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, 2019 (1Q19) versus the quarter ended March 31, 2018 (1Q18) as follows:
Consolidated pretax income
|
1Q19 (a) | 1Q18 (b) | ||||||||
Generally Accepted Accounting Principles (GAAP) | $ | 746 | $ | 707 | ||||||
Amortization associated with identifiable intangibles | 18 | 30 | ||||||||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home |
39 | - | ||||||||
Segment earnings associated with the Individual Commercial Segment | - | (53 | ) | |||||||
Adjusted (non-GAAP) | $ | 803 | $ | 684 |
Diluted earnings per common share (EPS) | 1Q19 (a) | 1Q18 (b) | ||||||||
GAAP | $ | 4.16 | $ | 3.53 | ||||||
Amortization associated with identifiable intangibles | 0.10 | 0.17 | ||||||||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home | 0.22 | - | ||||||||
Segment earnings associated with the Individual Commercial segment | - | (0.29 | ) | |||||||
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) | $ | 4.48 | $ | 3.36 | ||||||
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 (Adjusted) financial measures as indicators of the company’s business performance, as well as for operational planning and decision making purposes. Non-GAAP (Adjusted) 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. Please refer to the footnotes for a detailed description of each item adjusted out of GAAP financial measures to arrive at a non-GAAP (Adjusted) financial measure.
“In a year of strong Medicare Advantage membership growth for the industry, driven in no small part by the health insurance industry fee suspension and the resulting increased benefits offered to seniors nationwide, we are pleased to be able to deliver industry leading individual Medicare Advantage membership growth of 415,000 to 440,000 members together with above target earnings growth for 2019.” said Bruce D. Broussard, Humana’s President and Chief Executive Officer. “Each day, more and more seniors are choosing Medicare Advantage, a program that today has over 22 million members, demonstrating the compelling value of a program that delivers affordable, quality care for seniors and improved clinical outcomes as payers and providers work together to understand each member’s whole health and help them navigate the complex healthcare system.”
Summary of 1Q19 Results
GAAP and Adjusted pretax income and EPS results for 1Q19 exceeded management expectations, primarily driven by lower than anticipated utilization in the individual Medicare Advantage business.
The company’s year-over-year consolidated GAAP and Adjusted pretax results in 1Q19 were favorably impacted by the solid performance of the company’s Medicare Advantage business and significant operating cost efficiencies driven by productivity initiatives previously implemented. As expected, the company’s higher-than-anticipated individual Medicare Advantage membership growth during the recently completed Annual Election Period (AEP) had a muted impact on the consolidated earnings in 1Q19. While new Medicare Advantage members increase revenues, on average, they have a breakeven impact on pretax earnings in the first year as they were not previously engaged in clinical programs or appropriately documented under the Centers for Medicare and Medicaid Services (CMS) risk-adjustment model.
The year-over-year changes in GAAP and Adjusted EPS for 1Q19 reflected the same factors impacting GAAP and Adjusted consolidated pretax income comparisons as well as the beneficial impact of the temporary suspension of the health insurance industry fee (HIF) in 2019. In addition, year-over-year comparisons of both GAAP and Adjusted EPS are favorably impacted by a lower number of shares used to compute EPS, primarily reflecting share repurchases.
Please refer to the consolidated and segment highlight sections that follow for additional discussion of the factors impacting the year-over-year results. In addition, below is a summary of key consolidated and segment statistics comparing 1Q19 to 1Q18.
Humana Inc. Summary of Quarter Results
|
1Q19 (a) | 1Q18 (b) | |||||||||
Consolidated results: | |||||||||||
Revenues – GAAP | $ | 16,107 | $ | 14,279 | |||||||
Revenues – Adjusted | $ | 16,107 | $ | 14,284 | |||||||
Pretax income – GAAP | $ | 746 | $ | 707 | |||||||
Pretax income – Adjusted | $ | 803 | $ | 684 | |||||||
EPS – GAAP | $ | 4.16 | $ | 3.53 | |||||||
EPS – Adjusted | $ | 4.48 | $ | 3.36 | |||||||
Benefits expense ratio – GAAP | 86.2 | % | 84.5 | % | |||||||
Benefits expense ratio – Adjusted | 86.2 | % | 84.9 | % | |||||||
Operating cost ratio – GAAP | 10.4 | % | 12.4 | % | |||||||
Operating cash flows– GAAP | $ | 896 | $ | 3,686 | |||||||
Operating cash flows– Adjusted | $ | 896 | $ | 351 | |||||||
Parent company cash and short term investments | $ | 721 | $ | 567 | |||||||
Debt-to-total capitalization | 36.0 | % | 33.9 | % | |||||||
Retail segment results: | |||||||||||
Revenues – GAAP | $ | 14,013 | $ | 12,107 | |||||||
Benefits expense ratio – GAAP | 88.3 | % | 87.4 | % | |||||||
Operating cost ratio – GAAP | 8.2 | % | 10.1 | % | |||||||
Segment earnings – GAAP | $ | 465 | $ | 267 | |||||||
Segment earnings – Adjusted | $ | 469 | $ | 273 | |||||||
Group and Specialty segment results: | |||||||||||
Revenues – GAAP | $ | 1,887 | $ | 1,970 | |||||||
Benefits expense ratio – GAAP | 76.4 | % | 73.2 | % | |||||||
Operating cost ratio – GAAP | 21.9 | % | 23.6 | % | |||||||
Segment earnings – GAAP | $ | 165 | $ | 211 | |||||||
Segment earnings – Adjusted | $ | 166 | $ | 212 | |||||||
Healthcare Services segment results: | |||||||||||
Revenues – GAAP | $ | 6,098 | $ | 5,663 | |||||||
Operating cost ratio – GAAP | 96.6 | % | 96.2 | % | |||||||
Segment earnings – GAAP | $ | 175 | $ | 173 | |||||||
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c) |
$ | 238 | $ | 222 | |||||||
2019 Earnings Guidance
Humana has raised its GAAP and Adjusted EPS guidance for the year ended December 31, 2019 (FY19). The company now expects FY19 GAAP EPS guidance to be in a range of approximately $16.63 to $16.88, while Adjusted EPS is expected to be in a range of approximately $17.25 to $17.50.
A reconciliation of GAAP to Adjusted EPS for the company’s FY19 projections as well as comparable numbers for the year ended December 31, 2018 (FY 2018) is shown below for comparison.
Diluted earnings per common share | FY 2019 Guidance (d) |
FY 2018 (e) |
|||||||
GAAP | ~$16.63 to $16.88 | $ | 12.16 | ||||||
Amortization of identifiable intangibles | 0.40 | 0.49 | |||||||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home | 0.22 | 0.18 | |||||||
Loss on sale of KMG America Corporation (KMG), a wholly-owned subsidiary | - | 2.41 | |||||||
Segment earnings associated with the Individual Commercial segment | - | (0.41 | ) | ||||||
Adjustments to provisional estimates for the income tax effects related to the Tax Reform Law | - | (0.28 | ) | ||||||
Adjusted (non-GAAP) – FY 2019 projected | ~$17.25 to $17.50 | $ | 14.55 | ||||||
“Early indicators in 2019 are positive, with utilization trending better than our initial expectations for the Retail segment,” said Brian A. Kane, Chief Financial Officer. “This strong performance has allowed us to raise our full year Adjusted EPS guidance to a range of $17.25 to $17.50, reflecting expected Adjusted EPS growth of 19 to 20 percent, while delivering compelling individual Medicare Advantage membership growth significantly in excess of the industry.”
2020 Rate Notice
On April 1, 2019, CMS published its 2020 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 2.20 percent(f) rate increase for Humana’s individual Medicare Advantage business versus CMS’ estimate for the sector of 2.53 percent, excluding the impact of Employer Group Waiver Plan (EGWP) funding changes, on a comparable basis. The difference between the Humana projection and the CMS projection results from small differences in various components of the rate.
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 company’s 1Q19 earnings conference call are invited to dial 888-625-7430. No password is required. The audio-only webcast of the 1Q19 earnings call may also 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 from approximately 2:00 p.m. eastern time on May 1, 2019 until 11:00 p.m. eastern time on June 26, 2019 and can be accessed by dialing 855-859-2056 and providing the conference ID #3292269.
Footnotes
(a) 1Q19 Adjusted results exclude the following:
(b) 1Q18 Adjusted results exclude the following:
(c) The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from the all lines of business within the segment and the impact of Humana’s 40% minority interest in Kindred at Home.
(d) FY 2019 Adjusted EPS projections exclude the following:
(e) FY 2018 Adjusted results exclude the following:
(f) Excludes estimates of changes in revenues associated with increased accuracy of risk coding.
Cautionary Statement
This news release includes forward-looking statements regarding Humana 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:
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:
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: