LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended June 30, 2012 (2Q12) of $2.16, compared to $2.71 per share for the quarter ended June 30, 2011 (2Q11). For the six months ended June 30, 2012 (1H12) the company reported $3.65 in EPS compared to $4.57 for the six months ended June 30, 2011 (1H11).
Results for 2Q12 and 1H12 included $0.18 per share in expenses related to the previously-disclosed settlement of a litigation matter. Prior-year favorable medical claims reserve development for 2Q12 of $0.15 per share compared to $0.12 per share in 2Q11. Results for 1H12 and 1H11 included $0.18 per share and $0.44 per share, respectively, of prior-year favorable medical claims reserve development.
The company lowered EPS guidance for the year ending December 31, 2012 (FY12) to a range of $6.90 to $7.10 versus its previous estimate of $7.38 to $7.58. This reduction in FY12 EPS guidance primarily reflects higher-than-previously expected individual Medicare Advantage benefit ratios associated with new members and increased utilization for both new and existing members.
"Our company’s strategy is sound, though we are disappointed by the need to lower our full-year earnings guidance," said Michael B. McCallister, Humana’s Chairman of the Board and Chief Executive Officer. “We believe the steps we are taking to address certain short-term operational challenges will put us back on the path for sustainable earnings growth moving forward."
Revenues – 2Q12 consolidated revenues were $9.70 billion, an increase of $415 million, or 4 percent from $9.28 billion in 2Q11, with total premiums and services revenue of $9.60 billion up $407 million, or 4 percent compared to $9.19 billion in the prior year’s quarter. The increase in consolidated revenues was primarily due to related increases in the Retail and Employer Group segments driven by increases in average membership of the company’s individual and group Medicare Advantage plans. These increases were partially offset by the company’s new South Region TRICARE contract being accounted for as self-funded versus fully-insured for the previous contract. This new contract became effective on April 1, 2012.
1H12 consolidated revenues rose $1.44 billion, or 8 percent to $19.92 billion from $18.48 billion in 1H11 with total premiums and services revenue of $19.73 billion also up 8 percent, increasing $1.43 billion compared to $18.30 billion in the prior year’s period, driven primarily by the same factors as the second quarter year-over-year increase.
Benefit expenses – The 2Q12 consolidated benefit ratio (benefit expenses as a percent of premiums) of 83.5 percent increased 140 basis points from 82.1 percent for the prior year’s quarter due primarily to higher year-over-year benefit ratios for the Retail and Employer Group segments. The consolidated benefit ratio for 1H12 of 84.5 percent increased by 150 basis points from the 1H11 consolidated benefit ratio of 83.0 percent primarily due to the same factors impacting the 2Q12 year-over-year comparison.
Operating costs – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 14.4 percent increased 140 basis points for 2Q12 compared to 13.0 percent in 2Q11. The increased year-over-year ratio primarily reflects the impact of the accounting for the company’s new South Region TRICARE contract discussed above.
The 1H12 consolidated operating cost ratio of 14.0 percent increased 60 basis points from 13.4 percent for 1H11 primarily due to the same factor impacting the second quarter year-over-year comparison.
Retail Segment Highlights
Premiums and services revenue:
Employer Group Segment Highlights
Health and Well-Being Services Segment Highlights
Other Businesses Highlights
Cash Flows from Operations
Cash flows provided by operations for 2Q12 totaled $706 million compared to cash flows provided by operations of $161 million in 2Q11. For the first half of 2012, cash flows provided by operations totaled $3.05 billion versus $957 million in cash flows from operations during the first half of 2011. The company also evaluates operating cash flows on a non-GAAP(b) basis:
The year over year decrease in the non-GAAP(b) cash flows from operations is due to the effect on cash flows of changes in working capital accounts.
Share Repurchase Program and Cash Dividend
The company provides a full range of insured specialty products including dental, vision and other supplemental products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.
The Company has included certain financial measures that are not in accordance with Generally Accepted Accounting Principles (GAAP) in its summary of financial results within this earnings press release. The company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Internally, management uses these non-GAAP financial measures as indicators of 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.
Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives this payment at the end of the previous month. Therefore 1Q12 included four monthly Medicare payments compared to only three monthly Medicare payments in 1Q11. While 2Q12 included three monthly payments as did 2Q11 the three payments in 2Q12 were related to May, June and July versus April, May, and June in 2Q11.
Conference Call & Virtual Slide Presentation
Humana will host a conference call, as well as a virtual slide presentation, at 5:00 p.m. eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana’s Investor Relations page at www.humana.com. The company suggests web participants sign on at least 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.
All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in at least ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.
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,” “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:
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:
Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company that offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being. By leveraging the strengths of its core businesses, Humana believes it can better explore opportunities for existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions of people across the nation with whom the company has relationships.
More information regarding Humana is available to investors via the Investor Relations page of the company’s web site at www.humana.com, including copies of:
Humana Inc. – Earnings Guidance Points as of July 30, 2012
HumanaOne: Up 25,000 to 35,000
2Q12 Earnings Release
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 194,250,130 issued at June 30, 2012
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in operating assets and liabilities excluding the effects of acquisitions:
June 30, 2012
June 30, 2011
Year-to-date changes in benefits payable, excluding military services (O)
Number of Days
Days in Claims
Change Last 4
Footnotes to Statistical Schedules and Supplementary Information
The Medicaid and other category includes the company’s Medicaid business as well as the closed block of long-term care.
The ASO and other category is primarily comprised of ASO fees and other ancillary services fees.
The operating cost ratio is defined as operating costs as a percent of total revenues excluding investment income.
LI-NET is the CMS Limited Income Newly Eligible Transition program, operated by Humana, to provide Part D prescription drug coverage for all uncovered Full Duals and SSI-only
beneficiaries on a retroactive basis and all uncovered LIS eligible beneficiaries on a current basis.
Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.
Computed based on average membership for the period (i.e., monthly ending membership during the period divided by the number of months in the period).
Military services revenues are generally not contracted on a per-member basis.
Includes premiums associated with Medicaid and the closed block of long-term care as well as services revenue.
Duration is the time-weighted average of the present value of the fixed income portfolio cash flows.
IBNR represents an estimate of benefit expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by membership
levels, benefit claim trends and the receipt cycle time, which represents the length of time between when a claim is initially incurred and when the claim form is received (i.e. a shorter time
span results in lower reserves for claims IBNR). Other benefits payable includes amounts payable to providers under capitation arrangements.
Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed.
Processed claim inventories represent the estimated valuation of processed claims that are in the post-claim-adjudication process, which consists of administrative functions such as audit
and check batching and handling.
The balance due to the company's pharmacy benefit administrator fluctuates as a result of the number of business days in the last payment cycle of the month. Payment cycles are every 8
days (8th, 16th, and 24th of month) and the last day of the month.
Military services benefits payable primarily consist of IBNR and to a lesser extent risk share payables to the Department of Defense and liabilities to subcontractors.
The table excludes activity associated with military services benefits payable because the federal government bears a substantial portion of the risk associated with financing the cost of
health benefits. More specifically, the risk-sharing provisions of the military services contracts with the federal government and with subcontractors effectively limit profits and losses when
actual claim experience varies from the targeted claim amount negotiated annually. As a result of these contract provisions, the impact of changes in estimates for prior year military
services benefits payable are substantially offset by the associated changes in estimates of revenue from health care services reimbursements. As such, any impact on the company's
results of operations is reduced substantially, whether positive or negative.
Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for incurred related to prior years result from
claims being ultimately settled for amounts less than originally estimated (favorable development). There were no changes in the approach used to determine the company's estimate of
claim reserves during the quarter.
Future policy benefit expense has a related liability classified as a long-term liability on the balance sheet.
Benefits reserves statistics represents fully-insured medical claims data and excludes military services claims data and specialty benefits.
The receipt cycle time measures the average length of time between when a claim was initially incurred and when the claim form was received. Receipt cycle time data for the company's
largest claim processing platforms represent approximately 95% of the company's fully-insured medical claims volume. Pharmacy and specialty claims, including dental, vision and other
supplemental benefits, are excluded from this measurement.
A common metric for monitoring benefits payable levels relative to the benefit expense is days in claims payable, or DCP, which represents the benefits payable at the end of the period
divided by average benefit expenses per day in the quarterly period.
DCP fluctuates due to a number of issues, the more significant of which are detailed in this rollforward. Growth in certain product lines can also impact DCP for the quarter since a provision
for claims would not have been recorded for members that had not yet enrolled earlier in the quarter, yet those members would have a provision and corresponding reserve recorded upon
enrollment later in the quarter. This analysis excludes the impact of military services and Medicare stand-alone PDPs upon DCP.
Humana Investor Relations
Regina Nethery, 502-580-3644
Humana Corporate Communications
Tom Noland, 502-580-3674
Source: Humana Inc.