Board Increases Share Repurchase Authorization
to $400 Million
Health Net, Inc. (NYSE:HNT) today announced 2015 annual guidance
of at least $2.55 for GAAP earnings per diluted share (EPS) and at
least $3.15 per diluted share for the combined Western Region
Operations (Western Region) and Government Contracts segments. The
EPS guidance for the combined segments would represent a
40 percent increase compared with the company’s existing
guidance for the full year of 2014.
The difference between GAAP EPS guidance and EPS guidance for
the combined segments is due to the expected impact of 2015
expenses related to the company’s previously announced master
services agreement with a subsidiary of Cognizant Technology
Solutions Corporation (Cognizant). This is consistent with the
commentary regarding these expenses the company gave on its second
quarter and third quarter 2014 earnings conference calls.
Compared with existing 2014 guidance metrics as reported on
November 3, 2014, the company also expects the following with
regard to 2015 guidance:
- A total health plan membership increase
of approximately 8.2 percent to approximately 3.5 million
members. Because of the timing of the 2014 enrollment gains, health
plan member months are expected to increase by approximately
17 percent;
- Total consolidated revenue of
approximately $17.4 billion, an increase of approximately
22.5 percent;
- Stable medical care ratios in its
commercial, Medicare, Medicaid and dual eligibles lines of
business. The overall health plan MCR is expected to improve by
20 basis points year-over-year;
- An approximately 50 basis point
decline in the company’s administrative expense ratio in 2015
compared with the existing guidance for 2014. The calculation of
the administrative expense ratio excludes the impact of the health
insurer fee and other related ACA fees and premium taxes. This
expected decline is due to increased volume and reduced
administrative expenses as a result of the Cognizant
transaction;
- The company’s overall G&A expense
ratio is expected to increase 10 basis points in 2015,
primarily due to a higher health insurer fee and premium taxes
compared with 2014;
- The tax rate for the combined segments
is expected to increase by 390 basis points, primarily due to
the higher, non-deductible health insurer fee; and
- A 2.8 million reduction in the
weighted average fully-diluted share count.
Following is a table with specific 2015 guidance metrics.
Health Net, Inc. GAAP Guidance (1)
FY14
(as of 11/3/14)
FY15
(as of 12/17/14)
Total Health Plan Membership (2) 3,233,000
3,500,000
Total Consolidated Revenues $14.2
billion $17.4 billion
Health Plan MCR (2)
84.8% 84.6%
G&A Expense Ratio (2)
10.8% 10.9%
Admin Expense Ratio (2)
7.7% 7.2%
GAAP Tax Rate (3)
28.0% 57.4%
Western Region and Government
Contracts Tax Rate (4) 51.1% 55.0%
Weighted-average fully diluted shares outstanding
80.8 million ~78 million
GAAP Earnings per Diluted
Share (EPS) (3) At least $1.95 At least
$2.55
Western Region and Government Contracts EPS
(4) At least $2.25 At least $3.15
(1) All guidance metrics are
approximations.(2) For the company’s Western Region Operations
segment(3) Includes a $72.6 million tax benefit for 2014(4)
Excludes the $72.6 million tax benefit for 2014
The company intends to provide more detailed 2015 guidance no
later than February 10, 2015, when Health Net is scheduled to
report its fourth quarter and full year 2014 earnings results. The
company expects to receive updated enrollment data related to its
exchange members, Medicaid members and dual eligible members some
time in January 2015.
Share Repurchase Program
Health Net today also announced that, on December 16, 2014,
its board of directors approved a $258 million increase to the
company’s existing share repurchase program.
Prior to December 16, 2014, Health Net had approximately
$142 million of authorization remaining under the company’s
existing share repurchase program. Including the newly authorized
repurchase authority, Health Net currently has $400 million in
repurchase authority.
Subject to board approval, Health Net may repurchase its common
stock under its share repurchase program from time to time in
privately negotiated transactions, through accelerated share
repurchase programs or open market transactions, including pursuant
to a trading plan in accordance with Rules 10b5-1 and 10b-18 of the
Securities Exchange Act of 1934, as amended, or by any combination
of such methods. The timing of any repurchases and the actual
number of shares repurchased will depend on a variety of factors,
including the company’s stock price, corporate and regulatory
requirements, restrictions under the company’s debt obligations,
and other market and economic conditions. The share repurchase
program may be suspended or discontinued at any time. The company
intends to report on its repurchase activity in its quarterly
financial disclosures.
About Health Net
Health Net, Inc. is a publicly traded managed care organization
that delivers managed health care services through health plans and
government-sponsored managed care plans. Its mission is to help
people be healthy, secure and comfortable. Health Net provides and
administers health benefits to approximately 5.9 million
individuals across the country through group, individual, Medicare
(including the Medicare prescription drug benefit commonly referred
to as “Part D”), Medicaid, U.S. Department of Defense, including
TRICARE, and Veterans Affairs programs. Health Net also offers
behavioral health, substance abuse and employee assistance
programs, managed health care products related to prescription
drugs, managed health care product coordination for multi-region
employers, and administrative services for medical groups and
self-funded benefits programs.
For more information on Health Net, Inc., please visit Health
Net’s website at www.healthnet.com.
Cautionary Statements
The company and its representatives may from time to time make
written and oral forward-looking statements within the meaning of
the Private Securities Litigation Reform Act (“PSLRA”) of 1995,
including statements in this and other press releases, in
presentations, filings with the Securities and Exchange Commission
(“SEC”), reports to stockholders and in meetings with investors and
analysts. All statements in this press release, other than
statements of historical information provided herein, including the
guidance for future periods and the assumptions underlying such
projections, may be deemed to be forward-looking statements and as
such are intended to be covered by the safe harbor for
“forward-looking statements” provided by PSLRA. These statements
are based on management’s analysis, judgment, belief and
expectation only as of the date hereof, and are subject to changes
in circumstances and a number of risks and uncertainties. Without
limiting the foregoing, the guidance as to expected future period
results and statements including the words “believes,”
“anticipates,” “plans,” “expects,” “may,” “should,” “could,”
“estimate,” “intend,” “feels,” “will,” “projects” and other similar
expressions are intended to identify forward-looking statements.
Actual results could differ materially from those expressed in, or
implied or projected by the forward-looking information and
statements due to, among other things, health care reform and other
increased government participation in and taxation or regulation of
health benefits and managed care operations, including but not
limited to the implementation of the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010 (collectively, the "ACA") and related
fees, assessments and taxes; the company’s ability to successfully
participate in California’s Coordinated Care Initiative, which is
subject to a number of risks inherent in untested health care
initiatives and requires the company to adequately predict the
costs of providing benefits to individuals that are generally among
the most chronically ill within each of Medicare and Medi-Cal and
implement delivery systems for benefits with which the company has
limited operating experience; the company’s ability to successfully
participate in the federal and state health insurance exchanges
under the ACA, which in the past have experienced technical
challenges in implementation and which involve uncertainties
related to the mix and volume of business that could negatively
impact the adequacy of the company’s premium rates and may not be
sufficiently offset by the risk apportionment provisions of the
ACA; increasing health care costs, including but not limited to
costs associated with the introduction of new treatments or
therapies; the company’s ability to reduce administrative expenses
while maintaining targeted levels of service and operating
performance, including through the company’s master services
agreement with Cognizant; whether the company receives required
regulatory approvals for Cognizant’s provision of services to the
company and any conditions imposed in order to obtain such
regulatory approvals; the company’s ability to recognize the
intended cost savings and other intended benefits of the Cognizant
transaction; and the risk that Cognizant may not perform contracted
functions and services in a timely, satisfactory and compliant
manner; negative prior period claims reserve developments; rate
cuts and other risks and uncertainties affecting the company’s
Medicare or Medicaid businesses; trends in medical care ratios;
membership declines or negative changes in the company’s health
care product mix; unexpected utilization patterns or unexpectedly
severe or widespread illnesses; the timing of collections on
amounts receivable from state and federal governments and agencies,
including collections of amounts owed under the T-3 contract;
litigation costs; regulatory issues with federal and state agencies
including, but not limited to, the California Department of Managed
Health Care and Department of Health Care Services, the Centers for
Medicare & Medicaid Services, the Office of Civil Rights of the
U.S. Department of Health and Human Services and state departments
of insurance; operational issues; changes in economic or market
conditions; failure to effectively oversee the company’s
third-party vendors; noncompliance by the company or the company’s
business associates with any privacy laws or any security breach
involving the misappropriation, loss or other unauthorized use or
disclosure of confidential information; impairment of the company’s
goodwill or other intangible assets; investment portfolio
impairment charges; volatility in the financial markets; and
general business and market conditions. Additional factors that
could cause actual results to differ materially from those
reflected in the forward-looking statements include, but are not
limited to, the risks discussed in the “Risk Factors” section
included within the company’s most recent Annual Report on Form
10-K and subsequent Quarterly Reports on Form 10-Q filed with the
SEC and the other risks discussed in the company’s filings with the
SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements. Except as may be required by law, the
company undertakes no obligation to address or publicly update any
of its guidance, the assessment of the underlying assumptions or
forward-looking statements to reflect events or circumstances that
arise after the date of this release.
Investor Contact:The Abernathy MacGregor GroupDavid
Olson, (818) 917-1469dwo@abmac.comorMedia
Contact:Health Net, Inc.Brad Kieffer, (818)
676-6833brad.kieffer@healthnet.com
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