong underlying performance.
• Medicare Part D. As of March 31, 2012, Medicare Part D membership was 1,458,000, an increase of 299,000 members, or 26%, from the prior year quarter, driven by the introduction of a third product, an increase in auto assignment regions, and successful execution during the 2012 Annual Enrollment Period. The Medicare Part D MLR was 94.9% in the quarter, a decrease of 90 bps from the prior year quarter.
• Medicaid. As of March 31, 2012, Medicaid membership was 924,000, an increase of 456,000 members, or 97%, from the prior year quarter. The increase was largely driven by 234,000 members from the Commonwealth of Kentucky Medicaid contract, which was effective November 1, 2011, and 208,000 members from the acquisition of Children's Mercy's Family Health Partners, which closed effective January 1, 2012. The Medicaid MLR was 100.0% in the quarter driven primarily by greater than anticipated expenses in the Company's Kentucky Medicaid business which produced an MLR of 120.9%.

2012 Full Year Guidance

• Risk revenue of $12.875 billion to $13.050 billion
• Management services revenue of $1.145 billion to $1.180 billion
• Consolidated revenue of $14.020 billion to $14.230 billion
• Consolidated MLR of 83.6% to 84.4%
• Cost of sales expense of $251.0 million to $257.0 million
• SG&A of $2.090 billion to $2.130 billion
• Depreciation and amortization expense of $138.0 million to $142.0 million
• Other income of $87.0 million to $93.0 million
• Interest expense of $99.0 million to $101.0 million
• Tax rate of 37.7% to 38.3%
• Diluted share count of 138.0 million to 142.0 million
• EPS of $3.10 to $3.30

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, April 27, 2012. To listen to the call, dial toll-free at (888) 455-2295 or, for international callers, (719) 325-2186. 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 9849499.

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, 2011, 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; our ability to effectively implement and manage our Kentucky Medicaid program, including management of the associated medical costs and the effect on our medical loss ratio; 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
		March 31,
		2012			2011
Operating revenues:		(unaudited)			(unaudited)
Managed care premiums		$	3,386,268		$	2,755,336
Management services			305,699			293,602
Total operating revenues			3,691,967			3,048,938
Operating expenses:
Medical costs			2,808,348			2,275,161
Cost of sales			67,952			67,898
Selling, general, and administrative			502,888			498,590
Depreciation and amortization			36,303			35,816
Total operating expenses			3,415,491			2,877,465
Operating earnings			276,476			171,473
Operating earnings percentage of total revenues			7.5%			5.6%
Interest expense			25,557			20,038
Other income, net			24,434			19,469
Earnings before income taxes			275,353			170,904
Provision for income taxes			104,634			60,671
Net earnings		$	170,719		$	110,233
Net earnings per share:
Basic earnings per common share		$	1.21		$	0.74
Diluted earnings per common share		$	1.20		$	0.73
Weighted average common shares outstanding, basic			139,323			147,219
Weighted average common shares outstanding, diluted			140,167			148,175

COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
			March 31,			December 31,
			2012			2011
			(unaudited)
Assets:
Current assets:
Cash and cash equivalents		$	1,744,983		$	1,579,003
Short-term investments			118,414			116,205
Accounts receivable, net			254,442			270,263
Other receivables, net			800,536			717,736
Other current assets			200,443			286,301
Total current assets			3,118,818			2,969,508
Long-term investments			2,634,646			2,635,309
Property and equipment, net			259,704			255,485
Goodwill			2,592,522			2,548,834
Other intangible assets, net			375,951			367,533
Other long-term assets			36,178			36,863
Total assets		$	9,017,819		$	8,813,532
Liabilities and Stockholders' Equity:
Current liabilities:
Medical liabilities		$	1,469,034		$	1,308,507
Accounts payable and other accrued liabilities			433,510			695,235
Deferred revenue			457,673			114,510
Current portion of long-term debt			---			233,903
Total current liabilities			2,360,217			2,352,155
Long-term debt			1,584,823			1,584,700
Other long-term liabilities			370,081			365,686
Total liabilities			4,315,121			4,302,541
Stockholders' equity			4,702,698			4,510,991
Total liabilities and stockholders' equity		$	9,017,819		$	8,813,532

COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(unaudited)
			Quarter Ended
			March 31, 2012
Cash flows from operating activities:
Net earnings		$	170,719
Adjustments to earnings:
Depreciation and amortization			36,303
Amortization of stock compensation			9,014
RADV Release			(132,977)
RADV Release - deferred tax adjustment			50,531
Changes in assets and liabilities:
Accounts receivable, net			39,538
Other receivables, net			(84,455)
Medical liabilities			101,984
Accounts payable and other accrued liabilities			(145,907)
Deferred revenue			343,163
Other operating activities			32,602
Net cash flows from operating activities			420,515
Cash flows from investing activities:
Capital expenditures, net			(23,517)
Proceeds from sales and maturities, net of payments for investments			26,157
Payments for acquisitions, net of cash acquired			(46,980)
Net cash flows from investing activities			(44,340)
Cash flows from financing activities:
Proceeds from issuance of stock			25,404
Payments for repurchase of stock			(4,564)
Repayment of debt			(233,903)
Excess tax benefit from stock compensation			2,868
Net cash flows from financing activities			(210,195)
Net change in cash and cash equivalents for current period			165,980
Cash and cash equivalents at beginning of period			1,579,003
Cash and cash equivalents at end of period		$	1,744,983
Cash and Investments:
Cash and cash equivalents		$	1,744,983
Short-term investments			118,414
Long-term investments			2,634,646
Total cash and investments		$	4,498,043

COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
		Q1 2012			Total 2011			Q4 2011			Q3 2011			Q2 2011			Q1 2011
Membership by Product (000s)
Commercial Risk			1,549						1,635			1,636			1,648			1,636
Health Plan Commercial ASO			725						700			710			689			688
Medicare Advantage			250						222			220			219			219
Medicaid Risk			924						692			467			467			468
Other National ASO			356						373			376			379			383
Medicare Part D			1,458						1,143			1,148			1,150			1,159
Total Membership			5,262						4,765			4,557			4,552			4,553
Revenues by Product Type (000s)
Commercial Risk		$	1,481,275		$	6,053,178		$	1,521,666		$	1,508,042		$	1,521,617		$	1,501,854
Commercial Management Services			113,777			387,949			91,216			99,301			95,393			102,039
Total Commercial Programs			1,595,052			6,441,127			1,612,882			1,607,343			1,617,010			1,603,893
Medicare Advantage			834,312			2,382,330			598,796			591,051			601,240			591,242
Medicaid Risk			668,060			1,381,706			448,597			316,255			305,788			311,066
Medicare Part D			413,423			1,226,734			280,146			271,947			316,196			358,445
Total Government Programs			1,915,795			4,990,770			1,327,539			1,179,253			1,223,224			1,260,753
Workers' Compensation			191,922			783,784			195,964			196,198			200,059			191,563
Corporate and Eliminations			(10,802)			(28,998)			(7,229)			(7,251)			(7,247)			(7,271)
Total Revenues			3,691,967			12,186,683			3,129,156			2,975,543			3,033,046			3,048,938
Consolidated Coventry
Operating Income % of Revenues			7.5%			7.1%			4.8%			6.5%			11.7%			5.6%
SGA % of Revenues			13.6%			16.5%			17.2%			16.6%			16.0%			16.4%
Total Health Plan Medical Liabilities (000s)(1)		$	1,313,458					$	1,106,174		$	1,088,989		$	1,094,021		$	1,087,137
Health Plan Days in Claims Payable (DCP) (1)			49.47						50.45			50.52			50.48			50.40
Total Debt (millions)		$	1,584.8					$	1,818.6		$	1,818.5		$	1,818.4		$	1,599.5
Total Capital (millions)		$	6,287.5					$	6,329.6		$	6,331.1		$	6,313.2		$	5,869.3
Debt to Capital			25.2%						28.7%			28.7%			28.8%			27.3%

COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
		Q1 2012		Total 2011		Q4 2011		Q3 2011		Q2 2011		Q1 2011
Revenue PMPM
Commercial Risk		$311.92		$303.69		$305.70		$303.33		$304.19		$301.54
Medicare Advantage(2)		$1,048.93		$895.54		$896.77		$893.22		$909.10		$883.09
Medicare Part D(3)		$85.44		$ 92.41		$ 90.95		$ 94.10		$ 93.72		$ 90.86
Medicaid		$238.74		$228.85		$244.71		$226.39		$218.28		$221.16
MLR%
Consolidated Total		82.9%		82.1%		82.1%		81.5%		82.1%		82.6%
Commercial Risk		79.9%		81.6%		83.7%		82.1%		80.7%		80.0%
Medicare Advantage(2)		74.1%		82.9%		82.3%		82.0%		82.9%		84.2%
Medicare Part D		94.9%		81.7%		60.5%		76.8%		88.8%		95.8%
Medicaid		100.0%		89.4%		94.4%		88.1%		86.9%		86.0%

(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 for the first quarter of 2012.
(2)		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%.
(3)		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

Partner Area