LOUISVILLE, Ky.--(BUSINESS WIRE)--Humana Inc. (NYSE: HUM) today reported consolidated pretax income and diluted earnings per common share (EPS) for the quarter ended December 31, 2018 (4Q18) versus the quarter ended December 31, 2017 (4Q17) and for the year ended December 31, 2018 (FY 2018) versus the year ended December 31, 2017 (FY 2017) as follows:
Consolidated pretax income |
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In millions |
4Q18 (a) | 4Q17 (b) | FY 2018 (c) | FY 2017 (d) | ||||||||||
Generally Accepted Accounting Principles (GAAP) | $ | 436 | $ | 490 | $ | 2,063 | $ | 4,020 | ||||||
Loss on sale of KMG America Corporation (KMG), a wholly-owned subsidiary | - | - | 786 | - | ||||||||||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home | 22 | - | 33 | - | ||||||||||
Amortization associated with identifiable intangibles | 20 | 21 | 90 | 75 | ||||||||||
Segment losses (earnings) associated with the Individual Commercial segment | 2 | 14 | (74 | ) | (193 | ) | ||||||||
Net expense (gain) associated with the terminated merger agreement (for FY 2017, primarily the break-up fee) | - | 11 | - | (936 | ) | |||||||||
Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company) | - | - | - | 54 | ||||||||||
Charges associated with voluntary and involuntary workforce reduction programs | - | 23 | - | 148 | ||||||||||
Costs associated with early retirement of debt | - | 17 | - | 17 | ||||||||||
Adjusted (non-GAAP) | $ | 480 | $ | 576 | $ | 2,898 | $ | 3,185 | ||||||
Diluted earnings per common share (EPS) | 4Q18 (a) | 4Q17 (b) | FY 2018 (c) | FY 2017 (d) | ||||||||||||
GAAP | $ | 2.58 | $ | 1.29 | $ | 12.16 | $ | 16.81 | ||||||||
(Favorable adjustment) loss on sale of KMG, a wholly-owned subsidiary | (0.17 | ) | - | 2.41 | - | |||||||||||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home | 0.13 | - | 0.18 | - | ||||||||||||
Amortization associated with identifiable intangibles | 0.11 | 0.09 | 0.49 | 0.32 | ||||||||||||
Segment losses (earnings) associated with the Individual Commercial segment | - | 0.06 | (0.41 | ) | (0.84 | ) | ||||||||||
Adjustments to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law) | - | 0.94 | (0.28 | ) | 0.92 | |||||||||||
Net expense (gain) associated with the terminated merger agreement (for FY 2017, primarily the break-up fee) | - | 0.05 | - | (4.31 | ) | |||||||||||
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 | - | (0.55 | ) | - | (2.15 | ) | ||||||||||
Charges associated with voluntary and involuntary workforce reduction programs | - | 0.10 | - | 0.64 | ||||||||||||
Costs associated with early retirement of debt | - | 0.08 | - | 0.08 | ||||||||||||
Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company) | - | - | - | 0.24 | ||||||||||||
Adjusted (non-GAAP) | $ | 2.65 | $ | 2.06 | $ | 14.55 | $ | 11.71 | ||||||||
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. |
“We’re pleased with the consistency of and ongoing improvement in our performance, which can be attributed to our focus on optimizing our core operations,” said Bruce D. Broussard, Humana’s President and Chief Executive Officer. “The investments we made in 2018 to improve consumer experience, clinical programs and external broker relationships all contributed to our ability to exceed average industry growth in Medicare Advantage (MA) for 2019, with full membership growth estimated between 375,000-400,000 members. Also, both the 2019 improved MA rates and moratorium on the health insurance industry fee (HIF) allowed us to deliver improvements to our members through better benefits and lower premiums.”
Summary of 4Q18 and FY 2018 Results
GAAP and Adjusted pretax income and EPS results for 4Q18 and FY 2018 continued to outperform management expectations, primarily driven by the persistence of lower inpatient medical utilization, partially offset by higher outpatient spending in the Retail segment.
The company’s year-over-year results in both 4Q18 and FY 2018 were favorably impacted by strong Medicare Advantage membership growth and significant operating efficiencies in FY 2018 driven by productivity initiatives implemented in 2017. These increases were partially offset by the company’s offering of enhanced 2018 Medicare Advantage member benefits which resulted from the investment of the better than expected 2017 individual Medicare Advantage pretax earnings, coupled with the return of the health insurance industry fee and the more severe flu season during the first quarter of 2018.
GAAP and Adjusted EPS results for 4Q18 and FY 2018 were further positively impacted by the benefit of a lower tax rate year-over-year as a result of the Tax Reform Law enacted in 4Q17, allowing the company to invest pretax dollars in its employees, the communities of its members, technology and its integrated care delivery model to drive more affordable healthcare and better clinical outcomes; and a lower number of shares in 2018, primarily reflecting share repurchases.
Below is a summary of key consolidated and segment statistics comparing 4Q18 to 4Q17 and FY 2018 to FY 2017.
Humana Inc. summary of quarter and FY results |
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(dollars in millions) |
4Q18 (a) | 4Q17 (b) | FY 2018 (c) | FY 2017 (d) | ||||||||||||
Consolidated results: | ||||||||||||||||
Revenues – GAAP | $ | 14,168 | $ | 13,189 | $ | 56,912 | $ | 53,767 | ||||||||
Revenues – Adjusted | $ | 14,166 | $ | 12,995 | $ | 56,904 | $ | 52,816 | ||||||||
Pretax income – GAAP | $ | 436 | $ | 490 | $ | 2,063 | $ | 4,020 | ||||||||
Pretax income – Adjusted | $ | 480 | $ | 576 | $ | 2,898 | $ | 3,185 | ||||||||
EPS – GAAP | $ | 2.58 | $ | 1.29 | $ | 12.16 | $ | 16.81 | ||||||||
EPS – Adjusted | $ | 2.65 | $ | 2.06 | $ | 14.55 | $ | 11.71 | ||||||||
Benefits expense ratio – GAAP | 83.4 | % | 83.0 | % | 83.5 | % | 83.0 | % | ||||||||
Benefits expense ratio – Adjusted | 83.4 | % | 83.0 | % | 83.7 | % | 83.5 | % | ||||||||
Operating cost ratio – GAAP | 15.0 | % | 14.3 | % | 13.3 | % | 12.3 | % | ||||||||
Operating cost ratio – Adjusted | 15.0 | % | 13.9 | % | 13.3 | % | 11.7 | % | ||||||||
Operating cash flows– GAAP | ($333 | ) | ($2,911 | ) | $ | 2,173 | $ | 4,051 | ||||||||
Operating cash flows– Adjusted | ($333 | ) | $ | 218 | $ | 2,173 | $ | 4,051 | ||||||||
Parent company cash and short term investments | $ | 578 | $ | 688 | ||||||||||||
Debt-to-total capitalization | 37.4 | % | 33.3 | % | ||||||||||||
Retail segment results: | ||||||||||||||||
Revenues – GAAP | $ | 12,036 | $ | 10,948 | $ | 48,255 | $ | 44,726 | ||||||||
Benefits expense ratio – GAAP | 84.0 | % | 84.2 | % | 85.1 | % | 85.6 | % | ||||||||
Operating cost ratio – GAAP | 12.9 | % | 11.8 | % | 11.1 | % | 9.6 | % | ||||||||
Segment earnings – GAAP | $ | 339 | $ | 391 | $ | 1,733 | $ | 1,978 | ||||||||
Segment earnings – Adjusted | $ | 343 | $ | 397 | $ | 1,752 | $ | 2,002 | ||||||||
Group and Specialty segment results: | ||||||||||||||||
Revenues – GAAP | $ | 1,909 | $ | 1,891 | $ | 7,679 | $ | 7,449 | ||||||||
Benefits expense ratio – GAAP | 84.6 | % | 83.1 | % | 79.7 | % | 79.2 | % | ||||||||
Operating cost ratio – GAAP | 23.9 | % | 21.9 | % | 23.6 | % | 21.4 | % | ||||||||
Segment earnings (loss) – GAAP | ($11 | ) | $ | 47 | $ | 361 | $ | 412 | ||||||||
Segment earnings (loss) – Adjusted | ($10 | ) | $ | 48 | $ | 366 | $ | 415 | ||||||||
Healthcare Services segment results: | ||||||||||||||||
Revenues – GAAP | $ | 6,191 | $ | 6,018 | $ | 23,811 | $ | 23,958 | ||||||||
Operating cost ratio – GAAP | 96.8 | % | 96.0 | % | 96.3 | % | 95.5 | % | ||||||||
Segment earnings – GAAP | $ | 160 | $ | 213 | $ | 754 | $ | 967 | ||||||||
Adjusted EBITDA (f) | $ | 223 | $ | 253 | $ | 969 | $ | 1,110 | ||||||||
2019 Earnings Guidance
The company provided its GAAP and Adjusted EPS guidance for the year ended December 31, 2019 (FY 2019) as detailed below. GAAP and Adjusted results for FY 2018 are also shown for comparison.
Diluted earnings per common share | FY 2019 Guidance (e) |
FY 2018 (c) |
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GAAP | ~$16.60 to $17.10 | $12.16 | ||
Loss on Sale of KMG, a wholly-owned subsidiary | - | 2.41 | ||
Put/call valuation adjustments associated with 40% minority interest in Kindred at Home | - | 0.18 | ||
Amortization of identifiable intangibles | 0.40 | 0.49 | ||
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 | ~$17.00 to $17.50 | $14.55 | ||
“Our solid execution in 2018 resulted in Adjusted EPS growth of over 20 percent and positions us well for 2019,” said Brian A. Kane, Chief Financial Officer. “Our 2019 guidance reflects Adjusted EPS growth of 17 to 20 percent combined with individual Medicare Advantage membership growth significantly in excess of the industry.”
2020 Preliminary Rate Notice
On Wednesday, January 30, 2019, after the stock market closed, the Centers for Medicare and Medicaid Services (CMS) issued its preliminary 2020 Medicare Advantage and Part D payment rates and proposed policy changes (collectively, the Advance Notice). CMS has invited public comment on the Advance Notice before publishing final rates on April 1, 2019 (the Final Notice).
In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 1.59 percent increase in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee‐for‐service county rebasing/re‐pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice.
Based on the company’s preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’ website, Humana anticipates the proposals in the Advance Notice would result in a change to its benchmark funding relatively in line with CMS’ estimate.
The company will be drawing upon its program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries’ quality of care and service to its members through the Medicare Advantage program.
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 4Q18 earnings conference call are invited to dial 888-625-7430. No password is required. The audio-only webcast of the 4Q18 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 February 6, 2019 until midnight eastern time on April 6, 2019 and can be accessed by dialing 855-859-2056 and providing the conference ID #7198019.
Footnotes
(a) 4Q18 Adjusted results exclude the following:
(b) 4Q17 Adjusted results exclude the following:
(c) FY 2018 Adjusted results exclude the following:
(d) FY 2017 Adjusted results exclude the following:
(e) FY 2019 Adjusted EPS projections exclude the following:
(f) 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, as well as in 2018, the impact of Humana’s 40% minority interest in Kindred at Home.
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: