- 2Q17 earnings per diluted common share
(EPS) of $4.46 on a GAAP basis, $3.49 Adjusted EPS
- Full year 2017 guidance raised to
approximately $17.83 EPS on a GAAP basis, approximately $11.50
Adjusted EPS
- Individual Medicare Advantage results
significantly outperforming management’s original expectations
- Approximately 74 percent of the
company’s Medicare Advantage members are now expected to be in
4-Star plans or higher for bonus year 2018
Humana Inc. (NYSE: HUM) today reported diluted earnings per
common share (EPS) for the quarter ended June 30, 2017 (2Q17)
versus the quarter ended June 30, 2016 (2Q16) and for the six
months ended June 30, 2017 (1H 2017) versus for the six months
ended June 30, 2016 (1H 2016) as follows:
Consolidated pretax income
In millions
2Q17 (a)
2Q16 (b)
1H 2017 (c)
1H 2016 (d)
Generally Accepted Accounting Principles (GAAP)
$1,042 $636
$2,731 $1,136 Net (gain) expenses
associated with the terminated merger agreement (for 1H 2017,
primarily the break-up fee)
-
27
(947 ) 61
Amortization associated with identifiable intangibles
18 20
36
41 Guaranty fund assessment expense to support the
policyholder obligations of Penn Treaty (an unaffiliated long-term
care insurance company)
-
-
54 - Operating (income)
losses associated with the Individual Commercial business
(118 ) 225
(181 ) 237
Adjusted (non-GAAP) –
2Q16 and 1H 2016 as recast $942
$908
$1,693
$1,475
Diluted earnings per common share (EPS)
2Q17 (a) 2Q16 (b)
1H 2017 (c)
1H 2016 (d)
GAAP $4.46 $2.06
$11.98 $3.75 Net (gain)
expenses associated with the terminated merger agreement (for 1H
2017, primarily the break-up fee)
-
0.16
(4.31 )
0.37 Amortization associated with identifiable intangibles
0.08 0.08
0.16 0.17 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 business impact
(0.54 )
-
(1.06 ) -
Guaranty fund assessment expense to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care
insurance company)
- -
0.23 - Operating (income)
losses associated with the Individual Commercial business
(0.51 ) 0.99
(0.77 ) 1.08
Adjusted (non-GAAP) –
2Q16 and 1H 2016 as recast $3.49
$3.29
$6.23
$5.37
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 financial
measures as indicators of the company’s 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. All financial measures in this
press release are in accordance with GAAP unless otherwise
indicated.
“With the completion of our first full quarter since the deal
break, Humana’s strong 2Q17 results and increase in full-year
guidance demonstrate the strength of our integrated care delivery
strategy,” said Bruce D. Broussard, Humana’s President and Chief
Executive Officer. “It’s our talented team that’s made this
possible. Throughout the lengthy deal period, our associates never
wavered in their focus and commitment to our members, provider
partners and shareholders. It’s because of this that we continue to
make strides in advancing our strategy while delivering strong
operating performance.”
The GAAP consolidated pretax income for 2Q17 of $1.04 billion
rose $406 million, or 64 percent, compared to GAAP consolidated
pretax income of $636 million in 2Q16 primarily due to
year-over-year improvement in earnings for the company’s individual
Medicare Advantage and Individual Commercial businesses, partially
offset by lower pretax earnings in the Group and Specialty and
Healthcare Services segments.
The Adjusted consolidated pretax income for 2Q17 of $942 million
rose $34 million, or 4 percent, versus $908 million in 2Q16
primarily reflecting the same factors impacting the GAAP
comparison, while excluding the impact of the items detailed in the
consolidated pretax income table above.
GAAP consolidated pretax income for 1H 2017 of $2.73 billion
increased $1.60 billion, or 140 percent, from $1.14 billion in 1H
2016. The increase primarily reflects the net gain associated with
the terminated merger agreement, mainly the break-up fee recognized
in the first quarter of 2017, along with the factors impacting the
second quarter comparison.
The Adjusted consolidated pretax income for 1H 2017 of $1.69
billion increased $218 million, or 15 percent, versus $1.48 billion
in 1H 2016 primarily reflecting the same factors impacting the GAAP
comparison, while excluding the impact of items noted in the table
above.
Further discussions of each segment’s financial results are
included in the segment highlights below.
The year-over-year changes in GAAP EPS for 2Q17 and 1H 2017
reflected the same factors impacting the GAAP consolidated pretax
income comparisons year over year as well as the beneficial effect
of the lower effective tax rate in light of pricing and benefit
design assumptions associated with the temporary suspension of the
health insurance industry fee in 2017. The year-over-year increases
in Adjusted EPS for 2Q17 and 1H 2017 reflected the same factors
impacting the Adjusted consolidated pretax income comparisons year
over year. In addition, the second quarter and year-to-date
comparisons of both GAAP and Adjusted EPS are favorably impacted by
a lower number of shares used to compute EPS, primarily reflecting
share repurchases in the first quarter of 2017, including the
previously disclosed accelerated stock repurchase (ASR)
program.
“We are pleased that our individual Medicare Advantage business
is significantly outperforming our previous expectations,
reflecting our focus on operational excellence and the solid
execution of our strategy,” said Brian A. Kane, Senior Vice
President and Chief Financial Officer. “We were therefore able to
invest this outperformance in 2018 benefit designs, resulting in
stable and competitive benefits for 2018 despite certain headwinds,
in particular the return of the health insurance industry fee.”
2017 Earnings Guidance
Humana today raised its GAAP and Adjusted EPS guidance for the
year ending December 31, 2017 (FY17). FY17 GAAP EPS was increased
to approximately $17.83 from the previous guidance of at least
$16.91, while Adjusted EPS was increased to approximately $11.50
from the previous guidance of at least $11.10. The increases in
FY17 guidance for both GAAP and Adjusted EPS were primarily driven
by the strong results in the Retail segment, largely attributable
to the company’s individual Medicare Advantage business, partially
offset by lower than expected Healthcare Services segment pretax
income due to lower than anticipated pharmacy utilization and the
continued optimization of our chronic care management programs. The
individual Medicare Advantage business is exceeding its operational
targets, experiencing lower than anticipated utilization, higher
than expected revenue on a per member basis and favorable medical
fee-for-service claims reserve development (Prior Period
Development).
A reconciliation of GAAP to Adjusted EPS for the company’s FY17
projections as well as comparable numbers for the year ended
December 31, 2016 (FY16) is shown below:
Diluted earnings per common
share
FY17Guidance (e)
FY16 (f)
GAAP ~$17.83 $4.07
Net (gain) expenses associated with the terminated merger agreement
(for FY17, primarily the break-up fee) (4.36)
0.64 Amortization of identifiable intangibles
0.31 0.32 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 business
impact (2.15) - Reserve strengthening
for the company’s non-strategic closed block of long-term care
insurance business (g) - 2.11 Guaranty
fund assessment expense to support the policyholder obligations of
Penn Treaty (an unaffiliated long-term care insurance company)
0.24
- Operating results associated with the Individual
Commercial business given the company’s exit on January 1, 2018 as
previously disclosed (0.37) 3.78
Adjusted (non-GAAP) – FY17 projected; FY16 as recast
~ $11.50 $10.92
Star Quality Ratings
The company now expects 74 percent of its June 30, 2017 Medicare
Advantage membership to be in 4-Star plans or higher for bonus year
2018. As previously disclosed, in October 2016, the Centers for
Medicare and Medicaid Services (CMS) published its Star quality
ratings (Star ratings) showing that the percentage of the company’s
July 31, 2016 Medicare Advantage membership in 4-Star plans or
higher declined to approximately 37 percent for bonus year 2018
compared to approximately 78 percent of the company’s July 31, 2015
membership for bonus year 2017. While Star ratings are based on a
number of plan performance measures that are evaluated each year,
the projected Star ratings for the company’s plans for the 2018
bonus year included certain reductions that were primarily
attributable to the 2015 comprehensive program audit by CMS. The
company filed a reconsideration request with CMS, which was denied.
The company subsequently decided not to appeal that denial further,
and worked through existing CMS processes to rationalize contract
structures, resulting in final Star ratings for bonus year 2018
that reflect its commitment to quality products and services for
its members. The company remains committed to its partnership with
CMS and to delivering quality products and services to its
members.
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
http://phx.corporate-ir.net/phoenix.zhtml?c=92913&p=irol-IRHome
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 audio only portion of the
company’s 2Q17 earnings conference call are invited to dial
888-625-7430. No password is required. A webcast of the 2Q17
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 approximately two hours following the live event until
midnight eastern time on October 2, 2017 and can be accessed by
dialing 855-859-2056 and providing the conference ID #89803304.
Footnotes
(a) 2Q17 Adjusted results exclude the
following:
- Amortization expense for identifiable
intangibles of approximately $18 million pretax, or $0.08 per
diluted common share; GAAP measures affected in this release
include consolidated pretax, EPS, and segment pretax results (for
each segment’s amount of such amortization).
- The one-year beneficial effect of a
lower effective tax rate of approximately $0.54 per diluted common
share 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 business
impact. GAAP measures affected in this release include consolidated
EPS.
- Operating earnings of approximately
$118 million pretax, or $0.51 per diluted common share, for the
company’s Individual Commercial business given the company’s
planned exit on January 1, 2018, as previously disclosed. GAAP
measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, consolidated benefit ratio and
consolidated operating cost ratio.
(b) 2Q16 Adjusted results (recast) exclude
the following:
- Transaction and integration costs of
$27 million pretax, or $0.16 per diluted common share, associated
with the then-pending merger agreement; GAAP measures affected in
this release include consolidated pretax income and EPS.
- Amortization expense for identifiable
intangibles of approximately $20 million, or $0.08 per diluted
common share; GAAP measures affected in this release include
consolidated pretax, EPS, and segment pretax results (for each
segment’s amount of such amortization).
- Operating losses of $225 million
pretax, or $0.99 per diluted common share, for the company’s
Individual Commercial business given the company’s planned exit on
January 1, 2018, as previously disclosed. GAAP measures affected in
this release include consolidated pretax income, EPS, consolidated
revenues, consolidated benefit ratio and consolidated operating
cost ratio.
(c) 1H 2017 Adjusted results exclude the
following:
- Net gain from the termination of the
merger agreement of approximately $947 million pretax, or $4.31 per
diluted common share; includes the net break-up fee and transaction
costs net of the tax benefit associated with certain expenses which
were previously non-deductible; GAAP measures affected in this
release include consolidated pretax income and EPS.
- Amortization expense for identifiable
intangibles of approximately $36 million pretax, or $0.16 per
diluted common share; GAAP measures affected in this release
include consolidated pretax, EPS, and segment pretax results (for
each segment’s amount of such amortization).
- The one-year beneficial effect of a
lower effective tax rate of approximately $1.06 per diluted common
share 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 business
impact. GAAP measures affected in this release include consolidated
EPS.
- Guaranty fund assessment expense of
approximately $54 million pretax, or $0.23 per diluted common
share, to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company); GAAP measures
affected in this release include consolidated pretax income, EPS,
and consolidated operating costs ratio. Under state guaranty
assessment laws, the company may be assessed (up to prescribed
limits) for certain obligations to the policyholders and claimants
of insolvent insurance companies that write the same line or lines
of business as the company. On March 1, 2017, a court ordered the
liquidation of Penn Treaty which triggered assessments from the
state guaranty associations.
- Operating earnings of approximately
$181 million pretax, or $0.77 per diluted common share, for the
company’s Individual Commercial business given the company’s
planned exit on January 1, 2018, as previously disclosed. GAAP
measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, consolidated benefit ratio and
consolidated operating cost ratio.
(d) 1H 2016 Adjusted results (recast)
exclude the following:
- Transaction and integration costs of
$61 million pretax, or $0.37 per diluted common share, associated
with the then-pending merger agreement; GAAP measures affected in
this release include consolidated pretax income and EPS.
- Amortization expense for identifiable
intangibles of approximately $41 million, or $0.17 per diluted
common share; GAAP measures affected in this release include
consolidated pretax, EPS, and segment pretax results (for each
segment’s amount of such amortization).
- Operating losses of $237 million
pretax, or $1.08 per diluted common share, for the company’s
Individual Commercial business given the company’s planned exit on
January 1, 2018, as previously disclosed. GAAP measures affected in
this release include consolidated pretax income, EPS, consolidated
revenues, consolidated benefit ratio and consolidated operating
cost ratio.
(e) FY17 Adjusted EPS projections exclude
the following:
- Net gain from the termination of the
merger agreement of approximately $947 million pretax, or $4.36 per
diluted common share; includes the net break-up fee and transaction
costs net of the tax benefit associated with certain expenses which
were previously non-deductible.
- Amortization expense for identifiable
intangibles of approximately $71 million pretax, or $0.31 per
diluted common share.
- The one-year beneficial effect of a
lower effective tax rate of approximately $2.15 per diluted common
share 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 business
impact.
- Guaranty fund assessment expense of
approximately $54 million pretax, or $0.24 per diluted common
share, to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company).
- Operating results of approximately $85
million pretax, or $0.37 per diluted common share, for the
company’s Individual Commercial business given the company’s
planned exit on January 1, 2018, as previously disclosed.
(f) FY16 Adjusted EPS (recast) exclude the
following:
- Transaction and integration costs of
$104 million pretax, or $0.64 per diluted common share, associated
with the then-pending merger agreement.
- Amortization expense for identifiable
intangibles of approximately $77 million pretax, or $0.32 per
diluted common share.
- Pretax expenses of $505 million, or
$2.11 per diluted common share, of reserve strengthening related to
the company’s non-strategic closed block of long-term care
insurance business. See related footnote (g).
- Operating losses of $869 million
pretax, or $3.78 per diluted common share, for the company’s
Individual Commercial business given the company’s planned exit on
January 1, 2018, as previously disclosed. Includes the write-off of
receivables associated with the risk corridor premium stabilization
program. See related footnote (h).
(g) As noted above, in addition to previously-disclosed
adjustments, EPS for FY16 included a strengthening of reserves for
the company’s non-strategic closed block of long-term care
business. In connection with its acquisition of KMG America in
2007, the company acquired a non-strategic closed block of
long-term care insurance policies. These policies were sold between
1995 and 2005, of which approximately 30,800 remained in force as
of December 31, 2016. During the fourth quarter of 2016, the
company recorded a reserve strengthening for this closed block of
policies as it determined the present value of future premiums,
together with its existing reserves were not adequate to provide
for future policy benefits. This adjustment primarily was driven by
emerging experience indicating longer claims duration, a prolonged
lower interest rate environment and an increase in policyholder
life expectancies.
(h) On November 10, 2016, the U.S. Court of Federal Claims ruled
in favor of the government in one of a series of cases filed by
insurers against the Department of Health and Human Services (HHS)
to collect risk corridor payments, rejecting all of the insurer’s
statutory, contract and Constitutional claims for payment. Prior to
this decision, the company had maintained the receivable in
previous periods in reliance upon the interpretation previously
promulgated by HHS that the risk corridor receivables were
obligations of the U.S. government. Given this court decision,
however, the company’s conclusion with respect to the ultimate
collectability of the receivable shifted, and accounting rules
required that the receivable be written off. Land of Lincoln Mutual
Health Insurance Company v. United States; United States Court of
Federal Claims No. 16-744C.
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, 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:
- If Humana does not design and price its
products properly and competitively, if the premiums Humana
receives are insufficient to cover the cost of healthcare services
delivered to its members, if the company is unable to implement
clinical initiatives to provide a better healthcare 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. The company continually reviews estimates of
future payments relating to benefit expenses for services incurred
in the current and prior periods and makes necessary adjustments to
its 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 the company 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. In addition, there can be no assurances
that the company will be successful in maintaining or improving its
Star ratings in future years.
- 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 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
healthcare 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 Healthcare Reform Law, including
The Patient Protection and Affordable Care Act and The Healthcare
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. Additionally, potential legislative changes, including
activities to repeal or replace, in whole or in part, the Health
Care Reform Law, creates uncertainty for Humana’s business, and
when, or in what form, such legislative changes may occur cannot be
predicted with certainty.
- Humana’s continued participation in the
federal and state health insurance exchanges, which entail
uncertainties associated with mix, volume of business and the
operation of premium stabilization programs that 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, 2016;
- Form 10-Q for the quarter ended March
31, 2017; and
- Form 8‐Ks filed during 2017.
About Humana
Humana Inc. 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:
- Annual reports to stockholders;
- Securities and Exchange Commission
filings;
- Most recent investor conference
presentations;
- Quarterly earnings news releases and
conference calls;
- Calendar of events; and
- Corporate Governance information.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170802005336/en/
Humana Inc.Investor RelationsAmy Smith, 502-580-2811Asmith3@humana.comorCorporate CommunicationsTom
Noland, 502-580-3674Tnoland@humana.com
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