Coventry Health Care Reports First Quarter Earnings of $0.30 per Diluted Share

Tuesday, April 28, 2009 6:46 AM

Reiterates Earnings per Share Guidance

Coventry Health Care, Inc. (NYSE:CVH) today reported consolidated operating results for the quarter ended March 31, 2009. Operating revenues totaled $3.6 billion for the quarter with net earnings of $44.2 million, or $0.30 per diluted share.

“Despite the challenges and uncertainties of the current macroeconomic environment, I am pleased with the quality and stability we see in our first quarter financial results,” said Allen F. Wise, chairman and chief executive officer of Coventry. “Although we still have much to accomplish, I am encouraged by the direction that the Company is heading in as we position ourselves for 2010.”

First Quarter Consolidated Highlights

Revenues increased 21.5% from the prior year quarter
Continued growth in all Medicare products
- Medicare Coordinated Care Product (CCP) membership growth of 28% from the prior quarter
Continued growth in Individual risk membership
Excellent liquidity position
- Approximately $500 million of deployable free cash at the parent
Strong investment portfolio
- Portfolio in a net unrealized gain position at quarter-end
GAAP cash flows from operations of $358.2 million
Stable Days in Claims Payable

Selected First Quarter Highlights

Health Plan Commercial Group Premium Yield & Medical Loss Ratio (MLR). Reported commercial premium yields rose to $296.36 PMPM (per member per month) in the quarter, an increase of 4.5% from the prior year quarter. The health plan commercial group risk MLR was 80.9% in the quarter, down 230 basis points from the prior quarter.
Medicare Advantage Membership & MLR. As of March 31, 2009, Medicare Advantage membership of 494,000 grew by 114,000 members from year-end, exceeding the Company’s prior guidance as both sales and termination rates were better than expected. Medicare Advantage CCP membership of 176,000 grew by 39,000 members from year-end and 49,000 members from the prior year quarter. The Medicare Advantage MLR was 90.5% in the quarter, down 40 basis points from the prior quarter.
Medicare Part D Membership & MLR. As of March 31, 2009, Medicare Part D membership of 1,501,000 grew by 570,000 members from year-end, exceeding the Company’s prior guidance as both sales and termination rates were better than expected. The Medicare Part D MLR was 101.8% in the quarter, down 140 basis points from the prior year quarter.
Medicaid Membership. As of March 31, 2009, Medicaid membership of 375,000 grew by 4,000 members from year-end.

2009 Full Year Guidance

Risk revenue of $12.30 billion to $12.65 billion
Management services revenue of $1.29 billion to $1.34 billion
Consolidated revenue of $13.59 billion to $13.99 billion
Consolidated MLR of 85.2% to 85.6%
Cost of sales expense of $220.0 million to $235.0 million
Selling, general, and administrative expense (SG&A) of $2.29 billion to $2.35 billion
Depreciation and amortization expense of $146.0 million to $156.0 million
Other income of $77.0 million to $87.0 million
Interest expense of $90.0 million to $96.0 million
Tax rate of 37.2% to 37.8%
Diluted share count of 147.0 million to 149.0 million
Earnings per share (EPS) on a diluted basis of $1.70 to $1.90

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:00 a.m. ET on Tuesday, April 28, 2009. To listen to the call, dial toll-free at (877) 723-9509 or, for international callers, (719) 325-4769. Callers will be asked to identify themselves and their affiliations. The conference call will also be webcast from Coventry’s Investor Relations site 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 9948717.

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, 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. 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
	March 31,
		2009		2008
Operating revenues:
Managed care premiums	$	3,240,812	$	2,620,611
Management services		332,777		319,997
Total operating revenues		3,573,589		2,940,608

Operating expenses:
Medical costs		2,832,997		2,161,726
Cost of sales		57,876		37,343
Selling, general, administrative		574,149		508,429
Depreciation and amortization		35,653		38,787
Total operating expenses		3,500,675		2,746,285

Operating earnings		72,914		194,323
Operating earnings percentage of total revenues		2.0%		6.6%

Interest expense		22,131		24,740
Other income, net		19,885		31,267

Earnings before income taxes		70,668		200,850

Provision for income taxes		26,500		75,821
Net earnings	$	44,168	$	125,029


Net earnings per share, basic	$	0.30	$	0.82
Net earnings per share, diluted	$	0.30	$	0.81

Weighted average shares outstanding, basic		146,847		152,166
Weighted average shares outstanding, diluted		147,303		154,245


COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

	March 31,		December 31,
		2009		2008
	(unaudited)
Assets:

Current assets:
Cash and cash equivalents	$	1,585,092	$	1,123,114
Short-term investments		216,642		338,129
Accounts receivable, net		283,686		293,636
Other receivables, net		533,434		524,803
Other current assets		156,225		130,808
Total current assets		2,775,079		2,410,490

Long-term investments		1,763,627		1,709,878
Property and equipment, net		301,457		308,016
Goodwill		2,694,861		2,695,025
Other intangible assets, net		529,689		546,168
Other long-term assets		37,365		57,821
Total assets	$	8,102,078	$	7,727,398



Liabilities and Stockholders’ Equity:

Current liabilities:
Medical liabilities	$	1,688,522	$	1,446,391
Accounts payable and accrued liabilities		517,961		474,561
Deferred revenue		121,971		104,823
Total current liabilities		2,328,454		2,025,775

Long-term debt		1,902,569		1,902,472
Other long-term liabilities		370,816		368,482
Total liabilities		4,601,839		4,296,729

Stockholders’ equity		3,500,239		3,430,669

Total liabilities and stockholders’ equity	$	8,102,078	$	7,727,398


COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in thousands) (unaudited)

	Quarter Ended
	March 31, 2009

Cash flows from operating activities:
Net earnings	$	44,168
Adjustments to earnings:
Depreciation and amortization		35,653
Amortization of stock compensation		13,484
Changes in assets and liabilities:
Accounts receivable, net		9,950
Medical liabilities		242,131
Accounts payable and other accrued liabilities		40,393
Deferred revenue		17,148
Other operating activities		(44,698)
Net cash flows from operating activities		358,229

Cash flows from investing activities:
Capital expenditures, net		(12,549)
Proceeds from investments, net of purchases		106,480
Proceeds from settlement of acquisitions		9,719
Net cash flows from investing activities		103,650

Cash flows from financing activities:
Proceeds from issuance of stock		117
Payments for repurchase of stock		(85)
Excess tax benefit from stock compensation		67
Net cash flows from financing activities		99

Net change in cash and cash equivalents for current period		461,978
Cash and cash equivalents at beginning of period		1,123,114
Cash and cash equivalents at end of period	$	1,585,092



Cash and Investments:
Cash and cash equivalents	$	1,585,092
Short-term investments		216,642
Long-term investments		1,763,627
Total cash and investments	$	3,565,361


COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)


	Q1 2009		Total 2008		Q4 2008		Q3 2008		Q2 2008		Q1 2008		Total 2007
Membership by Product (000s)
Health Plan Commercial Risk		1,501				1,575		1,587		1,584		1,580		1,644
Health Plan Commercial ASO		702				714		720		765		761		750
Medicare Advantage CCP		176				137		134		131		127		117
Medicaid Risk		375				371		386		493		488		480
Health Plan Total		2,754				2,797		2,827		2,973		2,956		2,991

Medicare Advantage PFFS		318				243		243		241		192		166
Other National Risk		21				24		27		29		29		29
Other National ASO		575				633		641		645		646		783
Total Medical Membership		3,668				3,697		3,738		3,888		3,823		3,969

Medicare Part D		1,501				931		910		874		853		704

Total Membership		5,169				4,628		4,648		4,762		4,676		4,673

Revenues by Product Type (000s)
Commercial Risk	$	1,327,221	$	5,421,984	$	1,364,232	$	1,362,956	$	1,353,101	$	1,341,695	$	4,889,768
Commercial Management Services		83,810		352,369		97,108		86,672		82,446		86,143		410,071
Medicare Advantage		1,161,590		3,177,244		847,231		825,504		795,495		709,014		2,170,844
Medicaid Risk		260,838		1,087,189		259,926		260,060		285,024		282,179		928,259
Total Health Plan and Medical Services Businesses		2,833,459		10,038,786		2,568,497		2,535,192		2,516,066		2,419,031		8,398,942

Medicare Part D		484,123		847,702		191,899		170,483		201,911		283,409		700,761
Other Premiums		23,957		64,783		22,916		18,937		15,193		7,737		-
Other Management Services		251,587		1,005,740		253,512		263,363		253,522		235,343		785,431
Total Specialized Managed Care Businesses		759,667		1,918,225		468,327		452,783		470,626		526,489		1,486,192

Total Premiums		3,257,729		10,598,902		2,686,204		2,637,940		2,650,724		2,624,034		8,689,632
Total Management Services		335,397		1,358,109		350,620		350,035		335,968		321,486		1,195,502
Other/Eliminations		(19,537)		(43,365)		(16,976)		(12,690)		(8,788)		(4,912)		(5,603)
Total Revenue	$	3,573,589	$	11,913,646	$	3,019,848	$	2,975,285	$	2,977,904	$	2,940,608	$	9,879,531

Consolidated Coventry

Operating Income % of Revenues		2.0%		5.2%		4.3%		5.6%		4.2%		6.6%		9.4%

SGA % of Revenues		16.1%		17.5%		18.5%		17.3%		16.7%		17.3%		18.1%

Total Medical Liabilities (000s)	$	1,416,735			$	1,243,620	$	1,209,560	$	1,126,396	$	1,027,194	$	996,859
Days in Claims Payable (DCP)		55.11				54.75		54.94		49.69		50.71		50.82

Total Debt (millions)	$	1,902.6			$	1,902.5	$	1,472.3	$	1,472.3	$	1,662.1	$	1,662.0
Total Capital (millions)	$	5,402.8			$	5,333.1	$	4,779.3	$	4,789.0	$	4,949.5	$	4,963.5
Debt to Capital		35.2%				35.7%		30.8%		30.7%		33.6%		33.5%


COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)


	Q1 2009		Total 2008		Q4 2008		Q3 2008		Q2 2008		Q1 2008		Total 2007
Revenue PMPM
Health Plan Commercial Group Risk	$	296.36	$	286.30	$	289.71	$	286.73	$	285.32	$	283.50	$	273.76
Medicare Advantage⁽¹⁾	$	860.46	$	862.60	$	862.79	$	856.90	$	879.79	$	849.60	$	837.69
Medicare Part D⁽²⁾	$	84.35	$	88.34	$	89.16	$	85.64	$	89.92	$	88.64	$	99.57
Medicaid Risk	$	231.93	$	208.50	$	228.33	$	226.08	$	193.59	$	194.16	$	183.77


MLR %
Consolidated Total		87.4%		84.0%		83.8%		83.8%		85.8%		82.5%		79.6%

Health Plan Commercial Group Risk		80.9%		81.7%		83.2%		82.3%		82.7%		78.8%		78.3%
Medicare Advantage		90.5%		89.0%		90.9%		88.4%		93.2%		82.8%		80.5%
Medicare Part D		101.8%		84.1%		58.8%		78.5%		86.0%		103.2%		78.1%
Medicaid Risk		88.3%		85.3%		85.9%		84.2%		86.4%		84.4%		87.3%


Explanatory Notes

1)		Revenue PMPM excludes the impact of revenue ceded to external parties.

2)		Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.

Coventry Health Care, Inc.
Shawn M. Guertin
Chief Financial Officer
301-581-5701

Drew Asher
Senior Vice President, Corporate Finance
301-581-5717

(Source: Business Wire )

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