Business Wire
·
1Q18 earnings per diluted common share (EPS) of $3.36 on
an Adjusted basis, $3.53 on a GAAP basis
·
Raised full year 2018 Adjusted EPS guidance to $13.70 to
$14.10, $13.54 to $13.94 on a GAAP basis
·
Better than initially expected medical utilization,
resulting in a strong start to 2018 led by the Retail and Group and Specialty
segments
LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (NYSE: HUM)
today reported consolidated pretax income and diluted earnings per common share
(EPS) for the quarter ended March 31, 2018 (1Q18) versus the quarter ended
March 31, 2017 (1Q17) as follows:
|
Consolidated pretax
income
|
1Q18 (a)
|
1Q17 (b)
|
||
|
In millions
|
||||
|
Generally Accepted
Accounting Principles (GAAP)
|
$707
|
$1,689
|
||
|
Net gain associated
with the terminated merger agreement (for 1Q17, primarily the break-up fee)
|
-
|
(947)
|
||
|
Amortization
associated with identifiable intangibles
|
30
|
18
|
||
|
Guaranty fund
assessment expense to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company)
|
-
|
54
|
||
|
Operating income
associated with the Individual Commercial segment
|
(53)
|
(63)
|
||
|
Adjusted (non-GAAP)
|
$684
|
$751
|
||
|
Diluted earnings per
common share (EPS)
|
1Q18 (a)
|
1Q17 (b)
|
||
|
GAAP
|
$3.53
|
$7.49
|
||
|
Net gain associated
with the terminated merger agreement (for 1Q17, primarily the break-up fee)
|
-
|
(4.26)
|
||
|
Amortization
associated with identifiable intangibles
|
0.17
|
0.08
|
||
|
Beneficial effect of
lower effective tax rate in light of pricing and benefit design assumptions
associated with the 2017 temporary suspension of the non-deductible health
insurance industry fee; excludes Individual Commercial segment impact
|
-
|
(0.52)
|
||
|
Guaranty fund
assessment expense to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company)
|
-
|
0.23
|
||
|
Operating income
associated with the Individual Commercial segment
|
(0.29)
|
(0.27)
|
||
|
Adjustments to
provisional estimates for the income tax effects related to the tax reform
law enacted on December 22, 2017 (Tax Reform Law)
|
(0.05)
|
-
|
||
|
Adjusted (non-GAAP)
|
$3.36
|
$2.75
|
||
The company has included financial measures throughout
this earnings release that are not in accordance with GAAP. Management believes
that these measures, when presented in conjunction with the comparable GAAP
measures, are useful to both management and its investors in analyzing the
company’s ongoing business and operating performance. Consequently, management
uses these non-GAAP financial measures as indicators of the company’s business
performance, as well as for operational planning and decision making purposes.
Non-GAAP financial measures should be considered in addition to, but not as a
substitute for, or superior to, financial measures prepared in accordance with
GAAP. All financial measures in this press release are in accordance with GAAP
unless otherwise indicated.
“We’re pleased that we continue to consistently deliver
strong financial results, while advancing our health and consumer-focused
strategy,” said Bruce D. Broussard, Humana’s President and Chief Executive
Officer. “It really comes down to the consistency of our operating model, which
has enabled us to perform well in all parts of our business. This shows up in
our earnings results, in the trajectory of our membership growth, and also in
the strength of our brand as we continue to make great strides in improving the
experience of our members as evidenced by the increase in our NPS and also our
top ranking among insurers in Temkin’s customer satisfaction survey. These
efforts, along with advancements we’re making in our strategy through building
deeper clinical and local market capabilities, are moving us closer to our core
objective of helping our members with their ‘whole health’ so they can achieve
their best health.”
The GAAP consolidated pretax income for 1Q18 of $707
million unfavorably compared to GAAP consolidated pretax income of $1.69
billion in 1Q17 by $982 million primarily due to the net gain associated with
the terminated merger agreement, mainly the break-up fee, recorded in 1Q17 and
lower pretax earnings year over year in the Retail and Healthcare Services
segments, partially offset by higher Group and Specialty segment pretax
earnings. The year-over-year comparison was further impacted by the guaranty
fund assessment expense to support policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company) recorded in 1Q17.
The Adjusted consolidated pretax income for 1Q18 of $684
million declined by $67 million, or 9 percent, versus $751 million in 1Q17
primarily due to the same factors impacting the GAAP year-over-year comparison,
while excluding the impact of the items in the pretax table above.
Further discussions of each segment’s financial results
are included in the segment highlights.
In addition to the factors impacting the year-over-year
changes in quarterly GAAP pretax income, GAAP EPS for 1Q18 was further affected
by a lower number of shares primarily reflecting share repurchases in 2017 and
the impact of a lower tax rate in 1Q18 resulting from the Tax Reform Law.
Adjusted EPS for 1Q18 was affected by the same factors
impacting Adjusted pretax income, as well as a lower number of shares and lower
tax rate used to compute EPS as discussed above.
“We experienced strong Medicare Advantage enrollment
growth and solid performance across all segments in the first quarter, with
early positive indicators of medical utilization allowing us to raise guidance
for the year,” said Brian A. Kane, Chief Financial Officer. “Together, these
results reflect the effective execution of our strategy.”
2018 Guidance
Humana today raised its GAAP and Adjusted EPS guidance for
the year ended December 31, 2018 (FY18). FY18 Adjusted EPS guidance was
increased to $13.70 to $14.10 from its previous range of $13.50 to $14.00,
while GAAP EPS was increased to $13.54 to $13.94 from the previous range of
$13.16 to $13.66.
A reconciliation of GAAP to Adjusted EPS for the company’s
FY18 projections as well as comparable numbers for the year ended December 31,
2017 (FY17) is shown below for comparison.
|
Diluted earnings per
common share
|
FY18 Guidance(c)
|
FY17 (d)
|
||
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GAAP
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~$13.54 to $13.94
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$16.81
|
||
|
Net (gain) expenses
associated with the terminated merger agreement (for FY17, primarily the
break-up fee)
|
-
|
(4.31)
|
||
|
Amortization of
identifiable intangibles
|
0.49
|
0.32
|
||
|
Beneficial effect of
lower effective tax rate in light of pricing and benefit design assumptions
associated with the 2017 temporary suspension of the non-deductible health
insurance industry fee; excludes Individual Commercial segment impact
|
-
|
(2.15)
|
||
|
Guaranty fund
assessment expense to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company)
|
-
|
0.24
|
||
|
Operating income
associated with the Individual Commercial segment
|
(0.28)
|
(0.84)
|
||
|
Charges associated
with voluntary and involuntary workforce reduction programs
|
-
|
0.64
|
||
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Costs associated
with early retirement of debt in 4Q17
|
-
|
0.08
|
||
|
Impact of Tax Reform
Law, primarily re-measurement of deferred tax assets at lower corporate tax
rates
|
(0.05)
|
0.92
|
||
|
Adjusted (non-GAAP)
– FY18 projected
|
~$13.70 – $14.10
|
$11.71
|
||
The company’s earnings guidance for
FY18 does not include any potential impact from the previously announced
pending sale of KMG America Corporation (KMG), whose subsidiary, Kanawha
Insurance Company (KIC), includes Humana’s closed block of non‐strategic long‐term care insurance
policies, to Continental General Insurance Company (CGIC), a Texas‐based insurance
company wholly‐owned by HC2 Holdings, Inc., a diversified holding company
(NYSE: HCHC).
2019 Rate Notice
On April 2, 2018, the Centers for Medicare and Medicaid
Services (CMS) issued its announcement of 2019 Medicare Advantage Capitation
Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter
(the Final Rate Notice). The company expects the Final Rate Notice to result in
a 3.00 percent(e) rate increase for Humana’s individual
Medicare Advantage business versus CMS’ estimate for the sector of 3.50
percent, excluding the impact of Employer Group Waiver Plan (EGWP) funding
changes, on a comparable basis. The difference between the Humana and CMS
projections primarily results from the geographic distribution of our members
relative to the national average.
In addition, the Final Rate Notice clarified that the
agency has the authority to permit Medicare Advantage organizations to offer
tailored supplemental benefits with flexibility to target the social
determinants of health as recommended by a licensed medical professional. The
additional flexibility will allow Humana to include supplemental benefits that
it believes will improve health outcomes for its members. CMS issued additional
guidance regarding supplemental benefits on April 27, 2018 and the company is
analyzing this guidance.
Detailed Press Release
Humana’s full earnings press release including the
statistical pages has been posted to the company’s Investor Relations site and
may be accessed at https://humana.gcs-web.com/ or via a
current report on Form 8-K filed by the company with the Securities and
Exchange Commission this morning (available at www.sec.gov or on the company’s website).
Conference Call
Humana will host a conference call at 9:00 a.m. eastern
time today to discuss its financial results for the quarter and the company’s
expectations for future earnings.
All parties interested in the audio only portion of the
company’s 1Q18 earnings conference call are invited to dial 888-625-7430. No
password is required. The audio-only webcast of the 1Q18 earnings call may be
accessed via Humana’s Investor Relations page at humana.com. The company suggests participants
for both the conference call and those listening via the web dial in or sign on
at least 15 minutes in advance of the call.
For those unable to participate in the live event, the
archive will be available in the Historical Webcasts and Presentations section
of the Investor Relations page at humana.com, approximately two hours following
the live webcast. Telephone replays will also be available approximately two
hours following the live event until midnight eastern time on July 2, 2018 and
can be accessed by dialing 855-859-2056 and providing the conference ID
#1495828.
Footnotes
(a) 1Q18 Adjusted results exclude the following:
·
Amortization expense for identifiable intangibles of
approximately $30 million pretax, or $0.17 per diluted common share; GAAP
measures affected in this release include consolidated pretax, EPS, and segment
pretax results (for each segment’s amount of such amortization).
·
Operating income of $53 million pretax, or $0.29 per diluted
common share, for the company’s Individual Commercial segment given the
company’s exit on January 1, 2018, as previously disclosed. GAAP measures
affected in this release include consolidated pretax income, EPS, consolidated
revenues, consolidated benefit ratio and consolidated operating cost ratio.
·
Adjustment of $0.05 per diluted common share related to
provisional estimates for the income tax effects related to the Tax Reform Law.
The only GAAP measure affected in this release is EPS.
(b) 1Q17 Adjusted results exclude the following:
·
Net gain from the termination of the Aetna merger agreement of
approximately $947 million pretax, or $4.26 per diluted common share; includes
the break-up fee and transaction costs net of the tax benefit associated with
certain expenses which were previously non-deductible; GAAP measures affected
in this release include consolidated pretax income and EPS.
·
Amortization expense for identifiable intangibles of
approximately $18 million, or $0.08 per diluted common share; GAAP measures
affected in this release include consolidated pretax, EPS, and segment pretax
results (for each segment’s amount of such amortization).
·
The one-year beneficial effect of a lower effective tax rate of
approximately $0.52 per diluted common share in light of pricing and benefit
design assumptions associated with the 2017 temporary suspension of the
non-deductible health insurance industry fee; excludes Individual Commercial
segment impact. The only GAAP measure affected in this release is EPS.
·
Guaranty fund assessment expense of approximately $54 million
pretax, or $0.23 per diluted common share, to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance company);
GAAP measures affected in this release include consolidated pretax income, EPS,
and consolidated operating cost ratio. Under state guaranty assessment laws,
the company may be assessed (up to prescribed limits) for certain obligations
to the policyholders and claimants of insolvent insurance companies that write
the same line or lines of business as the company. On March 1, 2017, a court
ordered the liquidation of Penn Treaty which triggered assessments from the
state guaranty associations.
·
Operating earnings of $63 million pretax, or $0.27 per diluted
common share, for the company’s Individual Commercial segment given the
company’s exit on January 1, 2018, as previously disclosed. GAAP measures
affected in this release include consolidated pretax income, EPS, consolidated
revenues, consolidated benefit ratio and consolidated operating cost ratio.
(c) FY18 Adjusted EPS projections exclude the
following:
·
Amortization expense for identifiable intangibles of
approximately $89 million pretax, or $0.49 per diluted common share.
·
Operating earnings of approximately $51 million pretax, or $0.28
per diluted common share, for the company’s Individual Commercial segment given
the company’s exit on January 1, 2018, as previously disclosed.
·
Adjustment of $0.05 per diluted common share related to
provisional estimates for the income tax effects related to the Tax Reform Law.
(d) FY17 Adjusted results exclude the following:
·
Net gain from the termination of the merger agreement of
approximately $936 million pretax, or $4.31 per diluted common share; includes
the net break-up fee and transaction costs net of the tax benefit associated
with certain expenses which were previously non-deductible.
·
Amortization expense for identifiable intangibles of
approximately $75 million pretax, or $0.32 per diluted common share.
·
The one-year beneficial effect of a lower effective tax rate of
approximately $2.15 per diluted common share in light of pricing and benefit
design assumptions associated with the 2017 temporary suspension of the
non-deductible health insurance industry fee; excludes Individual Commercial
segment impact.
·
Guaranty fund assessment expense of approximately $54 million
pretax, or $0.24 per diluted common share, to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance company).
Under state guaranty assessment laws, the company may be assessed (up to
prescribed limits) for certain obligations to the policyholders and claimants
of insolvent insurance companies that write the same line or lines of business
as the company. On March 1, 2017, a court ordered the liquidation of Penn
Treaty which triggered assessments from the state guaranty associations.
·
Operating earnings of approximately $193 million pretax, or
$0.84 per diluted common share, for the company’s Individual Commercial segment
given the company’s exit on January 1, 2018, as previously disclosed.
·
Expense of approximately $148 million pretax, or $0.64 per
diluted common share, associated with voluntary and involuntary workforce
reduction programs.
·
Expense of approximately $17 million pretax, or $0.08 per
diluted common share, associated with early retirement of debt in the fourth
quarter of 2017.
·
The impact of approximately $0.92 per diluted common share
associated with the re-measurement of deferred tax assets at lower corporate
tax rates under the Tax Reform Law.
(e) Excludes estimates of changes in revenue associated
with increased accuracy of risk coding.
Cautionary Statement
This news release includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
When used in investor presentations, press releases, Securities and Exchange
Commission (SEC) filings, and in oral statements made by or with the approval
of one of Humana’s executive officers, the words or phrases like “expects,”
“believes,” “anticipates,” “intends,” “likely will result,” “estimates,”
“projects” or variations of such words and similar expressions are intended to
identify such forward-looking statements.
These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties, and assumptions,
including, among other things, information set forth in the “Risk Factors”
section of the company’s SEC filings, a summary of which includes but is not
limited to the following:
·
If Humana does not design and price its products properly and competitively,
if the premiums Humana receives are insufficient to cover the cost of
healthcare services delivered to its members, if the company is unable to
implement clinical initiatives to provide a better healthcare experience for
its members, lower costs and appropriately document the risk profile of its
members, or if its estimates of benefits expense are inadequate, Humana’s
profitability could be materially adversely affected. Humana estimates the
costs of its benefit expense payments, and designs and prices its products
accordingly, using actuarial methods and assumptions based upon, among other
relevant factors, claim payment patterns, medical cost inflation, and
historical developments such as claim inventory levels and claim receipt
patterns. The company continually reviews estimates of future payments relating
to benefit expenses for services incurred in the current and prior periods and
makes necessary adjustments to its reserves, including premium deficiency
reserves, where appropriate. These estimates, however, involve extensive
judgment, and have considerable inherent variability because they are extremely
sensitive to changes in claim payment patterns and medical cost trends, so any
reserves the company may establish, including premium deficiency reserves, may
be insufficient.
·
If Humana fails to effectively implement its operational and
strategic initiatives, particularly its Medicare initiatives and state-based
contract strategy, the company’s business may be materially adversely affected,
which is of particular importance given the concentration of the company’s
revenues in these products. In addition, there can be no assurances that the
company will be successful in maintaining or improving its Star ratings in
future years.
·
Certain proposed transactions, including the divestiture of
Humana’s subsidiary, KMG America Corporation, the acquisition of a minority
interest in Kindred Healthcare, Inc.’s Kindred at Home division by Humana, as
well as the acquisition of a minority interest in Curo Healthcare Services by
Humana are subject to various closing conditions, including various regulatory
approvals and customary closing conditions, as well as other uncertainties, and
there can be no assurances as to whether and when these transactions may be completed.
·
If Humana fails to properly maintain the integrity of its data,
to strategically implement new information systems, to protect Humana’s
proprietary rights to its systems, or to defend against cyber-security attacks,
the company’s business may be materially adversely affected.
·
Humana is involved in various legal actions, or disputes that
could lead to legal actions (such as, among other things, provider contract
disputes relating to rate adjustments resulting from the Balanced Budget and
Emergency Deficit Control Act of 1985, as amended, commonly referred to as
“sequestration”; other provider contract disputes; and qui tam litigation
brought by individuals on behalf of the government), governmental and internal
investigations, and routine internal review of business processes any of which,
if resolved unfavorably to the company, could result in substantial monetary
damages or changes in its business practices. Increased litigation and negative
publicity could also increase the company’s cost of doing business.
·
As a government contractor, Humana is exposed to risks that may
materially adversely affect its business or its willingness or ability to
participate in government healthcare programs including, among other things,
loss of material government contracts, governmental audits and investigations,
potential inadequacy of government determined payment rates, potential
restrictions on profitability, including by comparison of profitability of the
company’s Medicare Advantage business to non-Medicare Advantage business, or
other changes in the governmental programs in which Humana participates.
·
The Healthcare Reform Law, including The Patient Protection and
Affordable Care Act and The Healthcare and Education Reconciliation Act of
2010, could have a material adverse effect on Humana’s results of operations,
including restricting revenue, enrollment and premium growth in certain
products and market segments, restricting the company’s ability to expand into
new markets, increasing the company’s medical and operating costs by, among
other things, requiring a minimum benefit ratio on insured products, lowering
the company’s Medicare payment rates and increasing the company’s expenses
associated with a non-deductible health insurance industry fee and other assessments;
the company’s financial position, including the company’s ability to maintain
the value of its goodwill; and the company’s cash flows. Additionally,
potential legislative changes, including activities to repeal or replace, in
whole or in part, the Health Care Reform Law, creates uncertainty for Humana’s
business, and when, or in what form, such legislative changes may occur cannot
be predicted with certainty.
·
Humana’s business activities are subject to substantial
government regulation. New laws or regulations, or changes in existing laws or
regulations or their manner of application could increase the company’s cost of
doing business and may adversely affect the company’s business, profitability
and cash flows.
·
If Humana fails to develop and maintain satisfactory
relationships with the providers of care to its members, the company’s business
may be adversely affected.
·
Humana’s pharmacy business is highly competitive and subjects it
to regulations in addition to those the company faces with its core health
benefits businesses.
·
Changes in the prescription drug industry pricing benchmarks may
adversely affect Humana’s financial performance.
·
If Humana does not continue to earn and retain purchase
discounts and volume rebates from pharmaceutical manufacturers at current
levels, Humana’s gross margins may decline.
·
Humana’s ability to obtain funds from certain of its licensed
subsidiaries is restricted by state insurance regulations.
·
Downgrades in Humana’s debt ratings, should they occur, may
adversely affect its business, results of operations, and financial condition.
·
The securities and credit markets may experience volatility and
disruption, which may adversely affect Humana’s business.
In making forward-looking statements, Humana is not
undertaking to address or update them in future filings or communications
regarding its business or results. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed herein may or may not occur.
There also may be other risks that the company is unable to predict at this
time. Any of these risks and uncertainties may cause actual results to differ
materially from the results discussed in the forward-looking statements.
Humana advises investors to read the following documents
as filed by the company with the SEC for further discussion both of the risks
it faces and its historical performance:
·
Form 10‐K for the year ended December 31, 2017;
·
Form 8‐Ks filed during 2018.
About Humana
Humana Inc. (NYSE: HUM) is committed to helping our
millions of medical and specialty members achieve their best health. Our
successful history in care delivery and health plan administration is helping
us create a new kind of integrated care with the power to improve health and
well-being and lower costs. Our efforts are leading to a better quality of life
for people with Medicare, families, individuals, military service personnel,
and communities at large.
To accomplish that, we support physicians and other health
care professionals as they work to deliver the right care in the right place
for their patients, our members. Our range of clinical capabilities, resources
and tools – such as in-home care, behavioral health, pharmacy services, data
analytics and wellness solutions – combine to produce a simplified experience
that makes health care easier to navigate and more effective.
More information regarding Humana is available to
investors via the Investor Relations page of the company’s website at humana.com, including copies of:
·
Annual reports to stockholders
·
Securities and Exchange Commission filings
·
Most recent investor conference presentations
·
Quarterly earnings news releases and conference calls
·
Calendar of events
·
Corporate Governance information
View source version on businesswire.com: https://www.businesswire.com/news/home/20180502005304/en/
Humana Inc.
Investor Relations
Amy Smith, 502-580-2811
Amysmith@humana.com
or
Corporate Communications
Tom Noland, 502-580-3674
Tnoland@humana.com
Investor Relations
Amy Smith, 502-580-2811
Amysmith@humana.com
or
Corporate Communications
Tom Noland, 502-580-3674
Tnoland@humana.com
Source: Humana Inc.
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