Coventry reports operating revenues of $3.0B for third quarter 2011

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Oct 29 2011

Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended September 30, 2011. Operating revenues totaled $3.0 billion for the quarter with net earnings of $122.7 million, or earnings per diluted share (EPS) of $0.84. These results include EPS of $0.02 from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product.

For the nine months ended September 30, 2011, total operating revenues were $9.1 billion with net earnings of $457.4 million, or $3.09 EPS. These results include EPS of $0.13 from the 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 second quarter. Excluding the impact of MA-PFFS results and the provider class action litigation adjustment, adjusted net earnings were $337.4 million, or $2.28 EPS.

"I am pleased with the progress the Company has made and the performance of the businesses, such that we can increase 2011 full year guidance for the third time this year," said Allen F. Wise, chairman and chief executive officer of Coventry. "More importantly, I am optimistic about the growth opportunities for our Company. Recent examples include the pending Family Health Partners acquisition, the Kentucky Medicaid contract, and our new preferred network Part D product which was approved for 2012."

Consolidated Highlights

Announced an agreement to acquire the business of Family Health Partners, a Medicaid health plan with approximately 155,000 members in Kansas and 55,000 members in Missouri
Awarded approximately 200,000 Medicaid members in Kentucky for a November 1, 2011 contract start date
Commercial risk membership of 1,636,000, an increase of 103,000 members, or 7%, from the prior year quarter
Commercial ASO membership of 710,000, an increase of 21,000 members sequentially
Selling, general, and administrative expense (SG&A) as a percentage of total revenue declined by 40 basis points from the prior year quarter
Approximately $1.15 billion of deployable free cash at the parent at September 30, 2011, net of cash required for the Family Health Partners transaction
Repurchased 4.3 million shares for $127.5 million during the third quarter
- Total year-to-date share repurchase of 7.4 million shares for $227.7 million

Selected Third Quarter 2011 Highlights

Health Plan Commercial Risk. As of September 30, 2011, health plan commercial risk membership was 1,636,000, an increase of 103,000 members from the prior year quarter and a decrease of 12,000 members sequentially as expected due to a portion of the State of Illinois account moving to ASO. The health plan commercial group risk medical loss ratio (MLR) was 82.5% in the quarter and 81.3% year-to-date.
Medicare Advantage. As of September 30, 2011, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 220,000, an increase of 27,000 members from the prior year quarter. The MA-CCP MLR was 82.0% in the quarter and 83.0% year-to-date. During the third quarter, the run-out of the MA-PFFS product line contributed $0.02 EPS and has now contributed $0.13 EPS year-to-date. As previously announced, the Company did not renew this product line effective January 1, 2010.
Medicare Part D. As of September 30, 2011, Medicare Part D membership was 1,148,000, approximately flat to the prior quarter. The Medicare Part D MLR was 76.8% in the quarter, a decrease of 220 basis points from the prior year quarter. The Medicare Part D MLR was 88.0% year-to-date, a decrease of 120 basis points from the prior year-to-date.
Medicaid. As of September 30, 2011, Medicaid membership was 467,000, an increase of 5,000 members from the prior year quarter. The Medicaid MLR was 88.1% in the quarter and 87.0% year-to-date.

2011 Full Year Guidance

Risk revenue of $10.90 billion to $10.98 billion
Management services revenue of $1.180 billion to $1.195 billion
Consolidated revenue of $12.080 billion to $12.175 billion
Consolidated MLR of 82.0% to 82.4%
Cost of sales expense of $277.0 million to $281.0 million
SG&A of $2.01 billion to $2.03 billion
Settlement of provider class action of $159.3 million, or $0.68 EPS
Depreciation and amortization expense of $135.0 million to $137.0 million
Other income of $83.0 million to $85.0 million
Interest expense of $98.0 million to $99.0 million
Tax rate of 35.5% to 36.5%
Diluted share count of 146.5 million to 147.5 million
GAAP EPS of $3.63 to $3.68
- $2.95 to $3.00 EPS, excluding the $0.68 litigation adjustment