Tuesday, July 31, 2007
BETHESDA, Md., Jul. 31, 2007 (Business Wire) -- Coventry Health Care, Inc. (NYSE:CVH) today reported operating results for the quarter ended June 30, 2007. Operating revenues totaled $2.33 billion for the quarter with net earnings of $151.3 million, or $0.96 per diluted share.
'I am pleased to report another strong quarter from our well-diversified portfolio of businesses,' said Dale B. Wolf, chief executive officer of Coventry. 'The Commercial Business division reported an outstanding medical loss ratio, the Individual Consumer & Government Business division continued to display impressive growth, and the Specialty Business division performed very well as we successfully integrated the Concentra workers' compensation services businesses. In addition to delivering these reliable financial and operational results, we continue to deploy capital strategically and position the Company for future growth opportunities.'
Second Quarter Highlights-- Revenues up 19.9% from the prior year quarter-- GAAP diluted EPS up 14.3% from the prior year quarter-- Health plan commercial group risk medical loss ratio (MLR) of 77.5%, a decrease of 90 basis points from the prior quarter-- Share buyback of 2.5 million shares in the quarter with a year-to- date total of 6.5 million shares repurchased-- Completed acquisition of Concentra workers' compensation services businesses on April 2, 2007-- Announced acquisition of certain group health insurance businesses from Mutual of Omaha (closed effective July 1, 2007)-- GAAP cash flows from operations were $246.6 million, or 163% of net income in the quarter, with year-to-date cash flows from operations of $730.2 million, or 267% of net income. To provide further detail regarding the timing of Medicare-related payments, a cash flow reconciliation is presented on page 7.Commercial Business Division Highlights-- Membership. As of June 30, 2007, Coventry reported total divisional membership of 2.73 million. Included in this total were 1.39 million commercial group risk members, up slightly from the prior quarter.-- Health Plan Commercial Group Insured Trends(1). For the six months ending June 30, 2007, commercial premium yields showed a positive price-to-cost spread with year-to-date premium yield up 5.1% and medical expense PMPM (per member per month) up 4.9%.-- Medical Loss Ratio (MLR)(1). Health plan commercial group risk MLR was 77.5% in the second quarter and 78.0% year-to-date. Prior year- to-date MLR was 78.1% through June 30, 2006.Individual Consumer & Government Business Division Highlights-- Membership. As of June 30, 2007, Coventry reported total divisional membership of 1.35 million, representing an increase of 213,000 over the prior year quarter. This was driven by an increase of 133,000 Medicare Advantage members, 37,000 Medicare Part D members, 26,000 Individual members, and 17,000 Medicaid risk members.-- Medical Loss Ratio (MLR). Medicare Advantage MLR of 79.3% improved 20 basis points over the prior year quarter. Medicare Part D MLR of 80.3% is on track to outperform the prior year.Specialty Business Division Highlights-- Revenue for the quarter was $157.1 million, representing the combined Coventry workers' compensation services businesses.-- Successful execution in the first three months following the Concentra acquisition. With more than $600 million in annualized fee revenue and a comprehensive product portfolio, Coventry is now the market leader providing managed care solutions for workers' compensation payers.(1) 'Health Plan Commercial Group Insured' data excludes Individual business (under 65 years of age).
Consolidated Guidance Details(a)Q3 2007 Guidance-- Total revenues of $2.40 billion to $2.50 billion-- Earnings per share (EPS) on a diluted basis of $1.06 to $1.082007 Full Year Guidance-- Risk revenues of $8.30 billion to $8.40 billion-- Management services revenues of $1.160 billion to $1.185 billion-- Consolidated revenues of $9.460 billion to $9.585 billion-- Consolidated MLR% of 79.5% to 79.8%-- Cost of sales expense of $80.0 million to $90.0 million -- Cost of sales primarily represents pharmacy ingredient costs for the workers' compensation services PBM-- Selling, general, and administrative expenses (SG&A) of $1.705 billion to $1.725 billion-- Depreciation and amortization expense of $132.0 million to $135.0 million-- Investment income of $121.0 million to $126.0 million-- Interest expense of $69.0 million to $70.0 million -- Includes $9.1 million charge for debt refinancing-- Tax rate of 37.1% to 37.4%-- Diluted share count of 157.3 million to 157.7 million shares-- GAAP earnings per share (EPS) on a diluted basis of $3.92 to $3.98 -- Includes $0.04 per share charge for debt refinancing
Mr. Wolf will host a conference call at 8:30 a.m. ET on Tuesday, July 31, 2007. To listen to the call, dial toll-free at (888) 202-2422 or, for international callers, (913) 981-5592. Callers will be asked to identify themselves and their affiliations. The conference call will also be broadcast from Coventry's Investor Relations website at www.cvty.com. Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission (SEC). 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 8817544.
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, 2006 and Coventry's Form 10-Q for the quarter ended March 31, 2007. Coventry undertakes no obligation to update or revise any forward-looking statements.
Coventry Health Care (www.cvty.com) is a diversified national managed healthcare company based in Bethesda, Maryland, operating health plans, insurance companies, network rental and workers' compensation services companies. Through its Commercial Business, Individual Consumer & Government Business, and Specialty Business divisions, 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.
(a) All guidance elements exclude the impact of the Vista Healthplan acquisition announced on July 9, 2007.
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, --------------------- --------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ----------Operating revenues: Managed care premiums $2,016,394 $1,721,137 $4,039,365 $3,437,459 Management services 316,098 223,772 529,624 446,167 ---------- ---------- ---------- ----------Total operating revenues 2,332,492 1,944,909 4,568,989 3,883,626 ---------- ---------- ---------- ----------Operating expenses: Medical costs 1,605,437 1,376,396 3,261,977 2,777,450 Cost of sales 27,609 - 27,609 - Selling, general, administrative 442,835 333,290 812,330 661,518 Depreciation and amortization 33,658 28,635 63,957 55,350 ---------- ---------- ---------- ----------Total operating expenses 2,109,539 1,738,321 4,165,873 3,494,318 ---------- ---------- ---------- ----------Operating earnings 222,953 206,588 403,116 389,308Operating earnings percentage of total revenues 9.6% 10.6% 8.8% 10.0%Interest expense 15,640 13,248 36,839 26,165Other income, net 34,770 24,082 68,599 47,076 ---------- ---------- ---------- ----------Earnings before income taxes 242,083 217,422 434,876 410,219Provision for income taxes 90,781 81,968 161,833 153,785 ---------- ---------- ---------- ----------Net earnings $ 151,302 $ 135,454 $ 273,043 $ 256,434 ========== ========== ========== ==========Net earnings per share, basic $ 0.98 $ 0.86 $ 1.75 $ 1.61Net earnings per share, diluted $ 0.96 $ 0.84 $ 1.72 $ 1.58Weighted average shares outstanding, basic 155,095 158,383 156,056 159,202Weighted average shares outstanding, diluted 157,841 161,342 158,738 162,338
COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) June 30, March 31, December 31, 2007 2007 2006 ------------ ------------ ------------ (unaudited) (unaudited)Assets:Current assets: Cash and cash equivalents $ 1,685,133 $ 1,910,507 $ 1,370,836 Short-term investments 102,070 222,525 292,392 Accounts receivable, net 239,794 212,796 209,180 Other receivables, net 273,672 166,155 164,829 Other current assets 148,437 144,356 97,145---------------------------- ------------ ------------ ------------Total current assets 2,449,106 2,656,339 2,134,382Long-term investments 1,191,031 1,159,458 1,130,572Property and equipment, net 309,019 296,811 315,105Goodwill 1,918,423 1,620,235 1,620,272Other intangible assets, net 454,046 395,365 388,400Other long-term assets 89,451 167,389 76,376---------------------------- ------------ ------------ ------------Total assets $ 6,411,076 $ 6,295,597 $ 5,665,107============================ ============ ============ ============Liabilities and Stockholders' Equity:Current liabilities: Medical liabilities $ 1,429,785 $ 1,365,261 $ 1,121,151 Accounts payable and accrued liabilities 406,727 442,776 460,489 Deferred revenue 340,350 286,701 60,349 Current portion of long- term debt 10,000 10,000 10,000---------------------------- ------------ ------------ ------------Total current liabilities 2,186,862 2,104,738 1,651,989Long-term debt 968,563 978,526 750,500Other long-term liabilities 325,289 314,254 309,616---------------------------- ------------ ------------ ------------Total liabilities 3,480,714 3,397,518 2,712,105---------------------------- ------------ ------------ ------------Stockholders' equity 2,930,362 2,898,079 2,953,002---------------------------- ------------ ------------ ------------Total liabilities and stockholders' equity $ 6,411,076 $ 6,295,597 $ 5,665,107============================ ============ ============ ============
COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Quarter Ended Six Months Ended June 30, 2007 June 30, 2007 ------------- ---------------- (unaudited) (unaudited)Cash flows from operating activities: Net earnings $ 151,302 $ 273,043 Adjustments to earnings: Depreciation and amortization 33,658 63,957 Amortization of stock compensation 16,868 31,540 Changes in assets and liabilities: Accounts receivable, net 17,538 13,922 Medical liabilities 60,640 304,750 Accounts payable and other accrued liabilities (73,979) (121,463) Deferred revenue 53,619 279,971 Other operating activities (13,064) (115,556)------------------------------------- ------------- ---------------- Net cash flows from operating activities 246,582 730,164------------------------------------- ------------- ----------------Cash flows from investing activities: Capital expenditures, net (10,201) (13,230) Proceeds from investments, net of purchases 76,902 119,667 Payments for acquisitions, net of cash acquired (399,564) (411,318)------------------------------------- ------------- ---------------- Net cash flows from investing activities (332,863) (304,881)------------------------------------- ------------- ----------------Cash flows from financing activities: Proceeds from issuance of stock 16,974 31,215 Payments for repurchase of stock (157,797) (379,462) Proceeds from issuance of debt, net (468) 394,056 Excess tax benefit from stock compensation 12,198 23,705 Payments for retirement of debt (10,000) (180,500)------------------------------------- ------------- ---------------- Net cash flows from financing activities (139,093) (110,986)------------------------------------- ------------- ----------------Net change in cash and cash equivalents for current period (225,374) 314,297Cash and cash equivalents at beginning of period 1,910,507 1,370,836------------------------------------- ------------- ----------------Cash and cash equivalents at end of period $ 1,685,133 $ 1,685,133===================================== ============= ================------------------------------------- -------------- -----------------Cash and Investments:Cash and cash equivalents $ 1,685,133 $ 1,685,133Short-term investments 102,070 102,070Long-term investments 1,191,031 1,191,031------------------------------------- ------------- ----------------Total cash and investments $ 2,978,234 $ 2,978,234===================================== ============= ================
COVENTRY HEALTH CARE, INC. RECONCILIATION OF OPERATING CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 2007 (Amounts in thousands, unaudited) Stand-Alone All Other Consolidated Medicare Part D Operations As Reported -----------------------------------------GAAP net cash flows from operating activities $28,637 $217,945 $246,582GAAP cash flows as a percentage of net earnings 218% 158% 163%Add: April CMS premium payment received in Q1 $62,630 $160,842 $223,472 April reinsurance payment received in Q1 $13,050 $35 $13,085 April low-income subsidy payment received in Q1 $31,144 $310 $31,454Less: July CMS premium payment received in Q2 ($66,194) ($198,104) ($264,298) July reinsurance payment received in Q2 ($14,375) ($146) ($14,521) July low-income subsidy payment received in Q2 ($32,513) ($445) ($32,958) -----------------------------------------Adjusted operating cash flows $22,379(1) $180,437 $202,816 =========================================Net earnings $13,133 $138,169 $151,302Adjusted operating cash flows as a percentage of net earnings 170% 131% 134%======================================================================
(1) Stand-alone Medicare Part D adjusted operating cash flows include $8.8 million in reinsurance payments received for April through June of 2007, net of claims paid subject to reinsurance.
COVENTRY HEALTH CARE, INC. RECONCILIATION OF OPERATING CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2007 (Amounts in thousands, unaudited) Stand-Alone All Other Consolidated Medicare Part D Operations As Reported ----------------------------------------GAAP net cash flows from operating activities $173,649 $556,515 $730,164GAAP cash flows as a percentage of net earnings n/m 214% 267%Less: July CMS premium payment received in Q2 ($66,194) ($198,104) ($264,298) July reinsurance payment received in Q2 ($14,375) ($146) ($14,521) July low-income subsidy payment received in Q2 ($32,513) ($445) ($32,958) ----------------------------------------Adjusted operating cash flows $60,567(1) $357,820 $418,387 ========================================Net earnings $12,807 $260,236 $273,043Adjusted operating cash flows as a percentage of net earnings 473% 137% 153%======================================================================
(1) Stand-alone Medicare Part D adjusted operating cash flows include $42.0 million in reinsurance payments received for January through June of 2007, net of claims paid subject to reinsurance. For contract year 2006, stand-alone Medicare Part D cash flows include $227.7 million in reinsurance payments, net of claims paid subject to reinsurance. Following the final settlement related to the 2006 plan year, any remaining balances from reinsurance and other subsidy payments will be returned to CMS.
COVENTRY HEALTH CARE, INC. SELECTED OPERATING STATISTICS (Unaudited) Total Q2 2007 Q1 2007 2006 --------------------------------Membership by Product (000s)Commercial Group Risk(2) 1,389 1,387Health Plan ASO 650 648Other ASO(3) 692 741 --------------------------------Total Commercial Division 2,731 2,776Medicare Advantage(4) 213 185Medicare Part D 700 698 --------------------------------Total Medicare 913 883Medicaid Risk 396 400Individual 41 31 --------------------------------Total Indiv./Gov't Division 1,350 1,314 --------------------------------Total Membership 4,081 4,090 ================================Revenues by Product (000s)Commercial Group Risk $1,134,278 $1,133,525 $4,580,165Commercial ASO 113,702 116,447 492,293 --------------------------------Total Commercial Division 1,247,980 1,249,972 5,072,458Medicare Risk 657,652 668,455 1,484,548Medicaid Risk 207,937 208,138 762,093Medicaid ASO 46,716 49,605 184,503Individual Risk 16,527 12,852 30,495 --------------------------------Total Indiv./Gov't Division 928,832 939,050 2,461,639Specialty Division 157,098 48,778 206,220Total Premiums 2,016,394 2,022,970 6,857,301Total Management Services 317,516 214,830 883,016Other/Eliminations (1,418) (1,303) (6,561) --------------------------------Total Revenue $2,332,492 $2,236,497 $7,733,756 ================================Consolidated CoventryOperating Income % of Revenues 9.6% 8.1% 10.9%SGA % of Revenues 19.0% 16.5% 17.3%Total Medical Liabilities (000s)(5) $ 910,528 $ 835,790Days in Claims Payable (DCP)(5) 57.34 53.97Total Debt (millions) $ 978.6 $ 988.5Total Capital (millions) $ 3,908.9 $ 3,886.6Debt to Capital 25.0% 25.4% Total Q4 2006 Q3 2006 Q2 2006 Q1 2006 2005 -------------------------------------------------------Membership by Product (000s)Commercial Group Risk(2) 1,457 1,462 1,487 1,490 1,515Health Plan ASO 621 615 611 612 592Other ASO(3) 866 872 900 922 1,131 -------------------------------------------------------Total Commercial Division 2,944 2,949 2,998 3,024 3,238Medicare Advantage(4) 80 79 80 80 75Medicare Part D 687 687 663 529 n/a -------------------------------------------------------Total Medicare 767 766 743 609 75Medicaid Risk 373 373 379 385 393Individual 23 19 15 12 n/m -------------------------------------------------------Total Indiv./Gov't Division 1,163 1,158 1,137 1,006 468 -------------------------------------------------------Total Membership 4,107 4,107 4,135 4,030 3,706 =======================================================Revenues by Product (000s)Commercial Group Risk $1,146,442 $1,144,349 $1,147,613 $1,141,761 $4,297,489Commercial ASO 122,755 117,761 122,903 128,874 513,064 -------------------------------------------------------Total Commercial Division 1,269,197 1,262,110 1,270,516 1,270,635 4,810,553Medicare Risk 376,882 350,886 376,735 380,045 676,349Medicaid Risk 190,312 192,500 190,108 189,173 754,324Medicaid ASO 46,819 45,983 47,974 43,727 183,197Individual Risk 10,254 8,217 6,681 5,343 n/m -------------------------------------------------------Total Indiv./Gov't Division 624,267 597,586 621,498 618,288 1,613,870Specialty Division 49,175 51,084 54,536 51,425 193,714Total Premiums 1,723,890 1,695,952 1,721,137 1,716,322 5,728,162Total Management Services 218,749 214,828 225,413 224,026 889,975Other/Eliminations (1,645) (1,644) (1,641) (1,631) (6,891) -------------------------------------------------------Total Revenue $1,940,994 $1,909,136 $1,944,909 $1,938,717 $6,611,246 =======================================================Consolidated CoventryOperating Income % of Revenues 11.7% 11.7% 10.6% 9.4% 12.0%SGA % of Revenues 18.3% 16.9% 17.1% 16.9% 17.9%Total Medical Liabilities (000s)(5) $ 719,426 $ 733,550 $ 709,437 $ 742,247 $ 700,066Days in Claims Payable (DCP)(5) 54.97 56.00 53.84 55.17 55.58Total Debt (millions) $ 760.5 $ 760.5 $ 760.5 $ 770.5 $ 770.5Total Capital (millions) $ 3,713.5 $ 3,536.0 $ 3,350.4 $ 3,310.8 $ 3,325.2Debt to Capital 20.5% 21.5% 22.7% 23.3% 23.2%
COVENTRY HEALTH CARE, INC. REVENUE AND MEDICAL COST STATISTICS (Unaudited) Total Q2 2007 Q1 2007 2006 -----------------------Revenue PMPMHealth Plan Commercial Group Risk(1) $271.39 $271.03 $260.69Medicare Advantage(4),(6) $836.17 $834.02 $857.28Medicare Part D(7) $101.49 $ 97.25 $103.77Medicaid Risk $174.48 $177.09 $167.30MLR %Consolidated Total 79.6% 81.9% 79.3%Health Plan Commercial Group Risk(1) 77.5% 78.4% 77.8%Medicare Advantage(4) 79.3% 82.3% 79.4%Medicare Part D 80.3% 94.7% 84.5%Medicaid Risk 91.7% 86.5% 85.6% Total Q4 2006 Q3 2006 Q2 2006 Q1 2006 2005 ----------------------------------------Revenue PMPMHealth Plan Commercial Group Risk(1) $264.36 $262.34 $259.44 $256.74 $246.46Medicare Advantage(4),(6) $883.11 $855.05 $854.85 $836.00 $765.58Medicare Part D(7) $107.75 $101.87 $104.09 $100.36 n/aMedicaid Risk $169.80 $170.90 $165.53 $163.16 $157.52MLR %Consolidated Total 77.1% 78.6% 80.0% 81.6% 79.4%Health Plan Commercial Group Risk(1) 77.4% 77.6% 77.3% 78.9% 78.5%Medicare Advantage(4) 75.4% 81.2% 79.5% 81.9% 80.3%Medicare Part D 67.0% 76.7% 93.6% 98.0% n/aMedicaid Risk 87.4% 85.1% 86.0% 83.9% 84.6%
Explanatory Notes
(1) 'Health Plan Commercial Group Insured' data excludes Individual business (under 65 years of age).
(2) 'Commercial Group Risk' membership includes health plan commercial group business and a small group PPO insurance block which was previously reported within First Health.
(3) 'Other ASO' membership includes active National Accounts and Federal Employees Health Benefits Plan (FEHBP) administrative services business.
(4) 'Medicare Advantage' data includes Medicare Advantage HMO, Medicare Advantage PPO, and Medicare Advantage PFFS results.
(5) 'Total Medical Liabilities' and 'Days in Claims Payable' are calculated consistent with prior disclosures including the addition of Medicare Advantage PFFS in 2007.
(6) Revenue PMPM excludes the impact of revenue ceded to external parties.
(7) Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.
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