Coventry Health Care second quarter operating revenues increase 6% to $3.0 billion

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Jul 29 2011

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, 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