- 2Q18 earnings per diluted common share
(EPS) of $1.39 on a GAAP basis, $3.96 on an Adjusted basis
- New full year 2018 GAAP EPS guidance of
approximately $11.52; Adjusted EPS guidance raised $0.25 from the
previous guidance midpoint to approximately $14.15
- Continued favorable inpatient
utilization in Medicare Advantage resulting in improved full year
2018 Retail segment benefit ratio guidance
- Further advanced the company’s
integrated care delivery strategy with the closing of the Kindred
at Home and Curo Health Services transactions
- Substantial progress with governmental
approvals related to the sale of the company’s closed block of
non-strategic commercial long-term care insurance policies
resulting in a charge of $2.59 EPS
Humana Inc. (NYSE: HUM) today reported consolidated pretax
income and diluted earnings per common share (EPS) for the quarter
ended June 30, 2018 (2Q18) versus the quarter ended June 30, 2017
(2Q17) and for the six months ended June 30, 2018 (1H 2018) versus
the six months ended June 30, 2017 (1H 2017) as follows:
Consolidated pretax income
In millions
2Q18 (a) 2Q17 (b)
1H 2018 (c)
1H 2017 (d)
Generally Accepted Accounting Principles
(GAAP) $19 $1,042
$726
$2,731 Loss on sale of KMG America Corporation (KMG), a
wholly-owned subsidiary
790 -
790 - Amortization associated with identifiable
intangibles
21 18
51 36
Operating income associated with the Individual Commercial segment
(18) (118)
(71) (181) Net
gain associated with the terminated merger agreement (for 1H 2017,
primarily the break-up fee)
- -
- (947) Guaranty fund assessment expense to support
the policyholder obligations of Penn Treaty (an unaffiliated
long-term care insurance company)
- -
- 54
Adjusted (non-GAAP) $812
$942
$1,496 $1,693
Diluted earnings per common share (EPS) 2Q18
(a) 2Q17 (b)
1H 2018 (c) 1H 2017
(d)
GAAP $1.39 $4.46
$4.93 $11.98 Loss on sale of KMG, a wholly-owned
subsidiary
2.59 -
2.59 -
Amortization associated with identifiable intangibles
0.12 0.08
0.28 0.16 Operating
income associated with the Individual Commercial segment
(0.10) (0.51)
(0.39) (0.77)
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)
- Net gain associated with the terminated merger agreement
(for 1H 2017, primarily the break-up fee)
- -
- (4.31) 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
segment 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
Adjusted (non-GAAP) $3.96 $3.49
$7.32 $6.23
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.
GAAP and Adjusted pretax income and EPS results reflect the
solid execution of the company’s strategy, including, among other
items, strong Medicare Advantage membership growth, lower inpatient
medical utilization in the Retail segment driving a better than
expected benefit ratio, and significant operating cost efficiencies
in the first half of 2018 driven by productivity initiatives
implemented in 2017. The company also benefited from a lower tax
rate year-over-year as a result of the Tax Reform Law, allowing it
to invest pretax dollars in its employees, the communities of its
members, technology and its integrated care delivery model to drive
more affordable healthcare and better clinical outcomes. In
addition, year-over-year comparisons are impacted by the return of
the health insurer fee in 2018; enhanced 2018 Medicare Advantage
member benefits resulting from the investment of the better than
expected 2017 individual Medicare Advantage pretax earnings; lower
Prior Period Development, as expected; and a more severe flu season
than last year which affects the first half comparisons. EPS
results were further impacted by a lower number of shares in 2018,
primarily reflecting share repurchases in 2017. Please refer to the
consolidated and segment highlights sections that follow for
additional discussion of the factors impacting year-over-year
results.
“Our strong 2018 financial results are testimony to the
underlying improvement in our operating metrics, like Net Promoter
Score, digital self-service utilization and call transfer
reduction, and to the growing effectiveness of our national and
local clinical programs,” said Bruce D. Broussard, Humana’s
President and Chief Executive Officer. “Also, we took another large
step this quarter in helping our members, especially those living
with chronic conditions, by beginning the integration of important
clinical services through our investments in Kindred at Home and
Curo, and through our partnership with Walgreens. Over time, these
moves, along with the continuous improvement of our operating
system, will go a long way in simplifying the healthcare experience
of our members and provider partners, while also improving the
health status of our members.”
Long-Term Care Divestiture
Update
The company has made substantial progress towards receiving the
approvals necessary to complete the sale of its wholly-owned
subsidiary, KMG America Corporation (KMG), which includes the
company’s closed block of non-strategic commercial long-term care
insurance policies, to Continental General Insurance Company (CGIC)
(LTC Transaction). Accordingly, during 2Q18, the company recognized
a pretax loss on the expected sale of $790 million, including
transaction costs, and recorded an associated deferred tax benefit
of $430 million for a net EPS impact of $2.59 per diluted common
share. The company also classified KMG as held-for-sale and
aggregated its assets and liabilities separately on the balance
sheet at June 30, 2018.
In addition, in connection with the expected KMG divestiture,
during 2Q18 the company entered into a series of reinsurance
agreements (Reinsurance Transaction) to fully cede its workplace
voluntary benefit (WVB) and Financial Protection Products (FPP) to
ManhattanLife Assurance Company of America (ManhattanLife). These
products were previously reported as supplemental benefit offerings
in the company’s Group and Specialty segment and are expected to
result in a reduction in the company’s Specialty membership of
approximately 450,000 members, approximately 430,000 of which were
ceded during 2Q18. In addition, in connection with the Reinsurance
Transaction, the company expects to transfer a total of
approximately $245 million of subsidiary cash along with the
related reserves to ManhattanLife, $230 million of which was
transferred during 2Q18. This transfer of cash had no impact on
cash and short-term investments held at the parent company, but is
classified as an operating cash outflow that was not previously
contemplated in the company’s operating cash flow guidance.
The sale of KMG is expected to close during the third quarter of
2018. Upon closing of both Transactions, the company will have no
remaining exposure to the commercial long-term care insurance or
the non-core WVB and FPP businesses.
2018 Earnings Guidance
Humana today raised its Adjusted EPS guidance for the year
ending December 31, 2018 (FY18). The company now expects GAAP EPS
of approximately $11.52 from the previous range of $13.54 to
$13.94, while FY18 Adjusted EPS guidance was increased to
approximately $14.15 from its previous range of $13.70 to
$14.10.
“We are very pleased with the continued strong operational
execution of our strategy which positions the company well for the
back half of the year,” said Brian A. Kane, Chief Financial
Officer. “This execution, coupled with the strategic moves we have
made, will sustain this performance for 2019 and beyond.”
A reconciliation of GAAP to Adjusted EPS for the company’s FY18
projections as well as comparable numbers for the year ended
December 31, 2017 (FY17) is shown below for comparison.
Diluted earnings per common share FY18
Guidance (e)
FY17 (f)
GAAP ~ $11.52 $16.81 Loss on
Sale of KMG, a wholly-owned subsidiary 2.60 -
Amortization of identifiable intangibles 0.51 0.32
Operating income associated with the Individual Commercial segment
(0.39) (0.84) Impact of Tax Reform Law, primarily
re-measurement of deferred tax assets at lower corporate tax rates
(0.09) 0.92 Net (gain) expenses associated with the
terminated merger agreement (for FY17, primarily the break-up fee)
- (4.31) 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 segment
impact - (2.15) Guaranty fund assessment expense to
support the policyholder obligations of Penn Treaty (an
unaffiliated long-term care insurance company) - 0.24
Charges associated with voluntary and involuntary workforce
reduction programs - 0.64 Costs associated with early
retirement of debt in the fourth quarter of 2017 -
0.08
Adjusted (non-GAAP) – FY18 projected ~
$14.15 $11.71
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 audio only portion of the
company’s 2Q18 earnings conference call are invited to dial
888-625-7430. No password is required. The audio-only webcast of
the 2Q18 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 approximately two hours following the live event until
midnight eastern time on October 1, 2018 and can be accessed by
dialing 855-859-2056 and providing the conference ID #5593277.
Footnotes
(a) 2Q18 Adjusted results exclude the
following:
- Loss of approximately $790 million
pretax, or $2.59 per diluted common share, associated with the
company’s pending sale of its wholly-owned subsidiary, KMG America
Corporation (KMG). GAAP measures affected in this release include
consolidated pretax and EPS.
- Amortization expense for identifiable
intangibles of approximately $21 million pretax income, or $0.12
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 income of $18 million pretax,
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,
consolidated benefit ratio and consolidated operating cost
ratio.
- 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.
(b) 2Q17 Adjusted results
exclude the following:
- Amortization expense for identifiable
intangibles of approximately $18 million, or $0.08 per diluted
common share; GAAP measures affected in this release include
consolidated pretax income, EPS, and segment pretax results (for
each segment’s amount of such amortization).
- Operating income of $118 million
pretax, or $0.51 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, consolidated benefit ratio and consolidated operating
cost ratio.
- 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 segment
impact. The only GAAP measure affected in this release is EPS.
(c) 1H 2018 Adjusted results exclude the
following:
- Loss of approximately $790 million
pretax, or $2.59 per diluted common share, associated with the
company’s pending sale of its wholly-owned subsidiary, KMG America
Corporation (KMG). GAAP measures affected in this release include
consolidated pretax and EPS.
- 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 income, EPS, and segment pretax results
(for each segment’s amount of such amortization).
- Operating income of approximately $71
million pretax, 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, consolidated benefit ratio and consolidated operating
cost ratio.
- 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.
(d) 1H 2017 Adjusted results exclude the
following:
- 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 income, EPS, and segment pretax results
(for each segment’s amount of such amortization).
- Operating income of approximately $181
million pretax, or $0.77 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, consolidated benefit ratio and consolidated operating
cost ratio.
- 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.
- 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 segment
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.
(e) FY18 Adjusted EPS projections exclude
the following:
- Loss of approximately $790 million
pretax, or $2.60 per diluted common share associated with the
company’s sale of its wholly-owned subsidiary, KMG America
Corporation (KMG).
- Amortization expense for identifiable
intangibles of approximately $92 million pretax, or $0.51 per
diluted common share.
- Operating earnings of approximately $70
million pretax, 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.
- Adjustment of $0.09 per diluted common
share related to provisional estimates for the income tax effects
related to the Tax Reform Law.
(f) FY17 Adjusted results exclude the
following:
- Amortization expense for identifiable
intangibles of approximately $75 million pretax, or $0.32 per
diluted common share.
- Operating income of approximately $193
million pretax, or $0.84 per diluted common share, for the
company’s Individual Commercial segment given the company’s exit on
January 1, 2018, as previously disclosed.
- Net gain from the termination of the
merger agreement of approximately $936 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.
- 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 segment
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). 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.
- Expense of approximately $148 million
pretax, or $0.64 per diluted common share, associated with
voluntary and involuntary workforce reduction programs.
- Expense of approximately $17 million
pretax, or $0.08 per diluted common share, associated with early
retirement of debt in the fourth quarter of 2017.
- The impact of approximately $0.92 per
diluted common share associated with the re-measurement of deferred
tax assets at lower corporate tax rates under 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.
- The divestiture of Humana’s subsidiary,
KMG America Corporation, is subject to various closing conditions,
including various regulatory approvals and customary closing
conditions, as well as other uncertainties, and there can be no
assurances as to whether and when it may be completed.
- 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.
- 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.
- 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; and
- Form 8‐Ks filed during 2018.
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/20180801005267/en/
Humana Inc.Investor RelationsAmy Smith, 502-580-2811Amysmith@humana.comorCorporate CommunicationsTom
Noland, 502-580-3674Tnoland@humana.com
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