Humana Inc. (NYSE: HUM) announced today that it will repurchase
$750 million of its common stock through an accelerated stock
repurchase agreement (the “ASR Agreement”) with Goldman Sachs &
Co. LLC (“Goldman Sachs”), as part of the $3.0 billion share
repurchase program that Humana announced on December 14, 2017. The
ASR Agreement is consistent with the Company’s previously
anticipated capital deployment plans for the remainder of 2018 and
2019, and is expected to be funded through a combination of parent
cash and debt financing.
The specific number of shares that Humana ultimately will
repurchase pursuant to the ASR Agreement will be based generally on
the daily volume-weighted average share price of Humana common
stock over the term of the ASR Agreement, less a discount and
subject to adjustments pursuant to the terms and conditions of the
ASR Agreement. Final settlement under the ASR Agreement is expected
to occur in the first quarter of 2019. The ASR Agreement contains
provisions customary for agreements of this type, including
provisions for adjustments to the transaction terms upon certain
specified events, the circumstances generally under which final
settlement of the ASR Agreement may be accelerated or extended or
the ASR Agreement may be terminated early by Goldman Sachs or
Humana, and various acknowledgements and representations made by
the parties to each other. At final settlement, under certain
circumstances, Humana may be entitled to receive additional shares
of Humana common stock from Goldman Sachs or Humana may be required
to make a cash payment or, if Humana elects, deliver shares of
Humana common stock to Goldman Sachs. All of the shares of Humana
common stock delivered to Humana under the ASR Agreement will be
held in treasury or retired.
2019 Medicare Membership and 2018 EPS
Guidance
Members of Humana Inc.’s senior management team will be meeting
with investors and analysts at an industry conference and various
other meetings between November 29, 2018 and December 31, 2018.
During the conference and meetings, the company intends to address
its prospects and performance.
2019 Medicare Advantage and Stand-alone Prescription Drug
Plans (“PDP”) Membership
Based on actual annual election period (AEP) results to date,
the Company is revising its net membership growth estimate for its
individual Medicare Advantage products for the year ended December
31, 2019 to 350,000 to 400,000 members, compared to its initial
estimate of 250,000 to 300,000 members. The revised membership
estimate represents expected net membership gains of 11 percent to
13 percent above the expected year ended December 31, 2018
membership level of approximately 3.07 million members. The
improved estimate is attributable to higher than forecasted
retention of existing members during AEP as well as higher than
anticipated sales.
The Company confirms its initial expectations for group Medicare
Advantage net membership gains for the same period, projecting an
increase of approximately 30,000 members year over year.
For PDP, the Company now estimates a net membership decline of
750,000 to 800,000 members for the year ended December 31, 2019,
compared to its initial estimate of a decline of approximately
500,000 members. The net decline is primarily attributable to the
competitive nature of the industry and the pricing discipline the
Company is employing, which has resulted in it no longer being the
low cost plan in any market for 2019.
2018 EPS Guidance
For the year ended December 31, 2018, Humana’s management
expects to reaffirm its GAAP guidance of $11.96 in diluted earnings
per common share (“EPS”), or approximately $14.40 in adjusted
earnings per common share (“Adjusted EPS”). This guidance is
consistent with the guidance issued in Humana’s press release dated
November 7, 2018.
The Company has included adjusted EPS in this current report, a
financial measure that is not in accordance with Generally Accepted
Accounting Principles (“GAAP”). Management believes that this
measure, when presented in conjunction with the comparable measure
of GAAP EPS, is useful to both management and its investors in
analyzing the Company’s ongoing business and operating performance.
Consequently, management uses adjusted EPS as an indicator of the
Company’s business performance, as well as for operational planning
and decision making purposes. Adjusted EPS should be considered in
addition to, but not as a substitute for, or superior to, GAAP EPS.
A reconciliation of adjusted EPS to GAAP EPS follows:
Diluted earnings per common
share FY18 Guidance GAAP
~$11.96 Loss on Sale of KMG America Corporation, a
wholly-owned subsidiary 2.58 Put/call valuation
adjustments associated with 40% minority interest in Kindred at
Home 0.06 Amortization of identifiable intangibles
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
enacted on December 22, 2017 (0.28)
Adjusted
(non-GAAP) – FY18 projected ~$14.40
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:
- 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 and state-based contract strategy, 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),
governmental and internal investigations, and routine internal
review of business processes 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. Changes to the
risk-adjustment model utilized by CMS to adjust premiums paid to
Medicare Advantage, or MA, plans according to the health status of
covered members, including proposed changes to the methodology used
by CMS for risk adjustment data validation audits that fail to
address adequately the statutory requirement of actuarial
equivalence, if implemented, could have a material adverse effect
on our operating results, financial position and cash flows.
- 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 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.
- Humana’s failure to manage
acquisitions, divestitures and other significant transactions
successfully may have a material adverse effect on the company’s
results of operations, financial position, 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, 2017;
- Form 10-Q for the quarter ended March
31, 2018, June 30, 2018, and September 30, 2018; and
- Form 8-Ks filed during 2018.
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: https://www.businesswire.com/news/home/20181128005081/en/
Amy SmithHumana Investor Relations(502) 580-2811e-mail:
Amysmith@humana.com
Tom NolandHumana Corporate Communications(502) 580-3674e-mail:
Tnoland@humana.com
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