- Performance in core businesses
continues to exceed expectations; FY16 EPS guidance raised
- Individual commercial medical business
remains very challenging
Humana Inc. (NYSE: HUM) today announced that the company has
raised its financial guidance for the year ending December 31, 2016
(FY16) and updated its estimate for the quarter ended June 30, 2016
(2Q16). The higher guidance is primarily the result of
better-than-anticipated performance year to date for the company’s
individual Medicare Advantage and Healthcare Services businesses
partially offset by continued challenges in the company’s
individual commercial medical (Individual) business. The company’s
revised earnings guidance for FY16 is as follows:
FY16 financial guidance
Diluted earnings per common share (EPS) (a)
Projected resultsexcluding
Individualbusiness
Projected Individualbusiness results
Total projectedresults
Generally Accepted Accounting Principles (GAAP) previous
guidance $8.57
($0.25) At least $8.32 Changes in
projected operating performance:
Medicare Advantage individual business
0.76 - 0.76 Healthcare
Services businesses 0.29 -
0.29 Individual business -
(1.08) (1.08) Certain other lines of business (b)
0.31 - 0.31 Transaction
and integration costs for 2Q16 not previously estimated
(0.16) (0.16) Adoption of
new accounting standard for tax effect of stock-based compensation
retroactively impacting the first quarter of 2016
0.12 - 0.12
GAAP guidance as of July
21, 2016 $9.89
($1.33) At least $8.56 Transaction and
integration costs through 2Q16 (c) 0.37
- At least 0.37 Amortization of identifiable
intangibles (c) 0.32 -
0.32
Adjusted (non-GAAP) guidance as of July 21, 2016 (c)
$10.58 ($1.33)
At least $9.25
The company ’s updated guidance for FY16 Adjusted EPS of at
least $9.25 compares to its previous guidance for FY16 Adjusted EPS
of at least $8.85 (excluding $0.21 per diluted common share of
transaction and integration costs through the first quarter of 2016
and $0.32 per diluted common share of annual amortization expense
for identifiable intangibles).
In conjunction with its revised financial guidance for FY16, the
company has also adjusted its guidance for 2Q16 EPS as follows:
2Q16 financial guidance
EPS GAAP previous guidance
At least $2.06 Changes in projected
operating performance 0.13 Transaction and
integration costs for 2Q16 not previously estimated
(0.16)
GAAP guidance as of July 21, 2016
Approximately $2.03 Transaction and
integration costs (c) 0.16 Amortization of
identifiable intangibles (c) 0.09
Adjusted
(non-GAAP) guidance as of July 21, 2016 (c)
Approximately $2.28
The company ’s updated guidance for 2Q16 Adjusted EPS of
approximately $2.28 compares to its previous guidance for 2Q16
Adjusted EPS of at least $2.15 (excluding $0.09 per diluted common
share of amortization expense for identifiable intangibles).
Transaction and integration costs for 2Q16 had not been determined
at the time management previously gave guidance for the
quarter.
Better-than-expected operating performance
other than Individual business
The company is experiencing better-than-expected performance
across several of its businesses resulting in an increase in its
FY16 earnings guidance for these businesses. This increase is
primarily being driven by better-than-expected performance in the
company’s individual Medicare Advantage and Healthcare Services
businesses with higher projected FY16 pretax earnings also now
projected for certain of the company’s other businesses(b).
Higher projected individual Medicare Advantage pretax results of
approximately $185 million, or $0.76 per diluted common share(a),
are primarily due to operating initiatives resulting in favorable
prior period medical claims development and lower current-year
utilization than was anticipated in pricing. This is allowing the
company to begin to return to its targeted margin levels more
quickly than previously anticipated.
The increase in projected Healthcare Services pretax earnings
for FY16 of approximately $62 million, or $0.29 per diluted common
share, is primarily due to higher-than-projected earnings
associated with the pharmacy business resulting from higher mail
order penetration together with an increase in projected margins on
that business primarily from favorable rebates and generic
purchasing discounts.
Individual business remains very
challenging
As previously disclosed, the company established a premium
deficiency reserve (PDR)(d) in the fourth quarter of 2015
associated with certain of its individual policies for 2016. Based
on the evaluation of claims data received through June 2016, the
company expects to increase its FY16 PDR in 2Q16 by approximately
$208 million pretax, or $0.86 per diluted common share.
Additionally, based on updated information received from the
Centers for Medicare and Medicaid Services on June 30, 2016 and
prior period claims development, the company anticipates net pretax
expenses year to date through 2Q16 of approximately $52 million, or
$0.22 per diluted common share, to reflect changes to its accruals
for the premium stabilization programs and prior period claims
development. These two items together comprise the change in FY16
estimate for the Individual business of $1.08 per diluted common
share indicated in the table above.
During 2Q16, the company submitted proposed rate filings to
various Departments of Insurance (DOIs) for its 2017 Individual
offerings. These filings proposed a number of significant rate
increases and service area changes to retain a viable product for
individual consumers and address persistent risk selection
challenges.
The company has also notified relevant DOIs of its intent to
discontinue certain on-exchange Individual products across a number
of geographies for 2017 and exit substantially all Affordable Care
Act (ACA) compliant off-exchange Individual markets. As a result,
the company’s 2017 geographic presence for its Individual offerings
is expected to cover no more than 156 counties across 11 states,
down from 1,351 counties across 19 states in 2016. Humana expects
2017 premiums associated with ACA-compliant offerings in the range
of $750 million to $1 billion versus approximately $3.4 billion
projected for FY16. The rate review and approval processes with the
related states are ongoing.
The company will continue to evaluate the performance of this
business for 2016 as it further develops and the corresponding
impact on the PDR, if any, over the coming quarters.
Adoption of new accounting
standard
In March 2016, the Financial Accounting Standards Board issued a
new pronouncement regarding the accounting for the tax effect of
stock-based compensation. As permitted by this accounting standard,
the company has chosen to adopt this change effective as of January
1, 2016, retrospectively impacting the company’s financial results
for the first quarter of 2016. Consequently, financial guidance for
FY16 has been adjusted to reflect a lower projected tax rate,
raising the company’s EPS guidance by approximately $0.12 per
diluted common share.
2Q16 Earnings Release
The company expects to issue its detailed 2Q16 earnings before
the open of trading on Wednesday, August 3, 2016. Due to the
pending transaction with Aetna, the company is not planning to host
a conference call in conjunction with its 2Q16 earnings release and
does not expect to do so for future quarters.
Aetna Transaction
As previously announced, Humana entered into a definitive merger
agreement with Aetna on July 2, 2015 under which, at the closing,
Aetna will acquire each outstanding common share of Humana for $125
in cash and 0.8375 of an Aetna common share. At separate special
stockholder meetings both held on October 19, 2015, Humana
stockholders approved the adoption of the Aetna merger agreement
and Aetna shareholders approved the issuance of the Aetna common
stock in the transaction.
The transaction is subject to customary closing conditions,
including the expiration of the Hart-Scott-Rodino anti-trust
waiting period and approvals of certain state Departments of
Insurance and other regulators. On July 21, 2016, the U.S.
Department of Justice (DOJ) filed a civil antitrust lawsuit seeking
to block the transaction. Together with Aetna, the company intends
to vigorously defend the transaction in response to the
lawsuit.
Aetna and Humana previously agreed to extend the time period to
obtain regulatory approvals to no later than December 31, 2016, as
permitted under the merger agreement. Judicial review could extend
past December 31, 2016, and therefore, given the uncertainty
associated with the timing and outcome of litigation, the company
cannot predict the timing of when the transaction may close.
Footnotes
(a) Income tax expense included in determining per diluted
common share amounts reflects certain permanent tax differences
primarily including the non-deductibility of the health insurer
industry fee. (b) The better-than-expected operating
performance for certain other businesses primarily relates to the
company’s group Medicare Advantage, group commercial (including
military services), state-based contracts and stand-alone
Prescription Drug Plan businesses. (c)
Adjusted EPS guidance for FY16 excludes
pretax transaction and integration costs associated with the
pending transaction with Aetna of $61 million, or $0.37 per diluted
common share, as well as $78 million pretax, or $0.32 per diluted
common share associated with amortization expense for identifiable
intangibles. Adjusted EPS guidance for 2Q16 also excludes these
same items including transaction and integration costs of $26
million pretax, or $0.16 per diluted common share, and amortization
expense of $20 million pretax, or $0.09 per diluted common share.
Transaction and integration costs beyond those incurred in the
first half of 2016 are to be determined.
The company has included these financial
measures (which are not in accordance with GAAP in its financial
projections within this release as 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.
The excluded items described herein are not a recurring part of the
company’s operating plan. Consequently, 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.
(d) As previously disclosed, in the fourth of 2015, the
company recorded a PDR related to certain of its Individual
policies. During 2Q16, the company expects to record an increase to
its FY16 estimate for the PDR in 2Q16 which would negatively impact
earnings for that quarter.
Cautionary Statement
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,” “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, Humana’s and Aetna’s actions with respect to the pending
DOJ litigation; the outcome of the pending litigation in which the
DOJ is seeking to block the transaction; the timing to consummate
the transaction if it is not blocked; the terms and the timing of
any divestitures undertaken to obtain required regulatory
approvals; the risk that a condition to closing of the transaction
may not be satisfied or that the closing of the transaction
otherwise does not occur; the risk that a regulatory approval
required for the transaction is delayed, is not obtained or is
obtained subject to conditions that are not anticipated; the
outcome of various litigation matters related to the transaction
that are in addition to the pending DOJ litigation; the diversion
of management time on transaction-related issues (including the
pending DOJ litigation); as well as 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:
- Humana’s transaction with Aetna is
subject to various closing conditions, including governmental and
regulatory approvals as well as other uncertainties and there can
be no assurances as to whether and when it may be completed.
- The merger agreement between Humana and
Aetna prohibits Humana from pursuing alternative transactions to
the pending transaction with Aetna.
- The number of shares of Aetna common
stock that Humana’s stockholders will receive in the transaction is
based on a fixed exchange ratio. Because the market price of
Aetna’s common stock will fluctuate, Humana’s stockholders cannot
be certain of the value of the portion of the transaction
consideration to be paid in Aetna’s common stock.
- While the transaction with Aetna is
pending, Humana is subject to business uncertainties and
contractual restrictions that could materially adversely affect
Humana’s results of operations, financial position and cash flows
or result in a loss of employees, customers, members or
suppliers.
- Failure to consummate the transaction
with Aetna could negatively impact Humana’s results of operations,
financial position and cash flows.
- If Humana does not design and price its
products properly and competitively, if the premiums Humana
receives are insufficient to cover the cost of health care services
delivered to its members, if the company is unable to implement
clinical initiatives to provide a better health care experience for
its members, lower costs and appropriately document the risk
profile of its members, or if its estimates of benefits expense are
inadequate, Humana’s profitability could be materially adversely
affected. Humana estimates the costs of its benefit expense
payments, and designs and prices its products accordingly, using
actuarial methods and assumptions based upon, among other relevant
factors, claim payment patterns, medical cost inflation, and
historical developments such as claim inventory levels and claim
receipt patterns. We continually review estimates of future
payments relating to benefit expenses for services incurred in the
current and prior periods and make necessary adjustments to our
reserves, including premium deficiency reserves, where appropriate.
These estimates, however, involve extensive judgment, and have
considerable inherent variability because they are extremely
sensitive to changes in claim payment patterns and medical cost
trends, so any reserves we may establish, including premium
deficiency reserves, may be insufficient.
- If Humana fails to effectively
implement its operational and strategic initiatives, particularly
its Medicare initiatives, state-based contract strategy, and its
participation in the new health insurance exchanges, the company’s
business may be materially adversely affected, which is of
particular importance given the concentration of the company’s
revenues in these products.
- If Humana fails to properly maintain
the integrity of its data, to strategically implement new
information systems, to protect Humana’s proprietary rights to its
systems, or to defend against cyber-security attacks, the company’s
business may be materially adversely affected.
- Humana’s business may be materially
adversely impacted by the adoption of a new coding set for
diagnoses (commonly known as ICD-10), the implementation of which
became effective on October 1, 2015.
- Humana is involved in various legal
actions, or disputes that could lead to legal actions (such as,
among other things, provider contract disputes relating to rate
adjustments resulting from the Balanced Budget and Emergency
Deficit Control Act of 1985, as amended, commonly referred to as
“sequestration”; other provider contract disputes; and qui tam
litigation brought by individuals on behalf of the government) and
governmental and internal investigations, any of which, if resolved
unfavorably to the company, could result in substantial monetary
damages or changes in its business practices. Increased litigation
and negative publicity could also increase the company’s cost of
doing business.
- As a government contractor, Humana is
exposed to risks that may materially adversely affect its business
or its willingness or ability to participate in government health
care programs including, among other things, loss of material
government contracts, governmental audits and investigations,
potential inadequacy of government-determined payment rates,
potential restrictions on profitability, including by comparison of
profitability of the company’s Medicare Advantage business to
non-Medicare Advantage business, or other changes in the
governmental programs in which Humana participates.
- The Health Care Reform Law, including
The Patient Protection and Affordable Care Act and The Health Care
and Education Reconciliation Act of 2010, could have a material
adverse effect on Humana’s results of operations, including
restricting revenue, enrollment and premium growth in certain
products and market segments, restricting the company’s ability to
expand into new markets, increasing the company's medical and
operating costs by, among other things, requiring a minimum benefit
ratio on insured products, lowering the company’s Medicare payment
rates and increasing the company’s expenses associated with a
non-deductible health insurance industry fee and other assessments;
the company’s financial position, including the company's ability
to maintain the value of its goodwill; and the company’s cash
flows.
- Humana’s participation in the new
federal and state health care exchanges, which entail uncertainties
associated with mix, volume of business, and the operation of
premium stabilization programs, which are subject to federal
administrative action, could adversely affect the company’s results
of operations, financial position, and cash flows.
- Humana’s business activities are
subject to substantial government regulation. New laws or
regulations, or changes in existing laws or regulations or their
manner of application could increase the company’s cost of doing
business and may adversely affect the company’s business,
profitability and cash flows.
- If Humana fails to develop and maintain
satisfactory relationships with the providers of care to its
members, the company’s business may be adversely affected.
- Humana’s pharmacy business is highly
competitive and subjects it to regulations in addition to those the
company faces with its core health benefits businesses.
- Changes in the prescription drug
industry pricing benchmarks may adversely affect Humana’s financial
performance.
- If Humana does not continue to earn and
retain purchase discounts and volume rebates from pharmaceutical
manufacturers at current levels, Humana’s gross margins may
decline.
- Humana’s ability to obtain funds from
certain of its licensed subsidiaries is restricted by state
insurance regulations.
- Downgrades in Humana’s debt ratings,
should they occur, may adversely affect its business, results of
operations, and financial condition.
- The securities and credit markets may
experience volatility and disruption, which may adversely affect
Humana’s business.
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:
- Form 10-K for the year ended December
31, 2015,
- Form 10-Q for the period ended March
31, 2016 and
- Form 8-Ks filed during 2016.
About Humana
Humana Inc., headquartered in Louisville, Ky., is a leading
health and well-being company focused on making it easy for people
to achieve their best health with clinical excellence through
coordinated care. The company’s strategy integrates care delivery,
the member experience, and clinical and consumer insights to
encourage engagement, behavior change, proactive clinical outreach
and wellness for the millions of people we serve across the
country.
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:
- Annual reports to stockholders
- Securities and Exchange Commission
filings
- Most recent investor conference
presentations
- Quarterly earnings news releases
- Calendar of events
- Corporate Governance information
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160721005876/en/
Humana Investor RelationsRegina Nethery,
502-580-3644Rnethery@humana.comorHumana Corporate CommunicationsTom
Noland, 502-580-3674Tnoland@humana.com
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