Humana Inc. (NYSE: HUM) today reported $0.42 in diluted earnings per common share (EPS) for the quarter ended March 31, 2007 (1Q07), above the company's previous guidance for 1Q07 EPS of $0.35 to $0.40. The company earned $0.50 per share for the quarter ended March 31, 2006 (1Q06), including a $0.19 per share benefit from the sale of a venture capital investment. Excluding the venture capital gain, the significant year-over-year increase in quarterly earnings resulted primarily from higher operating earnings in the company's Commercial Segment.
Humana now estimates EPS for the year ending December 31, 2007 (FY07E) will be in the range of $4.10 to $4.25 versus $2.90 for the year ended December 31, 2006 (FY06), a growth rate of 41 to 47 percent.
Revenues - 1Q07 consolidated revenues rose 32 percent to $6.20 billion from $4.70 billion in 1Q06, with total premium and administrative services fees up 33 percent compared to the prior year's quarter primarily driven by higher average Medicare membership than in 1Q06.
Investment income of $73.5 million in 1Q07 compared to $98.9 million for 1Q06. The change in investment income resulted from the $51.7 million venture capital gain in 1Q06 that did not recur in 1Q07, partially offset by the ongoing investment income derived from higher average invested balances in 1Q07. Higher invested balances have resulted primarily from the company's substantial growth in operations.
Other revenue of $30.9 million for 1Q07 compares favorably to $5.3 million for 1Q06. The increase was primarily driven by higher specialty product revenue associated with RightSource(SM), the company's mail order pharmacy.
Medical costs - The company's consolidated medical expense ratio (medical expenses as a percent of premium revenue or MER) of 86.8 percent in 1Q07 was 310 basis points higher than the 1Q06 MER of 83.7 percent due to an expected increase in the Government Segment MER outweighing significant improvement in that for the Commercial Segment.
Selling, general, & administrative (SG&A) expenses - The company's consolidated SG&A expense ratio (SG&A expenses as a percent of premiums plus administrative services fees) decreased 260 basis points to 13.5 percent for 1Q07 from 16.1 percent in 1Q06. The year-over-year decline was primarily the result of administrative cost leverage associated with increased revenues from higher average medical membership.
— Government Segment pretax earnings were $17.9 million in 1Q07 compared to $21.6 million in 1Q06. As expected, this primarily reflects the higher first quarter MER associated with higher average Medicare membership with Part D benefits partially offset by administrative cost leverage and increasing investment income primarily derived from higher average invested balances.
— Medicare Advantage membership grew to 1,113,400 at March 31, 2007, an increase of 372,200, or 50 percent, from March 31, 2006 and 110,800, or 11 percent, from December 31, 2006. The company's expanded participation in various Medicare products and markets combined with the company's increased sales and marketing efforts for these programs led to the higher membership level both year over year and sequentially. Medicare Advantage membership for April 2007 approximates 1,137,000, the result of strong sales results during the final two weeks of the open enrollment season for Medicare Advantage.
— As expected, TRICARE membership of 2,878,400 at March 31, 2007 was essentially unchanged from both March 31, 2006 and December 31, 2006.
— Medicaid membership of 559,400 at March 31, 2007 increased 132,400 from March 31, 2006 due primarily to the award of a new Puerto Rico regional ASO contract during the fourth quarter of 2006, partially offset by eligible Puerto Rico Medicaid members choosing to move into the Medicare Advantage program.
— Medicare Advantage premiums of $2.74 billion in 1Q07 increased 59 percent compared to $1.72 billion in 1Q06, primarily the result of the expanded geography across which Medicare Advantage products were offered together with higher enrollment in geographies where these products were offered in 2006. Medicare Advantage premiums per member increased less than 1 percent year over year during 1Q07, reflecting the shift in membership mix to a higher percentage of lower premium Private Fee-for-Service products.
— The Government Segment MER increased 370 basis points to 89.3 percent in 1Q07 compared to 85.6 percent in the prior year's quarter. This anticipated change in the MER for the Government Segment included the combined effect of the seasonally higher first quarter MER associated with Part D benefits together with approximately twice the average stand-alone PDP membership for 1Q07 versus 1Q06.
— The Government Segment's SG&A expense ratio for 1Q07 of 10.8 percent was 300 basis points lower than that for 1Q06 of 13.8 percent primarily driven by the expense leverage provided by revenues associated with higher average medical membership for this segment.
— Commercial Segment pretax earnings were $94.4 million in 1Q07 compared to $109.6 million in 1Q06. Investment income for this segment in 1Q06 included a pretax gain of $45.3 million associated with the sale of a venture capital investment that did not recur in 1Q07. Commercial Segment operating earnings in 1Q07 continue to reflect the company's commitment to underwriting discipline and strategic growth in select lines of business.
— Commercial Segment medical membership of 3,257,500 at March 31, 2007 was essentially unchanged from March 31, 2006 and declined 26,300, or less than 1 percent, from December 31, 2006.
— Membership in the company's Smart plans and other consumer offerings increased year over year by 56,300 or 14 percent to 471,300 at March 31, 2007. Medical members in these products comprise approximately 15 percent of Commercial medical membership at March 31, 2007 compared to 13 percent at March 31, 2006.
— Premiums and administrative services fees for the Commercial Segment decreased 3 percent to $1.58 billion in 1Q07 compared to $1.62 billion in the prior year's quarter, as an increase in administrative services fees resulting from a 10 percent increase in ASO membership was more than offset by lower premiums due to a year-over-year decline in at-risk enrollment.
— Commercial Segment medical premiums for fully insured groups increased approximately 5 percent on a per-member basis during 1Q07 compared to 1Q06.
— In 1Q07, the Commercial Segment MER of 79.4 percent was 70 basis points lower than the 1Q06 MER of 80.1 percent, primarily reflecting improving medical cost utilization trends and the company's continued commitment to underwriting discipline.
— The Commercial Segment SG&A expense ratio of 20.9 percent for 1Q07 compares to 20.4 percent in 1Q06, primarily the result of lower average fully-insured medical enrollment and an increase in the percentage of Commercial medical membership related to ASO.
— Cash and cash equivalents of $3.69 billion increased $1.95 billion or 112 percent sequentially primarily due to the early receipt of the April Medicare premium from the Centers for Medicare and Medicaid Services (CMS) and an increase in non-GAAP operating cash flows(a) during 1Q07.
— Unearned revenues of $1.33 billion increased significantly from the December 31, 2006 balance of $155.3 million also due to the timing of the receipt of Medicare premiums from CMS.
— Debt-to-total capitalization at March 31, 2007 was 29.6 percent, up 20 basis points from December 31, 2006 due primarily to 1Q07 borrowings against the company's credit facility.
— Days in claims payable rose 1.8 days on a sequential basis to 62.0 days at March 31, 2007 from 60.2 days at December 31, 2006. The sequential increase in this metric is primarily due to the timing of the company's payment to its pharmacy benefit administrator together with higher TRICARE reserve balances.
Non-GAAP cash flows provided by operations rose to $444.7 million(a)(b) in 1Q07 from $233.3 million(a)(b) in 1Q06 driven by growth in the company's Medicare operations.
(a) When reviewing and analyzing Humana's operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company's operating cash flow. Therefore, decisions such as management's forecasting and business plans regarding cash flow use this non-GAAP financial measure.
(b) The company has included certain financial measures that are not in accordance with GAAP within this news 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.
Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.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 approximately 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 approximately ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive will be available in the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.
This news release contains statements and earnings guidance points that are forward-looking. The forward-looking items herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking items may be significantly impacted by certain risks and uncertainties described in the company's Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 11.3 million medical members. Humana offers a diversified portfolio of health insurance products and related services - through traditional and consumer-choice plans - to employer groups, government-sponsored plans, and individuals.
Over its 46-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.
This is cache, read story here
