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Home > Health Insurance News > Coventry Health Care Reports Fourth Quarter and Full Year 2005 Results
Coventry Health Care Reports Fourth Quarter and Full Year 2005 Results
BETHESDA, Md., Feb 10, 2006 (BUSINESS WIRE) -- Coventry Health Care, Inc. (NYSE:CVH) today reported operating results for the quarter ended December 31, 2005. Operating revenues totaled $1.72 billion for the quarter, a 24.2% increase over the fourth quarter of 2004. Before a non-recurring loss of ($6.7) million after tax, or ($0.04) per diluted share, in Louisiana operations due to Hurricane Katrina(1), net earnings were $133.1 million, or $0.81 per diluted share, a 45.0% increase over net earnings for the fourth quarter of 2004 and a 20.9% increase on a per diluted share basis. For the twelve months ended December 31, 2005, total revenues were $6.61 billion, a 24.5% increase over 2004, with net earnings of $3.14 per diluted share before the Katrina non-recurring loss, a 26.6% increase over 2004. Fourth quarter and full year 2005 GAAP net earnings including the Katrina non-recurring loss were $126.4 million, or $0.77 per diluted share, and $501.6 million, or $3.10 per diluted share, respectively.
"I am pleased to report a strong finish for 2005 with 20+% growth in both revenue and EPS," said Dale B. Wolf, chief executive officer of Coventry. "In 2005, our focus was on sound health plan performance, realization of the strategic and financial benefits of the First Health transaction, and successful preparation for Medicare Part D. Today, the expanded platform of our company is well positioned to seize on opportunities for the future."
Consolidated Full Year 2005 Financial Highlights
-- Revenues up 24.5% over the prior year
-- GAAP diluted EPS up 25.0% over the prior year
-- Operating Margin of 12.0% for 2005, up 260 basis points from 9.4% in 2004
-- Cash flow from operations of $804.5 million for 2005 representing 160% of net income
-- EPS accretion of $0.24 from the First Health transaction, compared to the $0.20 to $0.24 range estimated upon the announcement of the transaction
-- Debt to Capital Ratio of 23.2% as of December 31, 2005
Health Plan Business Full Year and Fourth Quarter 2005 Highlights
-- Membership. As of December 31, 2005, Coventry had total health plan membership of 2.55 million members, an increase of 37,000 members or 1.5% over the prior year-end and an increase of 39,000 members over the prior quarter.
-- Health Plan Insured Commercial Yield. Commercial insured yield rose to $251.80 PMPM (per member per month) in the quarter, an increase of 8.8% over the prior year quarter. The commercial yield of $246.46 PMPM for 2005 was an increase of 8.8% over 2004.
-- Medical Loss Ratio (MLR). For the fourth quarter of 2005, Health Plan MLR was 78.8%, a 160 basis point improvement over the prior year quarter, driven by a strong quarter for both commercial business and Medicare. Commercial MLR of 77.4% improved 90 basis points, Medicare MLR of 78.9% improved 480 basis points, and Medicaid MLR of 87.4% improved 190 basis points from the prior year quarter. For the full year 2005, Health Plan MLR was 79.5%, a 100 basis point improvement over the prior full year, driven by improvements in all three customer segments. For 2005, Commercial MLR of 78.5% improved 60 basis points, Medicare MLR of 80.3% improved 300 basis points, and Medicaid MLR of 84.6% improved 280 basis points from the prior year.
-- Selling, General & Administrative (SG&A) Expenses. SG&A expenses were 12.5% of operating revenues for the quarter and 11.4% for 2005, an increase of 120 basis points over the prior year quarter and a reduction of 10 basis points over 2004. On a pre-tax basis, the company incurred approximately $10.0 million of Part D SG&A expense in the fourth quarter and $12.5 million year to date in preparation for the program beginning January 1, 2006.
-- Operating Margin. Operating margin of 9.7% for the quarter and 10.4% for 2005 was flat compared to the prior year quarter and an improvement of 100 basis points for the year.
-- Balance Sheet. Net Premium Accounts Receivable of $104.3 million represent 6.4 days of sales outstanding (DSO) with the Health Plan commercial only DSO running at 5.2 days. Days in Claims Payable (DCP) for the quarter were 55.6, down 0.4 days from the prior quarter of 56.0.
-- Louisiana Business. During the fourth quarter of 2005, the Company's Louisiana operations were affected by the impact of Hurricane Katrina. In the interests of our members, and in order to comply with the temporary requirements imposed by the Louisiana Department of Insurance, the company temporarily modified a number of its operating practices. During the fourth quarter, the company posted an after-tax ($6.7) million loss in the Louisiana operations. The Louisiana temporary requirements expired at the end of November 2005 and the Company has resumed its standard operating practices. Accordingly, the loss in the Louisiana operations is not expected to recur in 2006.
First Health Business Fourth Quarter Highlights
-- Revenues. Overall revenues of $222.9 million were consistent with Coventry's expectations. The Specialty businesses generated $109.2 million in revenue while the Group Health businesses generated $113.6 million. Revenues by individual business line are contained in the First Health operating statistics schedule included with this press release.
-- Selling, General & Administrative (SG&A) Expenses. SG&A expenses were $145.3 million or 65.2% of operating revenues for the quarter, a decrease of $1.2 million or 50 basis points over the prior quarter.
Consolidated 2006 Guidance Details
Q1 2006 Guidance
-- Total revenues of $1.84 billion to $1.90 billion
-- Earnings per share (EPS) on a diluted basis of $0.71 to $0.73, including FAS 123R and an estimated ($0.08) GAAP loss in Part D for the first quarter of 2006
-- Part D estimated loss of ($0.08) in the first quarter is based upon expected GAAP accounting. The Company still expects full year EPS contribution from Part D of $0.08, consistent with prior guidance.
2006 Full Year Guidance
-- Health plan membership growth of 1.0% to 3.0%
-- Part D membership of 600,000 to 800,000 at year-end
-- Risk revenues of $6.775 billion to $6.925 billion, including $500.0 million to $700.0 million of Part D revenue
-- Management services revenues of $925.0 million to $975.0 million
-- Medical loss ratio (MLR%) of 80.2% to 80.6% of risk revenues
-- Selling, general, and administrative expenses (SG&A) of $1.29 billion to $1.33 billion, including expenses for FAS 123R and Medicare Part D
-- Depreciation and amortization expense of $95.0 million to $105.0 million
-- Investment income of $71.0 million to $78.0 million
-- Interest expense of $49.0 million to $53.0 million
-- Tax Rate of 37.25% to 37.75%
-- Diluted share count of 164.0 million to 166.0 million shares
-- Earnings per share (EPS) on a diluted basis of $3.42 to $3.48
Mr. Wolf will host a conference call at 8:30 a.m. EST on Friday, February 10, 2006. Callers will be asked to identify themselves and their affiliations. The conference call will also be broadcast over the Internet 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).
This press release may contain forward-looking statements, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, 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, 2004.
Coventry Health Care is a national managed health care company based in Bethesda, Maryland operating health plans, insurance companies, network rental / managed care services companies, and workers' compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services, including HMO, PPO, POS, Medicare Advantage, Medicare Prescription Drug Plans, Medicaid, Workers' Compensation and Network Rental to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators in all 50 states as well as the District of Columbia and Puerto Rico.
Footnotes
---------
1) Because Hurricane Katrina was an unusual event causing a loss
in the Company's Louisiana operations which is expected to be
limited to the fourth quarter of 2005 and non-recurring, the
Company believes that these non-GAAP measures are useful to both
management and its investors in analyzing the Company's ongoing
business and operating performance. A reconciliation of these
non-GAAP measures to GAAP is included with the Form 8-K filed as
of February 10, 2006.
COVENTRY HEALTH CARE, INC.
HEALTH PLAN MEMBERSHIP
(Amounts in thousands)
December 31, Sept. 30, December 31,
2005 2005 2004
------------ ----------- ------------
Health Plan Membership By Market
Delaware 119 103 102
Georgia 78 72 73
Illinois 93 91 87
Iowa 67 66 66
Kansas City 218 212 209
Louisiana 64 76 76
Michigan 61 62 62
Nebraska 54 48 50
North Carolina 133 131 119
Pennsylvania 739 736 740
St. Louis 449 447 495
Utah 208 207 187
Virginia 181 174 169
West Virginia 82 82 74
-------------------------------- ------------ ----------- ------------
Total Health Plans 2,546 2,507 2,509
-------------------------------- ------------ ----------- ------------
Membership By Product:
Fully-Insured
Commercial 1,486 1,454 1,483
Medicare 75 74 69
Medicaid 393 397 397
-------------------------------- ------------ ----------- ------------
Total Fully Insured 1,954 1,925 1,949
Administrative Services Only 592 582 560
-------------------------------- ------------ ----------- ------------
Total Membership 2,546 2,507 2,509
================================ ============ =========== ============
COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Quarters Ended Years Ended
December 31, December 31,
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Operating revenues:
Managed care
premiums $1,481,848 $1,355,070 $5,728,162 $5,198,599
Management services 237,052 29,110 883,084 113,370
----------- ----------- ----------- -----------
Total operating
revenues 1,718,900 1,384,180 6,611,246 5,311,969
----------- ----------- ----------- -----------
Operating expenses:
Medical costs 1,166,289 1,089,035 4,550,871 4,185,895
Selling, general,
administrative 331,013 156,096 1,182,381 611,801
Depreciation and
amortization 25,734 4,681 86,176 17,602
----------- ----------- ----------- -----------
Total operating
expenses 1,523,036 1,249,812 5,819,428 4,815,298
----------- ----------- ----------- -----------
Operating earnings 195,864 134,368 791,818 496,671
Operating earnings
percentage of total
revenues 11.4% 9.7% 12.0% 9.4%
Interest and debt cost
amortization expense 12,745 3,581 58,414 14,301
Other income, net 18,360 12,039 66,021 44,621
----------- ----------- ----------- -----------
Earnings before income
taxes 201,479 142,826 799,425 526,991
Provision for income
taxes 75,051 51,060 297,786 189,874
----------- ----------- ----------- -----------
Net earnings $ 126,428 $ 91,766 $ 501,639 $ 337,117
=========== =========== =========== ===========
Net earnings per
share, basic $ 0.79 $ 0.69 $ 3.18 $ 2.55
Net earnings per
share, diluted $ 0.77 $ 0.67 $ 3.10 $ 2.48
Weighted average
shares outstanding,
basic 160,803 132,953 157,965 132,188
Weighted average
shares outstanding,
diluted 164,628 136,159 161,716 135,884
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31, September 30, December 31,
2005 2005 2004
------------- ------------- -------------
(unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 391,646 $ 569,835 $ 417,636
Short-term investments 545,615 288,067 349,722
Accounts receivable, net 228,028 209,256 104,924
Other receivables, net 76,462 77,408 47,070
Deferred income taxes 57,666 65,183 37,368
Other current assets 26,285 29,172 16,307
---------------------------- ------------- ------------- -------------
Total current assets 1,325,702 1,238,921 973,027
Long-term investments 1,125,632 1,123,717 960,379
Property and equipment, net 351,427 310,976 32,193
Goodwill 1,612,390 1,567,563 280,615
Other intangible assets, net 419,352 428,014 38,491
Other long-term assets 60,669 61,328 55,895
---------------------------- ------------- ------------- -------------
Total assets $ 4,895,172 $ 4,730,519 $ 2,340,600
============================ ============= ============= =============
Liabilities and
Stockholders' Equity:
Current liabilities:
Medical liabilities $ 752,774 $ 734,498 $ 660,475
Accounts payable and
accrued liabilities 442,785 401,108 211,809
Deferred revenue 64,668 134,901 59,536
Current portion of long-
term debt 10,000 10,000 -
---------------------------- ------------- ------------- -------------
Total current liabilities 1,270,227 1,280,507 931,820
Long-term debt 760,500 760,500 170,500
Other long-term liabilities 309,742 268,273 25,854
---------------------------- ------------- ------------- -------------
Total liabilities 2,340,469 2,309,280 1,128,174
---------------------------- ------------- ------------- -------------
Stockholders' equity 2,554,703 2,421,239 1,212,426
---------------------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity $ 4,895,172 $ 4,730,519 $ 2,340,600
============================ ============= ============= =============
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Quarter Ended Year Ended
December 31, December 31,
2005 2005
------------- -------------
(unaudited)
Cash flows from operating activities:
Net earnings $ 126,428 $ 501,639
Depreciation and amortization 25,734 86,176
Amortization of deferred compensation 6,175 21,992
Amortization of deferred financing costs 432 7,359
Changes in assets and liabilities:
Accounts receivable, net (8,618) (101)
Medical liabilities 18,276 50,531
Accounts payable and accrued
liabilities 12,986 119,020
Deferred revenue (68,659) (7,371)
Other operating activities 2,796 25,224
------------------------------------------ ------------- -------------
Net cash flows from operating activities 115,550 804,469
------------------------------------------ ------------- -------------
Cash flows from investing activities:
Capital expenditures, net (31,800) (71,393)
Payments for investments, net of sales
and maturities (260,738) (272,424)
Payments for acquisitions, net of cash
acquired (4,423) (877,249)
------------------------------------------ ------------- -------------
Net cash flows from investing activities (296,961) (1,221,066)
------------------------------------------ ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of stock 4,387 24,162
Payments for repurchase of stock (656) (17,041)
Proceeds from issuance of debt - 1,066,495
Payments for stock split (509) (509)
Payments for retirement of debt - (682,500)
------------------------------------------ ------------- -------------
Net cash flows from financing activities 3,222 390,607
------------------------------------------ ------------- -------------
Net change in cash and cash equivalents
for current period (178,189) (25,990)
Cash and cash equivalents at beginning of
period 569,835 417,636
------------------------------------------ ------------- -------------
Cash and cash equivalents at end of period $ 391,646 $ 391,646
========================================== ============= =============
------------------------------------------ ------------- -------------
Cash and Investments:
Cash and cash equivalents $ 391,646 $ 391,646
Short-term investments 545,615 545,615
Long-term investments 1,125,632 1,125,632
------------------------------------------ ------------- -------------
Total cash and investments $ 2,062,893 $ 2,062,893
========================================== ============= =============
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
HEALTH PLAN ONLY
(Unaudited)
Total
2005 Q4 2005 Q3 2005
-----------------------------
Revenue PMPM
Commercial $ 246.46 $ 251.80 $ 247.60
Medicare $ 765.58 $ 766.90 $ 761.90
Medicaid $ 157.52 $ 159.14 $ 157.10
Management Fees $ 17.60 $ 15.66 $ 18.52
Medical PMPM
Commercial $ 193.37 $ 194.87 $ 192.64
Medicare $ 614.55 $ 605.33 $ 624.03
Medicaid $ 133.32 $ 139.07 $ 134.38
MLR %
Commercial 78.5% 77.4% 77.8%
Medicare 80.3% 78.9% 81.9%
Medicaid 84.6% 87.4% 85.5%
-----------------------------
Total 79.5% 78.8% 79.3%
SGA % of revenues 11.4% 12.5% 11.0%
SGA PMPM $ 22.22 $ 24.69 $ 21.42
Claims Statistics
Claims Inventory 137,413 133,888
Inventory Days on Hand 1.6 1.6
Total Medical Liabilities
(000's) $700,066 $686,981
Days in Claims Payable 55.58 56.04
Member Growth
Same Store 37,000 39,000 39,000
Acquisition - - -
Total Total
Q2 2005 Q1 2005 2004 2003
---------------------------------------
Revenue PMPM
Commercial $ 244.14 $ 242.10 $ 226.59 $ 206.08
Medicare $ 764.94 $ 768.60 $ 695.96 $ 629.52
Medicaid $ 156.43 $ 157.46 $ 145.23 $ 139.69
Management Fees $ 18.59 $ 17.71 $ 17.10 $ 17.86
Medical PMPM
Commercial $ 195.23 $ 190.71 $ 179.21 $ 164.59
Medicare $ 597.27 $ 631.85 $ 579.92 $ 527.84
Medicaid $ 128.67 $ 131.33 $ 126.88 $ 122.25
MLR %
Commercial 80.0% 78.8% 79.1% 79.9%
Medicare 78.1% 82.2% 83.3% 83.8%
Medicaid 82.3% 83.4% 87.4% 87.5%
---------------------------------------
Total 80.1% 79.8% 80.5% 81.2%
SGA % of revenues 10.8% 11.2% 11.5% 12.0%
SGA PMPM $ 21.03 $ 21.68 $ 20.81 $ 20.60
Claims Statistics
Claims Inventory 139,700 139,462 149,263 128,556
Inventory Days on Hand 1.6 1.4 1.6 1.2
Total Medical Liabilities
(000's) $674,116 $668,132 $660,475 $597,190
Days in Claims Payable 54.74 54.03 55.80 56.69
Member Growth
Same Store 19,000 (60,000) 64,000 157,000
Acquisition - - 62,000 191,000
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
FIRST HEALTH & CONSOLIDATED COVENTRY
(Unaudited)
Total Q4 Q3 Q2 Q1
2005 2005 2005 2005 2005 (2)
--------- --------- --------- --------- ---------
FIRST HEALTH
------------
Membership
National Accounts
On-going accounts 669,000 671,000 729,000 733,000
Run-out (1) 90,000 90,000 64,000 73,000
---------------------------------------
Total National
Accounts 759,000 761,000 793,000 806,000
Mail Handlers 462,000 468,000 474,000 483,000
Member Growth
National Accounts
on-going (2,000) (58,000) (4,000) n/a
Federal Employees (6,000) (6,000) (9,000) n/a
Revenues By Product
Line (000s)
National Accounts $141,283 $ 35,429 $ 37,588 $ 41,671 $ 26,595
FEHBP 204,678 55,827 60,337 58,219 30,295
Network Rental 89,442 22,376 24,643 24,587 17,836
----------------------------------------------------------------------
Group Health
Subtotal 435,403 113,632 122,568 124,477 74,726
----------------------------------------------------------------------
Medicaid / Public
Sector 183,197 56,290 49,742 46,439 30,727
Workers'
Compensation 193,714 52,953 50,694 53,651 36,416
----------------------------------------------------------------------
Specialty
Business
Subtotal 376,911 109,243 100,436 100,090 67,143
----------------------------------------------------------------------
Total First Health
Revenues $812,314 $222,875 $223,004 $224,567 $141,869
======================================================================
SGA % of revenues 64.9% 65.2% 65.7% 63.5% 65.3%
----------------------------------------------------------------------
CONSOLIDATED
COVENTRY
--------------------
Operating income %
of revenues 12.0% 11.4% 12.5% 12.6% 11.4%
SGA % of revenues 17.9% 19.3% 18.2% 17.8% 16.1%
Debt (millions)
8.125% Senior Notes
due 2/15/12 $ 170.5 $ 170.5 $ 170.5 $ 170.5
5.875% Senior Notes
due 1/15/12 250.0 250.0 250.0 250.0
6.125% Senior Notes
due 1/15/15 250.0 250.0 250.0 250.0
Current Term Loan
Facility 10.0 10.0 10.0 30.0
Long-Term Term Loan
Facility 90.0 90.0 90.0 262.5
Drawn Revolving
Credit Facility - - 117.5 65.0
--------------------------------------------------
Total Debt $ 770.5 $ 770.5 $ 888.0 $1,028.0
Total Capital $3,325.2 $3,191.7 $3,159.0 $3,151.3
Debt to capital 23.2% 24.1% 28.1% 32.6%
Total Total
2004 2003
--------- ---------
FIRST HEALTH
---------------------------------
Membership
National Accounts n/a n/a
On-going accounts
Run-out (1)
Total National Accounts
Mail Handlers n/a n/a
Member Growth
National Accounts on-going n/a n/a
Federal Employees n/a n/a
Revenues By Product Line (000s)
National Accounts n/a n/a
FEHBP n/a n/a
Network Rental n/a n/a
----------------------------------------------------------------------
Group Health Subtotal n/a n/a
----------------------------------------------------------------------
Medicaid / Public Sector n/a n/a
Workers' Compensation n/a n/a
----------------------------------------------------------------------
Specialty Business Subtotal n/a n/a
----------------------------------------------------------------------
Total First Health Revenues n/a n/a
======================================================================
SGA % of revenues n/a n/a
----------------------------------------------------------------------
CONSOLIDATED COVENTRY
---------------------
Operating income % of revenues 9.4% 8.1%
SGA % of revenues 11.5% 12.0%
Debt (millions)
8.125% Senior Notes due 2/15/12 $ 170.5 $ 170.5
5.875% Senior Notes due 1/15/12 - -
6.125% Senior Notes due 1/15/15 - -
Current Term Loan Facility - -
Long-Term Term Loan Facility - -
Drawn Revolving Credit Facility - -
-------------------------------------
Total Debt $ 170.5 $ 170.5
Total Capital $1,382.9 $1,099.5
Debt to capital 12.3% 15.5%
(1) Company is still providing services to terminated customers.
(2) Q1 2005 includes First Health results of operations for the period
from when the transaction closed on January 28, 2005.
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