- 2Q19 earnings per diluted common share (EPS) of $6.94 on a GAAP
basis, $6.05 on an Adjusted basis
- 2019 EPS guidance raised to approximately $17.97 on a GAAP
basis, approximately $17.60 on an Adjusted basis, representing 21
percent growth in 2019
- Retail segment results continue to exceed management
expectations driven by favorable utilization and higher revenue;
Healthcare Services segment is also outperforming expectations
- Increased expected full-year individual Medicare Advantage
membership growth to a range of 480,000 to 500,000 members from the
previous range of 415,000 to 440,000 members, representing
approximately 16 percent growth in 2019
- Intends to initiate $1.00 billion accelerated share repurchase
program after the market close
Humana Inc. (NYSE: HUM) today reported consolidated pretax
income and diluted earnings per common share (EPS) for the quarter
ended June 30, 2019 (2Q19) versus the quarter ended June 30, 2018
(2Q18) and for the six months ended June 30, 2019 (YTD 2019) versus
the six months ended June 30, 2018 (YTD 2018) as follows:
Consolidated pretax income In
millions
2Q19 (a)
2Q18 (b)
YTD 2019 (c)
YTD 2018 (d)
Generally Accepted Accounting
Principles (GAAP)
$
1,229
$
19
$
1,975
$
726
Amortization associated with identifiable
intangibles
18
21
36
51
Put/call valuation adjustments associated
with 40% minority interest in Kindred at Home
(174
)
—
(135
)
—
Loss on sale of KMG America Corporation
(KMG), a wholly-owned subsidiary
—
790
—
790
Segment earnings associated with the
Individual Commercial segment
—
(18
)
—
(71
)
Adjusted (non-GAAP)
$
1,073
$
812
$
1,876
$
1,496
Diluted earnings per common share
(EPS)
2Q19 (a)
2Q18 (b)
YTD 2019 (c)
YTD 2018 (d)
GAAP
$
6.94
$
1.39
$
11.10
$
4.93
Amortization associated with identifiable
intangibles
0.10
0.12
0.20
0.28
Put/call valuation adjustments associated
with 40% minority interest in Kindred at Home
(0.99
)
—
(0.77
)
—
Loss on sale of KMG, a wholly-owned
subsidiary
—
2.59
—
2.59
Segment earnings associated with the
Individual Commercial segment
—
(0.10
)
—
(0.39
)
Adjustments to provisional estimates for
the income tax effects related to the tax reform law enacted on
December 22, 2017 (Tax Reform Law)
—
(0.04
)
—
(0.09
)
Adjusted (non-GAAP)
$
6.05
$
3.96
$
10.53
$
7.32
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 are pleased to deliver strong results in a year Humana is
experiencing the highest individual Medicare Advantage membership
growth we have seen in the last decade, which is reflective of our
operating discipline and execution, investments in our integrated
care delivery strategy, and our relentless focus on creating a
simple and personalized healthcare experience for our members,”
said Bruce D. Broussard, Humana’s President and Chief Executive
Officer. “Today, we are raising our full year 2019 individual MA
membership growth guidance to a range of 480,000 to 500,000
members, representing approximately 16 percent growth in 2019. As
the number of seniors choosing Medicare Advantage plans continues
to rise, we will continue to work collaboratively with partners
across the industry to advance a consumer-centric system that
focuses on improving both health outcomes and the affordability of
care.”
Summary of 2Q19 Results
The 2Q19 and YTD 2019 consolidated GAAP and Adjusted pretax
results and EPS reflect the continued execution of the company's
strategy with the strong performance of its Medicare Advantage
business and Healthcare Services segment. Both the quarter and the
year-to-date (YTD) comparisons were further impacted by previously
implemented productivity initiatives which have led to significant
operating cost efficiencies in each of the company's segments.
These year-over-year favorable impacts were partially offset by the
lower Group and Specialty segment earnings.
Additionally, GAAP pretax and EPS year-over-year comparisons for
both the quarter and YTD were impacted by the loss recognized on
the sale of KMG, a wholly-owned subsidiary, in 2Q18.
The year-over-year changes in GAAP and Adjusted EPS for 2Q19 and
YTD 2019 were further positively impacted by the suspension of the
health insurance industry fee (HIF) in 2019, as well as a lower
numbers of shares used to compute EPS, primarily reflective of
share repurchases.
Please refer to the consolidated and segment highlight sections
in the detailed earnings release for additional discussion of the
factors impacting year-over-year results. In addition, below is a
summary of key consolidated and segment statistics comparing 2Q19
to 2Q18 and YTD 2019 to YTD 2018.
Humana Inc. Summary of Quarterly and
YTD Results (dollars in millions, except per share amounts)
2Q19 (a)
2Q18 (b)
YTD 2019 (c)
YTD 2018 (d)
Consolidated results:
Revenues - GAAP
$
16,245
$
14,259
$
32,352
$
28,538
Revenues - Adjusted
$
16,245
$
14,249
$
32,352
$
28,533
Pretax income - GAAP
$
1,229
$
19
$
1,975
$
726
Pretax income - Adjusted
$
1,073
$
812
$
1,876
$
1,496
EPS - GAAP
$
6.94
$
1.39
$
11.10
$
4.93
EPS - Adjusted
$
6.05
$
3.96
$
10.53
$
7.32
Benefits expense ratio - GAAP
84.4
%
84.1
%
85.3
%
84.3
%
Benefits expense ratio - Adjusted
84.4
%
84.3
%
85.3
%
84.6
%
Operating cost ratio - GAAP
10.6
%
12.5
%
10.5
%
12.4
%
Operating cash flows - GAAP
$
1,434
($
125
)
$
2,330
$
3,561
Operating cash flows - Adjusted
$
1,434
($
99
)
$
2,330
$
252
Parent company cash and short term
investments
$
1,871
$
1,816
Debt-to-total capitalization
32.5
%
33.6
%
Retail segment results:
Revenues - GAAP
$
14,158
$
12,039
$
28,171
$
24,146
Benefits expense ratio - GAAP
85.2
%
85.5
%
86.7
%
86.5
%
Operating cost ratio - GAAP
8.5
%
10.1
%
8.4
%
10.1
%
Segment earnings - GAAP
$
856
$
493
$
1,321
$
760
Segment earnings - Adjusted
$
860
$
498
$
1,329
$
771
Group and Specialty segment
results:
Revenues - GAAP
$
1,874
$
1,906
$
3,761
$
3,876
Benefits expense ratio - GAAP
86.3
%
80.4
%
81.3
%
76.7
%
Operating cost ratio - GAAP
21.7
%
23.5
%
21.8
%
23.6
%
Segment earnings - GAAP
$
5
$
80
$
170
$
291
Segment earnings - Adjusted
$
6
$
82
$
172
$
294
Healthcare Services segment
results:
Revenues - GAAP
$
6,387
$
5,991
$
12,485
$
11,654
Operating cost ratio - GAAP
96.1
%
96.2
%
96.3
%
96.2
%
Segment earnings - GAAP
$
224
$
206
$
399
$
379
Adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted EBITDA) (e)
$
294
$
242
$
532
$
464
2019 Earnings Guidance
Humana today raised its GAAP and Adjusted EPS guidance for the
year ended December 31, 2019 (FY19). The company now expects FY19
GAAP EPS guidance to be in a range of approximately $17.97, while
Adjusted EPS is expected to be approximately $17.60.
A reconciliation of GAAP to Adjusted EPS for the company’s FY19
projections as well as comparable numbers for the year ended
December 31, 2018 (FY18) is shown below for comparison.
Diluted earnings per common
share
FY19 Guidance (f)
FY18 (g)
GAAP
~$17.97
$12.16
Amortization of identifiable
intangibles
0.40
0.49
Put/call valuation adjustments associated
with 40% minority interest in Kindred at Home
(0.77
)
0.18
Loss on sale of KMG, a wholly -owned
subsidiary
—
2.41
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) – FY19
projected
~$17.60
$14.55
“The favorable performance that we experienced early in the year
in our Retail segment has persisted through the second quarter, and
we are also seeing better than expected results in our Healthcare
Services segment,” said Brian A. Kane, Chief Financial Officer.
“The strong 2019 financial results and membership growth have
enabled us, in our Medicare Advantage bidding process, to lessen
the member impact of the headwinds we face in 2020 and make
additional strategic investments in the back half of 2019 to
support our members' health and enhance customer experience, all
while increasing our full year 2019 consolidated revenue and
Adjusted EPS outlook.”
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 2Q19 earnings conference
call are invited to dial 888-625-7430. No password is required. The
audio-only webcast of the 2Q19 earnings call may 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 July 31, 2019 until 11:00
p.m. Eastern time on September 25, 2019 and can be accessed by
dialing 855-859-2056 and providing the conference ID #6673878.
Footnotes
(a) 2Q19 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $18 million pretax income, or $0.10 per diluted
common share; GAAP measures affected in this release include
consolidated pretax, EPS, and segment earnings (for respective
amortization expense for the Retail and Group and Specialty
segments).
- Put/call valuation adjustments of approximately $174 million,
or $$0.99 per diluted common share, associated with Humana’s 40%
minority interest in Kindred at Home. GAAP measures affected in
this release include consolidated pretax and EPS.
(b) 2Q18 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $21 million pretax, or $0.12 per diluted common
share; GAAP measures affected in this release include consolidated
pretax, EPS, and segment earnings (for respective amortization
expense for the Retail and Group and Specialty segments).
- Segment earnings of $18 million, or $0.10 per diluted common
share, for the company’s Individual Commercial segment given the
company’s exit on January 1, 2018, as previously disclosed. GAAP
measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, and consolidated benefit
ratio.
- Loss of approximately $790 million pretax, or $2.59 per diluted
common share, associated with the company's sale of its
wholly-owned subsidiary, KMG America Corporation (KMG). GAAP
measures affected in this release include consolidated pretax and
EPS.
- Adjustment of $0.04 per diluted common share related to
provisional estimates for the income tax effects related to the Tax
Reform Law. The only GAAP measure affected in this release is
EPS.
(c) YTD 2019 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $36 million pretax income, or $0.20 per diluted
common share; GAAP measures affected in this release include
consolidated pretax, EPS, and segment earnings (for respective
amortization expense for the Retail and Group and Specialty
segments).
- Put/call valuation adjustments of approximately $135 million,
or $0.77 per diluted common share, associated with Humana’s 40%
minority interest in Kindred at Home. GAAP measures affected in
this release include consolidated pretax and EPS.
(d) YTD 2018 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $51 million pretax, or $0.28 per diluted common
share; GAAP measures affected in this release include consolidated
pretax, EPS, and segment earnings (for respective amortization
expense for the Retail and Group and Specialty segments).
- Segment earnings of approximately $71 million, or $0.39 per
diluted common share, for the company’s Individual Commercial
segment given the company’s exit on January 1, 2018, as previously
disclosed. GAAP measures affected in this release include
consolidated pretax income, EPS, consolidated revenues, and
consolidated benefit ratio.
- Loss of approximately $790 million pretax, or $2.59 per diluted
common share, associated with the company's sale of its
wholly-owned subsidiary, KMG America Corporation (KMG). GAAP
measures affected in this release include consolidated pretax and
EPS.
- Adjustment of $0.09 per diluted common share related to
provisional estimates for the income tax effects related to the Tax
Reform Law. The only GAAP measure affected in this release is
EPS.
(e) 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 the impact of Humana’s 40% minority
interest in Kindred at Home.
(f) FY19 Adjusted EPS projections exclude
the following:
- Amortization expense for identifiable intangibles of
approximately $0.40 per diluted common share.
- Put/call valuation adjustments of approximately $0.77 per
diluted common share, associated with Humana’s 40% minority
interest in Kindred at Home. FY19 GAAP EPS guidance excludes the
impact of future value changes of the Kindred at Home put/call
option, which cannot be estimated.
(g) FY18 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $90 million pretax, or $0.49 per diluted common
share.
- Put/call valuation adjustments of approximately $33 million, or
$0.18 per diluted common share, associated with Humana's 40%
minority interest in Kindred at Home.
- Loss of approximately $786 million pretax, or $2.41 per diluted
common share, associated with the company's pending sale of its
wholly-owned subsidiary, KMG America Corporation (KMG).
- Segment earnings of approximately $74 million, or $0.41 per
diluted common share, for the company’s Individual Commercial
segment given the company’s exit on January 1, 2018, as previously
disclosed.
- Adjustment of $0.28 per diluted common share related to
provisional estimates for the income tax effects related to the Tax
Reform Law.
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 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 or judicial changes, including activities to
invalidate, 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 or judicial 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, 2018;
- Form 10-Q for the quarter ended March 31, 2019; and
- Form 8-Ks filed during 2019.
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:
- Annual reports to stockholders
- Securities and Exchange Commission filings
- Most recent investor conference presentations
- Quarterly earnings news releases and conference calls
- Calendar of events
- Corporate Governance information
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190731005238/en/
Amy Smith Humana Investor Relations (502) 580-2811 e-mail:
Amysmith@humana.com
Alex Kepnes Humana Corporate Communications (502)
580-2990 e-mail: Akepnes@humana.com
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