SIE Sierra Health Svcs

Sierra Health Services Inc. (NYSE:SIE) 1st Quarter Year Over Year Results -- Total Revenues Up 30% -- Medical Premium Revenues Up 33% -- Adjusted Cash Flow from Operations of $55.6 million, or 170% of Net Income -- Earnings Per Share Up 16% -- 2006 EPS Guidance Raised to $2.05 to $2.15 Sierra Health Services Inc. (NYSE:SIE) reported today that net income for the quarter ended March 31, 2006, was $32.7 million or $0.51 per diluted share, compared to $29.4 million or $0.44 per diluted share for the same period in 2005, an earnings per share increase of 16%. All earnings per share amounts reflect the retroactive effects of the two-for-one common stock split that was effective Dec. 30, 2005. Total revenues for the quarter were $438.2 million, compared to $335.9 million for the same period in 2005, an increase of 30%. Medical premium revenues were $414.4 million, compared to $311.4 million for the same period in 2005, an increase of 33%. Medical premium revenues for the current quarter include $62.0 million from the company's stand-alone Medicare Part D Prescription Drug Program (PDP). In the first quarter, Sierra's medical care ratio was 78.7%, a 240 basis point increase from 76.3% for the same period in 2005. The increase is due to the impact of medical expenses related to the Medicare PDP. This program had a medical care ratio of 97.5%. Exclusive of the PDP, the company's medical care ratio was 75.6%, a decrease of 70 basis points from the same period in 2005. The company believes that reflecting the medical care ratio excluding the effects of the PDP provides a more comparable measure of this ratio to its historical results. Sierra's medical claims payable balance increased to $162.3 million at March 31, 2006, compared to $135.9 million at Dec. 31, 2005. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 43 days for the first quarter of 2006, compared to 47 days for both the first quarter of 2005 and sequentially. The decrease in days in claims payable is due solely to the shorter payment cycle associated with the pharmacy claims related to the PDP. As a percentage of premium revenue, general and administrative expenses for the first quarter of 2006 improved 90 basis points to 12.4% from 13.3% for the same period in 2005. Cash flow from operations was $129.5 million for the quarter, compared to $25.6 million for the same period in 2005. Cash flow from operations, adjusted for the timing of monthly payments from the Centers for Medicare and Medicaid Services (CMS), was $55.6 million for the first quarter of 2006, compared to $66.4 million for the same period in 2005. Sierra received four months of payments from CMS in the first three months of 2006 as the April CMS payments were received at the end of March. The company received two months of payments from CMS in the first three months of 2005 as the January CMS payments were received at the end of December 2004. Sierra believes that reflecting three months of CMS payments provides a more useful measure of cash provided by operations during the three-month period. During the first quarter, Sierra purchased 2.2 million shares of its common stock in the open market for $91.1 million, at an average price of $41.41 per share. As of April 25, 2006, the company purchased an additional 633,000 shares for $25.3 million, at an average price of $39.97. On April 20, 2006, Sierra's board of directors authorized an additional $75.0 million for share repurchases, bringing the current total available and authorized balance to $75.8 million. As previously reported, Sierra's amended revolving credit facility allows for unlimited share repurchases, provided the company meets the required leverage ratio. In the first quarter of 2006, the company's core commercial HMO membership grew by 3%, or 6,600 lives. In the quarter, the company's Medicare Advantage membership, which includes both HMO and PPO membership, grew by 2% or 1,000 lives. Sierra's Medicare PDP membership was 160,800 at March 31, 2006. Medicaid membership, while increasing 10%, or 5,100 lives year over year, is down 100 lives sequentially, likely due to a first quarter eligibility reconciliation by the state. A similar reconciliation resulted in a slight decrease in Medicaid membership during the same period in 2005. "Our disciplined pricing and stable cost structure, combined with continued growth in our core market, has allowed us to meet or exceed expectations over the past several quarters," said Anthony M. Marlon, M.D., chairman, president and chief executive officer of Sierra. "Once again, Sierra's performance in the first quarter is, in part, reflective of our strong local economy." Sierra had previously announced that it expected to earn between $1.92 and $2.02 per fully diluted share for the year 2006. The company now expects to earn between $2.05 and $2.15 per fully diluted share for 2006. Sierra Health Services Inc., based in Las Vegas, is a diversified healthcare services company that operates health maintenance organizations, indemnity insurers, preferred provider organizations, prescription drug plans and multispecialty medical groups. Sierra's subsidiaries serve nearly 800,000 people through health benefit plans for employers, government programs and individuals. For more information, visit the company's Web site at www.sierrahealth.com. Statements in this news release that are not historical facts are forward looking and based on management's projections, assumptions and estimates; actual results may vary materially. Forward-looking statements are subject to certain risks and uncertainties, which include but are not limited to: 1) potential adverse changes in government regulations, contracts and programs, including the Medicare Advantage program, the Medicare Prescription Drug Plan, Medicaid and legislative proposals to eliminate or reduce ERISA pre-emption of state laws that would increase potential managed care litigation exposure; 2) the potential loss of the Medicaid contract with the state of Nevada; 3) competitive forces that may affect pricing, enrollment, renewals and benefit levels; 4) unpredictable medical costs, malpractice exposure, reinsurance costs and inflation; 5) impact of economic conditions; 6) changes in healthcare reserves; and 7) the amount of actual proceeds to be realized from the note receivable related to the sale of the workers' compensation insurance operation. Further factors concerning financial risks and results may be found in documents filed with the Securities and Exchange Commission and which are incorporated herein by reference. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Sierra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Sierra or its business or operations. Sierra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. -0- *T SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Earnings Report (In thousands, except per share data) (Unaudited) Three Months Ended March 31, ---------- --------- 2006 2005 ---------- --------- Medical premiums $414,444 $311,355 Military contract revenues - 6,359 Professional fees 12,915 9,853 Investment and other revenues 10,889 8,292 ---------- --------- Total Revenues 438,248 335,859 ---------- --------- Medical expenses 336,519 244,955 Medical Care Ratio 78.7% 76.3% (Medical Expenses/Premiums and Professional Fees) Military contract expenses 138 4,107 General and administrative expenses 51,201 41,473 ---------- --------- Operating Income 50,390 45,324 Interest expense (776) (1,631) Other income (expense), net (33) 99 ---------- --------- Income Before Income Taxes 49,581 43,792 Provision for income taxes (16,910) (14,387) ---------- --------- Net Income $32,671 $29,405 ========== ========= Earnings Per Common Share $0.57 $0.55 Earnings Per Common Share Assuming Dilution $0.51 $0.44 Weighted average common shares outstanding 57,727 53,244 Weighted average common shares outstanding assuming dilution 64,727 68,249 PERIOD END MEMBERSHIP At March 31, ---------- --------- 2006 2005 ---------- --------- HMO: Commercial 260,800 241,300 Medicare 56,400 54,000 Medicaid 55,000 49,900 PPO: Commercial 28,600 26,000 Medicare 900 - Medicare Part D 160,800 - Medicare supplement 14,600 16,300 Administrative services 214,600 184,600 ---------- --------- Total Members 791,700 572,100 ========== ========= SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited) March 31, Dec. 31, 2006 2005 ---------- --------- ASSETS Current Assets: Cash and cash equivalents $98,954 $88,059 Investments 331,253 281,250 Accounts receivable 15,604 14,501 Current portion of deferred tax asset 26,860 23,949 Prepaid expenses and other current assets 51,812 30,596 ---------- --------- Total Current Assets 524,483 438,355 Property and equipment, net 69,716 71,357 Restricted cash and investments 18,167 18,252 Goodwill 14,782 14,782 Deferred tax asset (less current portion) 13,399 13,266 Note receivable 47,000 47,000 Other assets 79,808 65,834 ---------- --------- Total Assets $767,355 $668,846 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accrued and other current liabilities $95,556 $58,238 Trade accounts payable 2,919 2,347 Accrued payroll and taxes 19,330 21,469 Medical claims payable 162,301 135,867 Unearned premium revenue 110,221 49,067 Current portion of long-term debt 118 106 ---------- --------- Total Current Liabilities 390,445 267,094 Long-term debt (less current portion) 71,769 52,307 Other liabilities 65,320 65,193 ---------- --------- Total Liabilities 527,534 384,594 ---------- --------- Commitments and contingencies Stockholders' Equity : Common stock 348 346 Treasury stock (461,507) (377,190) Additional paid-in capital 413,205 400,287 Accumulated other comprehensive loss (2,798) (1,750) Retained earnings 290,573 262,559 ---------- --------- Total Stockholders' Equity 239,821 284,252 ---------- --------- Total Liabilities And Stockholders' Equity $767,355 $668,846 ========== ========= SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended March 31, -------------------- 2006 2005 ---------- --------- Cash Flows From Operating Activities: Net Income $32,671 $29,405 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 4,318 3,714 Excess tax benefit from share-based payment arrangements (5,109) - Other adjustments 2,306 1,647 Other current assets (23,128) 5,470 Unearned premium revenue 61,154 (36,838) Other current liabilities 35,670 (2,855) Medical claims payable 26,434 8,798 Changes in other assets and liabilities (4,767) 16,243 ---------- --------- Net Cash Provided By Operating Activities 129,549 25,584 ---------- --------- Cash Flows From Investing Activities: Capital expenditures, net of dispositions (2,785) (2,252) Purchase of investments, net of proceeds (57,630) (116,468) ---------- --------- Net Cash Used For Investing Activities (60,415) (118,720) ---------- --------- Cash Flows From Financing Activities: Payments on debt and capital leases (25) (25) Proceeds from other long-term debt 20,000 - Purchase of treasury stock (91,131) (10,354) Excess tax benefits from share-based payment arrangements 5,109 - Exercise of stock in connection with stock plans 7,808 9,433 ---------- --------- Net Cash Used For Financing Activities (58,239) (946) ---------- --------- Net Increase (Decrease) In Cash And Cash Equivalents 10,895 (94,082) Cash And Cash Equivalents At Beginning Of Period 88,059 207,619 ---------- --------- Cash And Cash Equivalents At End Of Period $98,954 $113,537 ========== ========= Reconciliation of Non-GAAP Financial Measures Operating Cash Flow In this press release, the company presented operating cash flow, adjusted for the timing of payments from the Centers for Medicare and Medicaid Services (CMS) for both 2006 and 2005. These are non-GAAP financial measures. The company received four months of payments from CMS in the first three months of 2006 as the April CMS payments were received at the end of March. The company received two months of payments from CMS in the first three months of 2005 as the January CMS payments were received at the end of December 2004. The company believes that reflecting three months of CMS payments provides a more useful measure of cash provided by operations during the three-month period. The following is a reconciliation to the most directly comparable GAAP financial measure: Three Months Ended March 31, -------------------- 2006 2005 ---------- --------- GAAP net cash provided by operating activities $129,549 $25,584 Add: January CMS payments received in December - 40,845 Less: April CMS payments received in March (73,962) - ---------- --------- Cash Flow From Operations Adjusted For The Timing Of Payments From CMS $55,587 $66,429 ========== ========= Medical Care Ratio In this press release, the company presented the medical care ratio, excluding the effects of the Medicare Part D prescription drug program (PDP) for 2006. This is a non-GAAP financial measure. The company believes that reflecting the ratio excluding the effects of the PDP provides a more comparable measure of its medical care ratio to its historical results. The following is a reconciliation to the most directly comparable GAAP financial measure: Non-GAAP Items GAAP ------------------- --------- Other Medical PDP Reporting --------- --------- --------- Medical Premiums $352,421 $62,023 $414,444 Professional Fees 12,915 - 12,915 --------- --------- --------- Total Medical Premiums and Professional Fees 365,336 62,023 427,359 Medical Expenses 276,020 60,499 336,519 Medical Care Ratio (Medical Expenses/Premiums and Professional Fees) 75.6% 97.5% 78.7% Debt to Capitalization Ratio The company disclosed its debt to capitalization ratio excluding the effects of its 2 1/4% senior convertible debentures. This is a non- GAAP financial measure. The company believes that reflecting this ratio excluding the effects of the debentures, which are significantly above the conversion price and when redeemed by the debenture holders can be converted by the company to equity, provides a more useful measure of its debt to capitalization ratio. The following is a reconciliation to the most directly comparable GAAP financial measure: GAAP Non-GAAP Items --------- ------------------- Reporting Debentures Revised --------- ---------- -------- Total debt (less senior convertible debentures) $20,387 $- $20,387 Senior convertible debentures 51,500 (51,500) - --------- --------- --------- Total Debt 71,887 (51,500) 20,387 Stockholders' Equity 239,821 51,500 291,321 --------- --------- --------- Total Debt plus Stockholders' Equity $311,708 $- $311,708 ========= ========= ========= Debt to Capitalization Ratio (Total Debt/Total Debt and Stockholders' Equity) 23.1% 6.5% *T