Coventry Health Care Reports Third Quarter Earnings and Increases Full Year 2009 Guidance

October 30, 2009 6:30 AM EDT

GAAP Earnings of $0.48 per Diluted Share; Adjusted Earnings of $0.66 per Diluted Share

BETHESDA, Md.--(BUSINESS WIRE)-- Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended September 30, 2009. Operating revenues totaled $3.4 billion for the quarter with GAAP net earnings of $70.6 million, or $0.48 earnings per diluted share (EPS). Excluding the impact of the First Health Services Corporation (FHSC) divestiture in the third quarter, which resulted in a net charge of $26.7 million, or $0.18 per diluted share, adjusted net earnings were $97.3 million, or $0.66 per diluted share.(1)

Excluding the impact of the FHSC divestiture, the Company is increasing its full year 2009 adjusted EPS guidance to a range of $2.01 to $2.03, an increase of $0.12 from the midpoint of the prior EPS range of $1.85 to $1.95. GAAP EPS for the full year is now expected to be in a range of $1.45 to $1.47 as the Company has recorded a largely non-cash full year charge of $0.56 per diluted share as a result of the FHSC divestiture, as outlined on page two.

"I continue to be pleased with the Company's financial and operational results for 2009 including today's increase to full year EPS guidance," said Allen F. Wise, chairman and chief executive officer of Coventry. "In the face of a challenging environment, we feel confident that focusing on our seven core businesses and driving a low cost structure will best position Coventry for the future."

Third Quarter Consolidated Highlights

    --  Revenues from continuing operations increased 17.7% from the prior year
        quarter
    --  Continued growth in Medicare products
        o Medicare Coordinated Care Product (CCP) membership growth of 38% from
          the prior year quarter
        o Medicare Part D membership growth of 81,000 from the prior quarter
    --  Health plan commercial group risk medical loss ratio of 82.1%
    --  GAAP cash flows from operations were $314.3 million
    --  Excellent liquidity position
        o Approximately $570 million of deployable free cash at the parent at
          quarter-end
        o Debt repayment of $98 million during the quarter
    --  Share buyback of 1.5 million shares at the end of the quarter
    --  Investment portfolio in a net unrealized gain position at quarter-end

1) Adjusted earnings of $0.66 per diluted share include earnings from continuing operations of $0.68 per diluted share and a loss of $0.02 per diluted share from FHSC operations during the quarter. The Company believes that adjusting earnings to exclude the unfavorable impact of the non-recurring FHSC divestiture-related charges provides a more meaningful measure of its operating results in comparison to prior and future periods (and to previously announced guidance). See page two for further details.

Selected Third Quarter Highlights

    --  Health Plan Commercial Group Premium Yield & Medical Loss Ratio (MLR).
        Reported commercial group risk premium yields rose to $304.13 PMPM (per
        member per month) in the quarter, an increase of 6.1% from the prior
        year quarter. The health plan commercial group risk MLR was 82.1% in the
        quarter, a decrease of 20 basis points from the prior year quarter.
    --  Medicare Advantage Membership & MLR. As of September 30, 2009, Medicare
        Advantage membership was 521,000, an increase of 141,000 members
        year-to-date. Medicare Advantage CCP membership was 185,000, an increase
        of 48,000 members year-to-date. The Medicare Advantage MLR was 89.4% in
        the quarter, a sequential decrease of 100 bps driven by favorable
        results in Medicare Advantage Private Fee-for-Service (PFFS). The
        Medicare Advantage PFFS MLR improvement in the third quarter compared to
        the first half of 2009 contributed approximately $0.07 per diluted share
        in the quarter. As previously announced, the Company will exit the
        Medicare Advantage PFFS product effective January 1, 2010.
    --  Medicare Part D Membership & MLR. As of September 30, 2009, Medicare
        Part D membership was 1,636,000, an increase of 81,000 members from the
        prior quarter and 705,000 members year-to-date. The Medicare Part D MLR
        was 79.4% in the quarter and 91.9% year-to-date, compared to the third
        quarter 2008 year-to-date MLR of 91.5%.
    --  Medicaid Membership. As of September 30, 2009, Medicaid membership was
        391,000, an increase of 6,000 members from the prior quarter. The
        Medicaid MLR was 86.1% in the quarter.
    --  First Health Services Corporation Divestiture. The previously announced
        divestiture of FHSC closed on July 31, 2009. In accordance with GAAP,
        the historical FHSC results of operations are classified as discontinued
        operations and are excluded from consolidated continuing operations for
        each period presented. In addition to the results of FHSC operations,
        the discontinued operations for the third quarter and year-to-date
        periods of 2009 include charges to reflect the impact of the FHSC
        divestiture. Consistent with previous guidance, in the third quarter of
        2009 the Company recorded a primarily non-cash net charge of $0.18 per
        diluted share to complete the divestiture. When combined with the loss
        of $0.02 per diluted share generated from FHSC operating results in the
        quarter, the total EPS from discontinued operations was a loss of $0.20
        for the third quarter. Including the previously disclosed $0.38 per
        diluted share charge recorded in the second quarter, the total
        year-to-date charge on the FHSC divestiture was $0.56 per diluted share,
        which is consistent with the lower end of the Company's prior estimate
        of $0.55 to $0.60 per diluted share. When combined with the $0.06 of EPS
        generated from FHSC year-to-date operating results, the total EPS from
        discontinued operations was a loss of $0.50 for the nine months ended
        September 30, 2009.

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, October 30, 2009. To listen to the call, dial toll-free at (888) 352-6803 or, for international callers, (719) 325-2474. 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 3147061.

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. 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, 2008 and Coventry's Form 10-Q for the quarter ended June 30, 2009. 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            Nine Months Ended

                             September 30,             September 30,

                               2009         2008         2009          2008

Operating revenues:

Managed care premiums        $ 3,153,142  $ 2,627,345  $ 9,595,872   $ 7,891,701

Management services            290,968      298,376      879,507       865,785

Total operating revenues       3,444,110    2,925,721    10,475,379    8,757,486

Operating expenses:

Medical costs                  2,661,131    2,200,405    8,261,102     6,630,950

Cost of sales                  62,384       54,289       178,280       139,038

Selling, general,              527,173      478,973      1,607,142     1,411,163
administrative

Depreciation and               40,660       35,617       110,309       109,401
amortization

Total operating expenses       3,291,348    2,769,284    10,156,833    8,290,552

Operating earnings             152,762      156,437      318,546       466,934

Operating earnings
percentage of total            4.4%         5.3%         3.0%          5.3%
revenues

Interest expense               20,697       22,523       64,603        70,545

Other income, net              18,012       (9,904)      69,773        52,292

Earnings before income         150,077      124,010      323,716       448,681
taxes

Provision for income taxes     49,638       45,032       117,462       168,027

Income from continuing         100,439      78,978       206,254       280,654
operations

(Loss) income from
discontinued operations,       (29,810)     6,496        (73,033)      13,000
net of tax

Net earnings                 $ 70,629     $ 85,474     $ 133,221     $ 293,654

Net earnings per share:

Basic earnings per share     $ 0.68       $ 0.54       $ 1.40        $ 1.88
from continuing operations

Basic (loss) earnings per
share from discontinued        (0.20)       0.04         (0.50)        0.09
operations

Total basic earnings per     $ 0.48       $ 0.58       $ 0.90        $ 1.96
share

Diluted earnings per share   $ 0.68       $ 0.53       $ 1.40        $ 1.86
from continuing operations

Diluted (loss) earnings per
share from discontinued        (0.20)       0.04         (0.50)        0.09
operations

Total diluted earnings per   $ 0.48       $ 0.58       $ 0.90        $ 1.94
share

Weighted average shares        147,062      146,652      146,956       149,591
outstanding, basic

Weighted average shares        147,784      147,802      147,569       151,229
outstanding, diluted

COVENTRY HEALTH CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

                                 September 30,    June 30,       December 31,

                                 2009             2009           2008

                                 (unaudited)      (unaudited)

Assets:

Current assets:

Cash and cash equivalents      $ 1,691,847      $ 1,712,152    $ 1,123,114

Short-term investments           355,417          112,677        338,129

Accounts receivable, net         259,775          280,292        293,636

Other receivables, net           501,348          607,359        524,803

Other current assets             156,837          186,651        130,808

Total current assets             2,965,224        2,899,131      2,410,490

Long-term investments            1,888,670        1,762,120      1,709,878

Property and equipment, net      270,153          292,690        308,016

Goodwill                         2,535,718        2,622,479      2,695,025

Other intangible assets, net     491,164          513,209        546,168

Other long-term assets           33,949           34,430         57,821

Total assets                   $ 8,184,878      $ 8,124,059    $ 7,727,398

Liabilities and Stockholders'
Equity:

Current liabilities:

Medical liabilities            $ 1,702,855      $ 1,752,969    $ 1,446,391

Accounts payable and accrued     630,190          499,602        474,561
liabilities

Deferred revenue                 107,172          122,294        104,823

Total current liabilities        2,440,217        2,374,865      2,025,775

Long-term debt                   1,708,935        1,806,842      1,902,472

Other long-term liabilities      433,077          416,286        368,482

Total liabilities                4,582,229        4,597,993      4,296,729

Stockholders' equity             3,602,649        3,526,066      3,430,669

Total liabilities and          $ 8,184,878      $ 8,124,059    $ 7,727,398
stockholders' equity

COVENTRY HEALTH CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

                                       Quarter Ended         Nine Months Ended

                                       September 30, 2009    September 30, 2009

Cash flows from operating
activities:

Net earnings                         $ 70,629              $ 133,221

Adjustments to earnings:

Depreciation and amortization          40,981                112,570

Amortization of stock compensation     13,552                37,332

Loss on disposal of FHSC               26,738                81,557

Gain on repurchase of debt             (41)                  (8,371)

Changes in assets and liabilities:

Accounts receivable, net               (1,868)               11,476

Medical liabilities                    (50,036)              256,542

Accounts payable and other accrued     93,173                131,467
liabilities

Deferred revenue                       (11,640)              5,831

Other operating activities             132,851               27,218

Net cash flows from operating          314,339               788,843
activities

Cash flows from investing
activities:

Capital expenditures, net              (11,623)              (34,795)

Payments for investments, net of       (331,469)             (115,791)
sales and maturities

Proceeds from acquisition              112                   10,197
settlements

Proceeds from FHSC disposal, net       115,437               115,437

Net cash flows from investing          (227,543)             (24,952)
activities

Cash flows from financing
activities:

Proceeds from issuance of stock        615                   1,094

Payments for repurchase of stock       (10,018)              (11,745)

Repayment of debt                      (97,910)              (184,930)

Excess tax benefit from stock          212                   423
compensation

Net cash flows from financing          (107,101)             (195,158)
activities

Net change in cash and cash            (20,305)              568,733
equivalents for current period

Cash and cash equivalents at           1,712,152             1,123,114
beginning of period

Cash and cash equivalents at end of  $ 1,691,847           $ 1,691,847
period

Cash and Investments:

Cash and cash equivalents            $ 1,691,847           $ 1,691,847

Short-term investments                 355,417               355,417

Long-term investments                  1,888,670             1,888,670

Total cash and investments           $ 3,935,934           $ 3,935,934

COVENTRY HEALTH CARE, INC.

SELECTED OPERATING STATISTICS

(Unaudited)

                                                           Total
                    Q3 2009      Q2 2009      Q1 2009                    Q4 2008      Q3 2008
                                                           2008

Membership by
Product (000s)

Health Plan           1,431        1,477        1,501                      1,575        1,587
Commercial Risk

Health Plan           689          697          702                        714          720
Commercial ASO

Medicare Advantage    185          182          176                        137          134
CCP

Medicaid Risk         391          385          375                        371          386

Health Plan Total     2,696        2,741        2,754                      2,797        2,827

Medicare Advantage    336          329          318                        243          243
PFFS

Other National        5            15           21                         24           27
Risk

Other National ASO    567          571          575                        633          641

Total Medical         3,604        3,656        3,668                      3,697        3,738
Membership

Medicare Part D       1,636        1,555        1,501                      931          910

Total Membership      5,240        5,211        5,169                      4,628        4,648

Revenues by
Product Type
(000s)

Commercial Risk     $ 1,279,571  $ 1,310,645  $ 1,327,221  $ 5,421,984   $ 1,364,232  $ 1,362,956

Commercial
Management            81,661       83,675       83,810       352,369       97,108       86,672
Services

Medicare Advantage    1,268,592    1,224,011    1,161,590    3,177,244     847,231      825,504

Medicaid Risk         281,146      263,039      260,838      1,087,189     259,926      260,060

Total Health Plan
and Medical           2,910,970    2,881,370    2,833,459    10,038,786    2,568,497    2,535,192
Services
Businesses

Medicare Part D       316,654      397,090      484,123      847,702       191,899      170,483

Other Premiums        23,568       23,746       23,957       64,783        22,916       18,937

Other Management      211,769      215,468      210,893      826,321       210,406      213,799
Services(2)

Total Specialized
Managed Care          551,991      636,304      718,973      1,738,806     425,221      403,219
Businesses(2)

Total Premiums        3,169,531    3,218,531    3,257,729    10,598,902    2,686,204    2,637,940

Total Management      293,430      299,143      294,703      1,178,690     307,514      300,471
Services(2)

Other/Eliminations    (18,851)     (19,300)     (19,537)     (43,365)      (16,976)     (12,690)

Total Revenue(2)    $ 3,444,110  $ 3,498,374  $ 3,532,895  $ 11,734,227  $ 2,976,742  $ 2,925,721

Consolidated
Coventry

Operating Income %    4.4%         2.9%         1.8%         5.0%          4.0%         5.3%
of Revenues(2)

SGA % of Revenues     15.3%        15.3%        15.4%        16.5%         17.8%        16.4%
(2)

Total Medical       $ 1,428,766  $ 1,413,243  $ 1,416,735                $ 1,243,620  $ 1,209,560
Liabilities (000s)

Days in Claims        54.78        54.07        55.11                      54.75        54.94
Payable (DCP)

Total Debt          $ 1,708.9    $ 1,806.8    $ 1,902.6                  $ 1,902.5    $ 1,472.3
(millions)

Total Capital       $ 5,311.6    $ 5,332.9    $ 5,402.8                  $ 5,333.1    $ 4,779.3
(millions)

Debt to Capital       32.2%        33.9%        35.2%                      35.7%        30.8%

2) Operating statistics excluding discontinued operations.

COVENTRY HEALTH CARE, INC.

SELECTED REVENUE AND MEDICAL COST STATISTICS

(Unaudited)

                                                   Total
                        Q3 2009  Q2 2009  Q1 2009           Q4 2008  Q3 2008
                                                   2008

Revenue PMPM

Health Plan Commercial  $304.13  $299.79  $296.36  $286.30  $289.71  $286.73
Group Risk

Medicare Advantage(3)   $853.90  $857.05  $860.46  $862.60  $862.79  $856.90

Medicare Part D(4)      $84.63   $85.27   $ 84.35  $ 88.34  $ 89.16  $ 85.64

Medicaid Risk           $239.22  $230.27  $231.93  $208.50  $228.33  $226.08

MLR %

Consolidated Total      84.4%    86.4%    87.4%    84.0%    83.8%    83.8%

Health Plan Commercial  82.1%    81.7%    80.9%    81.7%    83.2%    82.3%
Group Risk

Medicare Advantage      89.4%    90.4%    90.5%    89.0%    90.9%    88.4%

Medicare Part D         79.4%    89.9%    101.8%   84.1%    58.8%    78.5%

Medicaid Risk           86.1%    90.2%    88.3%    85.3%    85.9%    84.2%

3)  Revenue PMPM excludes the impact of revenue ceded to external parties.

4)  Revenue PMPM excludes the impact of CMS risk-share premium adjustments and
    revenue ceded to external parties.

    Source: Coventry Health Care, Inc.

Related Categories

Press Releases

Stocks Mentioned

Related Entities

• Stock Buyback

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?