Coventry Health Care Reports Second Quarter Earnings
Friday, July 25, 2008 7:03 AM
Symbols: CVH

Reiterates 2008 Guidance

Coventry Health Care, Inc. (NYSE:CVH) today reported consolidated operating results for the quarter ended June 30, 2008. Consistent with the Company’s most recent guidance, operating revenues totaled $2.98 billion for the quarter with net earnings of $83.2 million, or $0.55 per diluted share.

Second Quarter Highlights

-- Company-wide revenue increased 27.7% from the prior year quarter
 
-- Medicare Advantage and Part D sequential enrollment growth totaling 74,000 members
 
-- Continued steady growth in small group commercial and individual membership
 
-- Specialty Business Division revenue growth of 15% sequentially and 30% year over year
 
-- Dental capability added to the product portfolio during the quarter
 
-- Share repurchase activities
 
-- 1.0 million shares repurchased during the quarter, bringing total share repurchases through June 30, 2008 to 4.2 million shares
 
-- Additional share repurchase authority obtained during the quarter, increasing the remaining outstanding repurchase authority to 9.9 million shares as of June 30, 2008
 
-- The Company plans to continue to deploy free cash to repurchase its shares throughout the remainder of 2008

Consolidated Guidance Details

Q3 2008 Guidance

  • Total revenues of $2.95 billion to $3.00 billion
  • Earnings per share (EPS) on a diluted basis of $1.05 to $1.09

2008 Full Year Guidance

  • Risk revenues of $10.475 billion to $10.700 billion
  • Management services revenues of $1.325 billion to $1.345 billion
  • Consolidated revenues of $11.800 billion to $12.045 billion
  • Consolidated medical loss ratio (MLR%) of 81.75% to 82.10%
  • Cost of sales expense of $175.0 million to $185.0 million
  • Selling, general, and administrative expenses of $2.02 billion to $2.09 billion
  • Depreciation and amortization expense of $155.0 million to $165.0 million
  • Other income of $118.0 million to $126.0 million
  • Interest expense of $91.0 million to $93.0 million
  • Tax rate of 36.7% to 37.3%
  • Diluted share count of 150.0 million to 151.0 million shares
  • EPS on a diluted basis of $3.65 to $3.75

Mr. Dale B. Wolf, chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, July 25, 2008. To listen to the call, dial toll-free at (888) 726-2459 or, for international callers, (913) 312-0855. 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.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 4578391.

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, 2007 and Coventry’s Form 10-Q for the quarter ended March 31, 2008. 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. 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.

COVENTRY HEALTH CARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(unaudited)

       
Quarters Ended
June 30, 		Six Months Ended
June 30,
  2008     2007     2008     2007  
 
Operating revenues:
Managed care premiums $ 2,643,744 $ 2,016,394 $ 5,264,356 $ 4,039,365
Management services   334,160     316,098     654,157     529,624  
Total operating revenues   2,977,904     2,332,492     5,918,513     4,568,989  
 
Operating expenses:
Medical costs 2,268,819 1,605,437 4,430,545 3,261,977
Cost of sales 47,406 27,609 84,749 27,609
Selling, general, administrative 496,756 442,835 1,005,185 812,330
Depreciation and amortization   38,603     33,658     77,391     63,957  
Total operating expenses   2,851,584     2,109,539     5,597,870     4,165,873  
 
Operating earnings 126,320 222,953 320,643 403,116
Operating earnings percentage of total revenues 4.2 % 9.6 % 5.4 % 8.8 %
 
Interest expense 23,282 15,640 48,023 36,839
Other income, net   31,077     34,770     62,344     68,599  
 
Earnings before income taxes 134,115 242,083 334,964 434,876
 
Provision for income taxes   50,964     90,781     126,784     161,833  
Net earnings $ 83,151   $ 151,302   $ 208,180   $ 273,043  
 
 
Net earnings per share, basic $ 0.55 $ 0.98 $ 1.38 $ 1.75
Net earnings per share, diluted $ 0.55 $ 0.96 $ 1.36 $ 1.72
 
Weighted average shares outstanding, basic 149,988 155,095 151,077 156,056
Weighted average shares outstanding, diluted 151,680 157,841 152,959 158,738

COVENTRY HEALTH CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

     
June 30,
2008 		March 31,
2008 		December 31,
2007
(unaudited) (unaudited)
Assets:
 
Current assets:
Cash and cash equivalents $ 894,093 $ 912,884 $ 945,535
Short-term investments 15,362 71,931 155,248
Accounts receivable, net 260,689 263,593 263,021
Other receivables, net 546,774 430,007 313,350
Other current assets 185,980 194,514 169,547
Total current assets 1,902,898 1,872,929 1,846,701
 
Long-term investments 1,584,535 1,802,582 1,758,454
Property and equipment, net 311,291 307,047 321,287
Goodwill 2,672,910 2,651,166 2,573,325
Other intangible assets, net 585,922 595,588 590,419
Other long-term assets 73,293 70,965 68,605
Total assets $ 7,130,849 $ 7,300,277 $ 7,158,791
 
 
 
Liabilities and Stockholders’ Equity:
 
Current liabilities:
Medical liabilities $ 1,383,997 $ 1,276,342 $ 1,161,963
Accounts payable and accrued liabilities 387,194 495,907 518,806
Deferred revenue 125,879 124,236 69,052
Total current liabilities 1,897,070 1,896,485 1,749,821
 
Long-term debt 1,472,337 1,662,119 1,662,021
Other long-term liabilities 444,763 454,328 445,470
Total liabilities 3,814,170 4,012,932 3,857,312
 
Stockholders’ equity 3,316,679 3,287,345 3,301,479
       
Total liabilities and stockholders’ equity $ 7,130,849 $ 7,300,277 $ 7,158,791

COVENTRY HEALTH CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

   
Quarter Ended
June 30, 2008 		Six Months Ended
June 30, 2008
 
Cash flows from operating activities:
Net earnings $ 83,151 $ 208,180
Adjustments to earnings:
Depreciation and amortization 38,603 77,391
Amortization of stock compensation 14,965 31,701
Changes in assets and liabilities:
Accounts receivable, net 4,318 4,247
Medical liabilities 104,294 215,435
Accounts payable and other accrued liabilities (100,831 ) (130,254 )
Deferred revenue 575 55,759
Other operating activities (107,473 ) (242,675 )
Net cash flows from operating activities 37,602   219,784  
 
Cash flows from investing activities:
Capital expenditures, net (24,197 ) (32,351 )
Proceeds from investments, net of purchases 246,396 296,612
Payments for acquisitions, net of cash acquired (37,799 ) (131,982 )
Net cash flows from investing activities 184,400   132,279  
 
Cash flows from financing activities:
Proceeds from issuance of stock 63 5,173
Payments for repurchase of stock (49,274 ) (220,307 )
Proceeds from issuance of debt, net 30,000 30,000
Excess tax benefit from stock compensation (1,582 ) 1,629
Payments for retirement of debt   (220,000 )   (220,000 )
Net cash flows from financing activities   (240,793 )   (403,505 )
 
Net change in cash and cash equivalents for current period (18,791 ) (51,442 )
Cash and cash equivalents at beginning of period 912,884   945,535  
Cash and cash equivalents at end of period $ 894,093   $ 894,093  
 
         
 
Cash and Investments:
Cash and cash equivalents $ 894,093 $ 894,093
Short-term investments 15,362 15,362
Long-term investments 1,584,535   1,584,535  
Total cash and investments $ 2,493,990   $ 2,493,990  

COVENTRY HEALTH CARE, INC.

SELECTED OPERATING STATISTICS

(Unaudited)

     

 

         

Q2 2008

 

Q1 2008

 

Total

2007

 

Q4 2007

 

Q3 2007

 

Q2 2007

 

Q1 2007

 

Total

2006

Membership by Product (000s)
Commercial Group Risk 1,502 1,505 1,580 1,572 1,389 1,387 1,457
Health Plan ASO 765 761 750 737 650 648 621
Other ASO   645       646           783       792       692       741       866  
Total Commercial Division 2,912 2,912 3,113 3,101 2,731 2,776 2,944
 
Medicare Advantage 372 319 283 286 213 185 80
Medicare Part D   874       853