- 1Q17 earnings per diluted common share
(EPS) of $7.49 on a GAAP basis, $2.75 Adjusted EPS, exceeding the
company’s previous expectations
- Detailed 1Q17 results to be reported
May 3, 2017
- Full-year 2017 EPS guidance raised to
at least $16.91 GAAP, at least $11.10 Adjusted
- Company comments on anticipated change
in Medicare Advantage payments for 2018
As previously disclosed, Humana Inc. (NYSE: HUM) will be hosting
an Investor Meeting in New York City on Tuesday, April 25, 2017, at
9:30 a.m. eastern time. The Investor Meeting will include a number
of presentations by company leaders focusing on Humana’s strategic
direction, operational and financial progress as well as
expectations for future performance. Logistics associated with the
company’s Investor Meeting are detailed below.
The agenda for the event follows:
- Strategic Overview – Bruce Broussard,
President and Chief Executive Officer
- Retail Overview – Alan Wheatley,
President, Retail
- Provider – Roy Beveridge, MD, Chief
Medical Officer; Joe Jasser, MD, President, Care Delivery
- Evolving Clinical Model – William
Fleming, PharmD, President, Healthcare Services; Chris Kay, Chief
Innovation Officer
- Simplified Experience – Jody Bilney,
Chief Consumer Officer; Brian LeClaire, PhD, Chief Information
Officer
- Group – Beth Bierbower, President,
Group and Specialty
- Financial Update – Brian Kane, Chief
Financial Officer
Financial Results and
Guidance
Humana today pre-announced certain components of its results for
the quarter ended March 31, 2017 (1Q17) as detailed below. GAAP and
Adjusted results for the quarter ended March 31, 2016 (1Q16) are
also shown for comparison. Adjusted prior-year results have been
recast to exclude the individual commercial medical (Individual
Commercial) business given the company’s decision to no longer
offer these products beginning in 2018, as previously
disclosed.
EPS
1Q17 (a) 1Q16 (b)
Generally Accepted Accounting Principles (GAAP)
$ 7.49 $
1.68 Net (gain) expenses associated
with the terminated merger agreement (for 1Q17, primarily the
break-up fee) (4.26 )
0.21 Amortization of identifiable intangibles
0.08 0.09
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
(0.52 ) -
Guaranty fund assessment expense to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care
insurance company) 0.23
-
1Q16 Adjusted (non-GAAP) – as
reported -
$ 1.98 Operating (income) losses
associated with the Individual Commercial business
(0.27 ) 0.09
Adjusted (non-GAAP) – 1Q17 actual; 1Q16 as recast
$ 2.75
$ 2.07
Consolidated revenues (in millions)
1Q17 (c) 1Q16 (c)
GAAP
$ 13,762 $
13,800 Revenues associated with the
Individual Commercial business (283 )
(893 )
Adjusted (non-GAAP) – 1Q17
actual; 1Q16 as recast $ 13,479
$ 12,907
The company has included financial measures throughout this
press 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.
The company’s GAAP and Adjusted EPS results for 1Q17 were better
than management’s previous expectations, primarily due to
outperformance in the Retail segment, largely attributable to prior
period development in the company's individual Medicare Advantage
business. All of the company's businesses performed well and early
indicators are positive relative to management's initial
expectations around medical utilization.
The company also today increased its GAAP and Adjusted EPS
guidance for the year ending December 31, 2017 (FY17). FY17 GAAP
EPS guidance was increased to at least $16.91 from its previous
range of $16.65 to $16.85, while Adjusted EPS was increased to at
least $11.10 from the previous range of $10.80 to $11.00. The FY17
guidance increases for both GAAP and Adjusted EPS were primarily
driven by the same factors impacting the 1Q17 better-than-expected
results. Detailed 1Q17 results and components of the company’s FY17
financial guidance updated today will be provided in the company’s
full 1Q17 earnings release on May 3, 2017.
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:
EPS
FY17Guidance (d)
FY16Recast (e)
GAAP At least $16.91
$ 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 losses associated with the
Individual Commercial business; FY16 includes losses associated
with the write-off of risk corridor receivables (f)
0.15 3.78
Adjusted
(non-GAAP) – FY17 projected; FY16 as recast
At least $11.10
$ 10.92
Medicare Payment Rates
On April 3, 2017, the Centers for Medicare and Medicaid Services
(CMS) issued its announcement of 2018 Medicare Advantage Capitation
Rates and Medicare Advantage and Part D Payment Policies and Final
Call Letter (the Final Rate Notice). The company expects the Final
Rate Notice to result in a 0.45 percent (h) rate increase for
Humana versus CMS’ estimate for the sector of 0.85 percent (h) on a
comparable basis. The primary difference between the projections is
the impact of fee-for-service county rebasing by CMS.
Investor Meeting
Logistics
Humana encourages the investing public and media to listen to
its Investor Meeting via the Internet since attendance at the event
is by invitation only. The Investor Meeting webcast and virtual
presentation (audio with slides) may be accessed via Humana’s
Investor Relations page at humana.com. The company suggests web
participants sign on approximately 15 minutes in advance of the
event. The company also suggests web participants visit the site in
advance to run a system test and to download any free software
needed.
For those unable to participate in the live event, the replay
will be available in the Historical Webcasts and Presentations
section of the Investor Relations page at humana.com approximately
2 hours following the live webcast.
Footnotes
(a) 1Q17 Adjusted EPS excludes the
following:
- Net gain from the termination of the
merger agreement of approximately $947 million pretax, or $4.26 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 $18 million pretax, or $0.08 per
diluted common share.
- The one-year beneficial effect of a
lower effective tax rate of approximately $0.52 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 $0.23 per diluted common
share, to support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company).
- Operating earnings of approximately $63
million pretax, or $0.27 per diluted common share, for the
company’s Individual Commercial business given the company’s
planned exit on January 1, 2018, as previously disclosed.
(b) 1Q16 Adjusted EPS (Recast) excludes
the following:
- Transaction and integration costs of
$34 million pretax, or $0.21 per diluted common share, associated
with the then-pending merger agreement.
- Amortization expense for identifiable
intangibles of approximately $21 million, or $0.09 per diluted
common share.
- Operating losses of $12 million pretax,
or $0.09 per diluted common share, for the company’s Individual
Commercial business given the company’s planned exit on January 1,
2018, as previously disclosed.
(c) Consolidated revenues have been adjusted to exclude revenues
associated with the company’s Individual Commercial business given
the company’s planned exit on January 1, 2018, as previously
disclosed.
(d) 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 losses of approximately $35
million pretax, or $0.15 per diluted common share, for the
company’s Individual Commercial business given the company’s
planned exit on January 1, 2018, as previously disclosed.
(e) FY16 Adjusted EPS (Recast) excludes
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 (f).
(f) 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 Humana 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
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.
(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 was primarily driven by
emerging experience indicating longer claims duration, a prolonged
lower interest rate environment and an increase in policyholder
life expectancies.
(h) Excludes the impact of Star quality bonus ratings, the
impact of encounter data weighting in risk score calculations and
estimates of changes in revenue associated with increased accuracy
of risk coding.
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:
- The merger agreement with Aetna Inc.
has affected and may in the future, materially and adversely affect
our results of operations, due to continuing liability for
transaction costs, diverted management attention to transaction and
integration planning efforts, customer uncertainty over when or if
the merger would be completed, certain restrictions on the conduct
of Humana’s business prior to termination of the merger agreement,
and other uncertainties that have impaired Humana’s ability to
retain, recruit and motivate key personnel.
- 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. 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. In addition, there can be
no guarantees that the reconsideration that Humana filed with
respect to certain of the Company’s Star rating measures for the
2018 bonus year will be successful, that operational measures
Humana may take will successfully mitigate any negative effects of
Star quality ratings for the 2018 bonus year, or that Humana will
not experience a decline in membership growth for 2017 or 2018 as a
result of the Company’s 2018 bonus year Star ratings.
- 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 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 8‐Ks filed during 2017.
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 and
conference calls
- Calendar of events
- Corporate Governance information
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170424006464/en/
Humana Inc.Regina Nethery, 502-580-3644Investor
RelationsRnethery@humana.comorTom Noland, 502-580-3674Corporate
CommunicationsTnoland@humana.com
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