Coventry Health Care, Inc. : Coventry Health Care Reports Fourth Quarter Earnings
02/08/2012| 06:35am US/Eastern
Recommend:
0
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
Recommend:
