Coventry Health Care Reports Second Quarter Earnings

BETHESDA, Md.--(BUSINESS WIRE)-- Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended June 30, 2011. Operating revenues totaled $3.0 billion for the quarter, an increase of 6% from the prior year quarter, with net earnings of $224.5 million or earnings per diluted share (EPS) of $1.51. These results include EPS of $0.03 from the Medicare Advantage Private Fee-for-Service (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 quarter. Excluding the impact of the provider class action litigation adjustment(1), earnings for the quarter were $123.3 million, or $0.83 EPS.

“Continuing the momentum that was built during the first quarter, the outstanding second quarter results that we are reporting today are a product of strong financial and operational execution in each of our businesses,” said Allen F. Wise, chairman and chief executive officer of Coventry. “More importantly, we are pleased with the positioning of our businesses and are excited about seizing future growth opportunities including our recent Medicaid award with the Commonwealth of Kentucky.”

Consolidated Highlights

  • Awarded contract with the Commonwealth of Kentucky to provide Medicaid services in seven of the eight Kentucky regions which is expected to commence in the fourth quarter of 2011
  • Sequential growth of 12,000 members in health plan commercial risk products during the second quarter
  • Approximately $1.3 billion of deployable free cash at the parent at June 30, 2011
    • Received $466 million in dividends from regulated subsidiaries during June
  • Completed $600 million public offering of 5.45% Senior Notes due 2021
    • Deployed portion of proceeds to repay $380 million of existing debt
  • Entered into a new $750 million, five-year unsecured revolving credit facility
  • Repurchased 1.5 million shares for $50 million during the second quarter
    • Total year-to-date share repurchase of 3.1 million shares for $100 million

Selected Second Quarter 2011 Highlights

  • Health Plan Commercial Risk. As of June 30, 2011, health plan commercial risk membership was 1,648,000, an increase of 126,000 members from the prior year quarter and an increase of 12,000 members sequentially. The health plan commercial group risk medical loss ratio (MLR) was 81.1% in the quarter and 80.7% year-to-date.
  • Medicare Advantage. As of June 30, 2011, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 219,000, an increase of 27,000 members from the prior year quarter. The MA-CCP MLR was 82.9% in the quarter and 83.6% year-to-date. During the second quarter, the run-out of the MA-PFFS product line contributed $0.03 EPS. When combined with the $0.08 EPS contribution reported in the first quarter, the total year-to-date contribution from the run-out of the MA-PFFS product line was $0.11 EPS. As previously announced, the Company did not renew this product line effective January 1, 2010.
  • Medicare Part D. As of June 30, 2011, Medicare Part D membership was 1,150,000, approximately flat to the prior quarter. The Medicare Part D MLR was 88.8% in the quarter, a decrease of 190 basis points from the prior year quarter. The Medicare Part D MLR was 92.5% year-to-date, a decrease of 60 basis points from the prior year-to-date.
  • Medicaid. As of June 30, 2011, Medicaid membership was 467,000, an increase of 54,000 members from the prior year quarter. The Medicaid MLR was 86.9% in the quarter and 86.4% year-to-date.

2011 Full Year Guidance

  • Risk revenue of $10.55 billion to $11.00 billion
  • Management services revenue of $1.180 billion to $1.195 billion
  • Consolidated revenue of $11.730 billion to $12.195 billion
  • Consolidated MLR of 81.8% to 82.3%
  • Cost of sales expense of $272.0 million to $278.0 million
  • Selling, general, and administrative expense (SG&A) of $2.00 billion to $2.04 billion
  • Settlement of provider class action of $159.3 million
  • Depreciation and amortization expense of $136.0 million to $140.0 million
  • Other income of $78.0 million to $82.0 million
  • Interest expense of $98.0 million to $99.0 million
  • Tax rate of 36.0% to 37.0%
  • Diluted share count of 147.0 million to 149.0 million
  • GAAP EPS of $3.48 to $3.63, including impact of settlement adjustment of $0.68
    • Adjusted EPS of $2.80 to $2.95, excluding settlement adjustment(1)

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, July 29, 2011. To listen to the call, dial toll-free at 888-359-3613 or, for international callers, 719-457-2639. 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 7615468.

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.

 
COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
   
Quarters Ended Six Months Ended
June 30, June 30,
2011   2010 2011   2010
Operating revenues:
Managed care premiums $ 2,737,594 $ 2,570,508

$

5,492,930

$ 5,141,083
Management services   295,452   297,633   589,054   586,036
Total operating revenues   3,033,046   2,868,141   6,081,984   5,727,119
 
Operating expenses:
Medical costs 2,248,793 2,032,556 4,523,953 4,146,898
Cost of sales 70,194 64,116 138,092 123,262
Selling, general, administrative 484,879 454,254 983,470 949,159
Provider class action (159,300) 278,000 (159,300) 278,000
Depreciation and amortization   33,379   33,985   69,195   69,504
Total operating expenses   2,677,945   2,862,911   5,555,410   5,566,823
 
Operating earnings   355,101   5,230   526,574   160,296
Operating earnings percentage of total revenues 11.7% 0.2% 8.7% 2.8%
 
Interest expense 22,579 20,195 42,616 40,325
Other income, net   23,819   18,207   43,287   38,494
 
Earnings before income taxes 356,341 3,242 527,245 158,465
 
Provision for income taxes   131,846   2,221   192,517   60,119
Net earnings $ 224,495 $ 1,021 $ 334,728 $ 98,346
 
Net earnings per share:
Basic earnings per share $ 1.53 $ 0.01 $ 2.28 $ 0.67
Diluted earnings per share $ 1.51 $ 0.01 $ 2.25 $ 0.67
 
Weighted average shares outstanding, basic 146,342 145,943 146,778 145,863
Weighted average shares outstanding, diluted 148,704 147,300 148,942 147,291
 
     
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
June 30, March 31, December 31,
2011 2011 2010
(unaudited) (unaudited)
Assets:
 
Current assets:
Cash and cash equivalents $ 1,645,616 $ 1,358,531 $ 1,853,988
Restricted cash – litigation escrow 150,500 150,500

-

Short-term investments 254,166 308,845 16,849
Accounts receivable, net 264,846 275,821 276,694
Other receivables, net 588,653 566,170 515,882
Other current assets 268,389 331,612 371,528
Total current assets 3,172,170 2,991,479 3,034,941
 
Long-term investments 2,461,548 2,349,200 2,184,606
Property and equipment, net 260,462 262,365 262,282
Goodwill 2,552,348 2,554,966 2,550,570
Other intangible assets, net 399,641 415,706 431,886
Other long-term assets 37,824 30,267 31,300
Total assets $ 8,883,993 $ 8,603,983 $ 8,495,585
 
 
 
Liabilities and Stockholders’ Equity:
 
Current liabilities:
Medical liabilities $ 1,278,647 $ 1,307,378 $ 1,237,690
Accounts payable and accrued liabilities 702,973 849,479 942,226
Deferred revenue 158,185 161,409 103,082
Current portion of long-term debt 233,903 233,903 -
Total current liabilities 2,373,708 2,552,169 2,282,998
 
Long-term debt 1,584,456 1,365,585 1,599,396
Other long-term liabilities 431,007 416,391 414,025
Total liabilities 4,389,171 4,334,145 4,296,419
 
Stockholders’ equity 4,494,822 4,269,838 4,199,166
       
Total liabilities and stockholders’ equity $ 8,883,993 $ 8,603,983 $ 8,495,585
 
   
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
 
Quarter Ended Six Months Ended
June 30, 2011 June 30, 2011
 
Cash flows from operating activities:
Net earnings $ 224,495 $ 334,728
Adjustments to earnings:
Depreciation and amortization 33,379 69,195
Amortization of stock compensation 10,288 18,515
Provider class action – reserve release (159,300) (159,300)
Provider class action – DTA adjustment 58,145 58,145
Changes in assets and liabilities:
Restricted cash – litigation escrow - (150,500)
Accounts receivable, net 11,011 12,704
Medical liabilities (28,239) 40,704
Accounts payable and other accrued liabilities 20,089 (15,392)
Deferred revenue (3,224) 55,185
Other operating activities (8,751) (77,478)
Net cash flows from operating activities 157,893 186,506
 
Cash flows from investing activities:
Capital expenditures, net (15,337) (34,995)
Payments for investments, net of sales and maturities (40,921) (504,241)
Payments for acquisitions, net of cash acquired (4,000) (4,000)
Net cash flows from investing activities (60,258) (543,236)
 
Cash flows from financing activities:
Proceeds from issuance of stock 28,648 37,514
Payments for repurchase of stock (55,040) (106,824)
Proceeds from issuance of debt, net 590,305 590,305
Repayment of debt (380,029) (380,029)
Excess tax benefit from stock compensation 5,566 7,392
Net cash flows from financing activities 189,450 148,358
 
Net change in cash and cash equivalents for current period 287,085 (208,372)
Cash and cash equivalents at beginning of period 1,358,531 1,853,988
Cash and cash equivalents at end of period $ 1,645,616 $ 1,645,616
 
             
 
Cash and Investments:
Cash and cash equivalents $ 1,645,616 $ 1,645,616
Short-term investments 254,166 254,166
Long-term investments 2,461,548 2,461,548
Total cash and investments $ 4,361,330 $ 4,361,330
 
             
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
 
Total
    Q2 2011   Q1 2011   2010   Q4 2010   Q3 2010   Q2 2010   Q1 2010
Membership by Product (000s)                            
Health Plan Commercial Risk 1,648 1,636 1,641 1,533 1,522 1,501
Health Plan Commercial ASO 689 688 698 636 657 663
Medicare Advantage CCP 219 219 224 193 192 190
Medicaid Risk   467     468         468     462     413     406
Health Plan Total 3,023 3,011 3,031 2,824 2,784 2,760
 
Other National ASO   379     383         459     462     466     482
Total Medical Membership 3,402 3,394 3,490 3,286 3,250 3,242
 
Medicare Part D 1,150 1,159 1,628 1,618 1,631 1,600
                         
Total Membership   4,552     4,553         5,118     4,904     4,881     4,842
                             
Revenues by Product Type (000s)                            
Commercial Risk $ 1,510,849 $ 1,491,099 $ 5,540,470 $ 1,475,773 $ 1,380,019 $ 1,367,457 $ 1,317,221
Commercial Management Services 74,016 77,842 327,084 81,861 79,869 82,395 82,957
Medicare Advantage 601,240 591,242 2,114,205 579,329 522,202 505,084 507,592
Medicaid Risk   305,788     311,066     1,133,353     312,359     286,762     268,460     265,771
Total Health Plan and Medical Services Businesses 2,491,893 2,471,249 9,115,112 2,449,322 2,268,852 2,223,396 2,173,541
 
Medicare Part D 316,196 358,445 1,604,198 357,941 348,784 423,664 473,809
Other Premiums 26,709 26,415 100,130 24,770 25,054 25,201 25,105
Other Management Services   223,892     218,141     856,072     215,279     215,185     217,706     207,904

Total Specialized Managed Care Businesses

566,797 603,001 2,560,400 597,990 589,023 666,571 706,818
 
Total Premiums 2,760,782 2,778,267 10,492,356 2,750,172 2,562,821 2,589,866 2,589,498
Total Management Services 297,908 295,983 1,183,156 297,140 295,054 300,101 290,861
Other/Eliminations   (25,644)     (25,312)     (87,596)     (22,296)     (22,094)     (21,826)     (21,381)
Total Revenue

$

3,033,046   $ 3,048,938   $ 11,587,916   $ 3,025,016   $ 2,835,781   $ 2,868,141   $ 2,858,978
                             
Consolidated Coventry                            
 
Operating Income % of Revenues 11.7% 5.6% 5.9% 7.8% 10.3% 0.2% 5.4%
 
SGA % of Revenues 16.0% 16.4% 16.9% 17.6% 17.0% 15.8% 17.3%
 
Total Health Plan Medical Liabilities (000s)(2) $ 1,094,021 $ 1,087,137 $ 1,021,667 $ 952,810 $ 1,026,355 $ 979,173
Health Plan Days in Claims Payable (DCP) (2) 50.48 50.40 48.62 51.70 55.47 54.14
 
Total Debt (millions) $ 1,818.4 $ 1,599.5 $ 1,599.4 $ 1,599.3 $ 1,599.2 $ 1,599.1
Total Capital (millions) $ 6,313.2 $ 5,869.3 $ 5,798.6 $ 5,655.7 $ 5,442.7 $ 5,418.2
Debt to Capital 28.8% 27.3% 27.6% 28.3% 29.4% 29.5%
 
             
COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
 
Total
    Q2 2011   Q1 2011   2010   Q4 2010   Q3 2010   Q2 2010   Q1 2010
Revenue PMPM                            
Health Plan Commercial Group Risk $ 322.83 $ 320.97 $ 314.58 $ 316.34 $ 315.82 $ 313.92 $ 312.05
Medicare Advantage(3), (4) $ 909.10 $ 883.09 $ 876.67 $ 857.39 $ 899.89 $ 867.43 $ 885.26
Medicare Part D(5) $ 93.72 $ 90.86 $ 87.96 $ 85.74 $ 87.56 $ 90.49 $ 88.05
Medicaid $ 218.28 $ 221.16 $ 218.98 $ 223.54 $ 215.51 $ 217.77 $ 218.76
 
                             
MLR%                            
Consolidated Total 82.1% 82.6% 79.4% 79.0% 77.2% 79.1% 82.3%
 
Health Plan Commercial Group Risk 81.1% 80.2% 79.2% 81.3% 76.8% 78.3% 80.2%
Medicare Advantage(4) 82.9% 84.2% 82.0% 84.1% 77.0% 81.2% 85.7%
Medicare Part D 88.8% 95.8% 83.7% 64.7% 79.0% 90.7% 95.3%
Medicaid 86.9% 86.0% 85.7% 85.4% 89.0% 84.2% 84.0%
 
 
(1)   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.
 
(2) “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 Preferred Health Systems acquisition for the first quarter of 2010 due to the timing of closing (February 1, 2010).
 
(3) Revenue PMPM excludes the impact of revenue ceded to external parties.
 
(4) 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.
 
(5) Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.
 



CONTACT:

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

KEYWORDS:   United States  North America  Maryland

INDUSTRY KEYWORDS:   Health  Professional Services  Insurance  Managed Care

MEDIA:

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