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UnitedHealth Group Reports Second Quarter Results

Stocks in this article: UNH

UnitedHealth Group (NYSE: UNH) today reported second quarter results, highlighted by consistent enrollment growth in each of UnitedHealthcare’s benefits businesses combined with well-diversified revenue growth and margin expansion at Optum. Overall results were strong across the enterprise.

The Company affirmed its projections for 2013 revenues of approximately $122 billion and cash flows from operations in a range of $7.2 billion to $7.6 billion, and tightened its outlook for full year 2013 net earnings to a range of $5.35 to $5.50 per share.

“First half 2013 results reflect well-diversified growth and steadily strengthening performance across both our health benefits and health services businesses,” said Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group.

 
Quarterly Financial Performance
 

Three Months Ended

June 30,   June 30,   March 31,

2013

2012

2013

Revenues $30.4 billion $27.3 billion $30.3 billion

Earnings From Operations

$2.4 billion $2.2 billion $2.1 billion
Net Margin   4.7%   4.9%   4.1%
 
  • UnitedHealth Group’s consolidated second quarter 2013 revenues of $30.4 billion increased $3.1 billion year-over-year, lifting the year-over-year revenue growth rate to 12 percent and the year-to-date rate to 11 percent. Optum’s revenue growth rates of 21 percent in the second quarter and 18 percent year-to-date reflected double digit percentage growth rates at each of its three major businesses. UnitedHealthcare’s 2013 year-to-date10 percent organic enrollment growth – more than 4 million people – was driven by performance across all major market categories: commercial, Medicare, Medicaid and international.
  • Second quarter 2013 earnings from operations were $2.4 billion and net earnings were $1.4 billion or $1.40 per share, compared to $1.27 per share in second quarter 2012.
  • The consolidated medical care ratio increased 20 basis points year-over-year to 81.5 percent in the second quarter of 2013, reflecting the higher revenue growth rate in governmental benefit program offerings. Favorable reserve development was $310 million in the quarter, including $120 million related to 2012 medical costs, compared to a total of $210 million in favorable development for the second quarter of 2012, which included $90 million related to previous years’ costs.
  • Unprecedented levels of fee-based membership growth and services business growth and a greater mix of international business produced a 90 basis point year-over-year increase in the operating cost ratio to 15.9 percent in the second quarter of 2013.
  • Second quarter 2013 cash flows from operations of nearly $1.5 billion increased $129 million from second quarter 2012 cash flows from operations of more than $1.3 billion 1, as adjusted to exclude out-of-period government payment receipts. These early payments did not recur in second quarter 2013.
  • The second quarter income tax rate of 35.5 percent was stable year-over-year. Second half 2013 income tax rates are estimated to be in the range of 36.5 percent to 36.75 percent.
  • Second quarter days claims payable of 49 days increased one day year-over-year. Days sales outstanding in accounts receivable of 11 days at June 30, 2013 reflected a two-day seasonal increase in government receivables.
  • UnitedHealth Group’s June 30, 2013 debt to debt-plus-equity ratio was 34.6 percent, decreasing 160 basis points in the quarter and cash available for corporate use was approximately $1.2 billion at quarter end. Second quarter 2013 annualized return on equity was 18.2 percent.
  • UnitedHealth Group completed the last stages of its acquisition of Amil during the second quarter, including funding the public tender offer and the delisting from the Brazilian stock exchange.
  • During the second quarter the Board of Directors increased the Company’s quarterly dividend 32 percent to a rate of $1.12 per share annually, and renewed and expanded the share repurchase program with an authorization to repurchase up to 110 million shares over time. In the second quarter UnitedHealth Group repurchased nearly 13 million shares for $791 million and paid $281 million in dividends to shareholders, an increase of 29 percent year-over-year.

1 Adjusted numbers are non-GAAP financial measures. GAAP cash flows from operations of $2.2 billion for second quarter 2012 do not reflect the $2.5 billion monthly premium payment for April received in March from the Centers for Medicare and Medicaid Services (CMS) and do include a $2.7 billion monthly payment for July that was received in June. The June 2012 GAAP cash flows from operations also included $0.6 billion in additional early government payment receipts. Cash flows from operations have been adjusted to report CMS payments in the quarter to which they relate.

UnitedHealthcare provides network-based health care benefits for a full spectrum of customers and markets. UnitedHealthcare serves employers ranging from sole proprietorships to large, multi-site and national and international organizations; delivers health and well-being benefits to Medicare beneficiaries and retirees; manages health care benefit programs on behalf of state Medicaid and community programs and their participants and serves the nation’s active and retired military and their families through the TRICARE program.

 
Quarterly Financial Performance
 

Three Months Ended

June 30,   June 30,   March 31,

2013

2012

2013

Revenues $28.3 billion $25.5 billion $28.3 billion
Earnings From Operations $1.9 billion $1.9 billion $1.6 billion
Operating Margin   6.6%   7.5%   5.8%
 
  • UnitedHealthcare’s second quarter 2013 revenues of $28.3 billion increased $2.8 billion or 11 percent year-over-year. Revenue growth was driven by an increase of 9.1 million consumers with medical benefits, including 4.4 million domestically and 4.7 million internationally. Second quarter 2013 growth of 3.0 million people was led by the initiation of services to the TRICARE West Region and growth across both public and senior health benefits.
  • Earnings from operations for UnitedHealthcare for second quarter 2013 were consistent year-over-year at $1.9 billion and the second quarter 2013 operating margin was 6.6 percent. As expected, operating margins were pressured year-over-year by funding reductions in the Medicare & Retirement business. Part D seasonality factors and effective ongoing medical cost performance contributed to margin improvement on a sequential basis in the second quarter of 2013.

UnitedHealthcare Employer & Individual

  • The number of consumers served by UnitedHealthcare Employer & Individual grew by 3.7 million over the past year, including 2.8 million people in second quarter 2013.
  • UnitedHealthcare Employer & Individual second quarter revenues of $11.2 billion decreased $417 million year-over-year, reflecting a large customer’s conversion to fee-based services in first quarter 2013.
  • Market demands for choice and affordability have driven 18 percent year-over-year growth in UnitedHealthcare’s consumer-directed health care products. A total of 5.7 million consumers participated in these products at June 30, 2013.
  • UnitedHealthcare’s commercial medical care ratio decreased 10 basis points year-over-year to 80.7 percent in the second quarter.

UnitedHealthcare Medicare & Retirement

  • Second quarter Medicare & Retirement revenues of $11.1 billion grew $1.2 billion or 13 percent year-over-year, driven by its growth in service to Medicare beneficiaries.
    • UnitedHealthcare served 415,000 more people in Medicare Advantage in the past year, a 17 percent increase, including growth of 55,000 seniors in the second quarter of 2013.
    • Medicare Supplement grew strongly, with the number of people served increasing by 290,000 or 9 percent in the past year, including 40,000 people in the second quarter.
    • UnitedHealthcare’s Medicare Part D drug plans delivered strong growth of 570,000 people year-over-year, including 90,000 in the second quarter.

UnitedHealthcare Community & State

  • Second quarter Community & State revenues of $4.5 billion increased $389 million or 10 percent year-over-year. The Company expanded Medicaid services to an additional 110,000 people year-to-date, including 45,000 people in the second quarter. The past year’s net growth of 65,000 people included overall growth of 300,000 people, offset by a first quarter 2013 divestiture and a fourth quarter 2012 market exit. Second quarter new business highlights included two awards for future business in Washington state.

UnitedHealthcare International

  • UnitedHealthcare International second quarter 2013 revenues of $1.6 billion included the second full quarter from Amil, the largest health care company in Brazil. Year-to-date, UnitedHealthcare International has grown the number of people served by 260,000 to 4.7 million.

Optum is a health services business serving the broad health care marketplace, including payers, care providers, employers, governments, life sciences companies and consumers. Using advanced data analytics and technology, Optum helps improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

 
Quarterly Financial Performance
 

Three Months Ended

June 30,   June 30,   March 31,

2013

2012

2013

Total Revenues $8.8 billion $7.3 billion $8.4 billion

Earnings From Operations

$536 million $320 million $495 million
Operating Margin   6.1%   4.4%   5.9%
 
  • Optum total revenues of $8.8 billion for the second quarter of 2013 grew $1.5 billion or 21 percent year-over-year, led by pharmacy growth from serving new clients and the insourcing of UnitedHealthcare commercial pharmacy customers. Revenues increased by double digit percentages year-over-year in each of Optum’s major businesses.
    • OptumHealth second quarter 2013 revenues of $2.4 billion grew 19 percent year-over-year, driven by expansion of clinical services and organic growth.
    • OptumInsight second quarter revenues of $781 million grew 16 percent year-over-year, led by expansion in government services, payment integrity services and provider compliance offerings. OptumInsight’s quarter end revenue backlog was $4.6 billion.
    • OptumRx second quarter revenues of $5.6 billion grew 23 percent year-over-year, reflecting the expanded services for UnitedHealthcare and strong external client growth. Script volumes increased 24 percent year-over-year in the second quarter and are expected to continue to accelerate, reaching an annual run rate of more than one-half billion adjusted scripts by year end.
  • Optum’s second quarter earnings from operations of $536 million increased 68 percent year-over-year and the operating margin of 6.1 percent expanded sharply from 4.4 percent in the second quarter of 2012. These results again reflect progress on Optum’s plan to accelerate growth and improve margins and productivity by strengthening integration and business alignment.
    • OptumHealth second quarter 2013 earnings from operations of $225 million grew by 83 percent year-over-year due to topline growth and productivity gains, which advanced operating margins 320 basis points to 9.3 percent.
    • OptumInsight’s second quarter 2013 earnings from operations of $157 million increased 65 percent year-over-year. The nearly 6 percentage point improvement in second quarter operating margin to 20.1 percent was driven by revenue growth, product mix and continuing advances in business alignment and efficiency.
    • Strong growth, pricing disciplines and further improvements in generic mix drove a 51 percent year-over-year increase in OptumRx earnings from operations to $154 million and a 50 basis point improvement in operating margins to 2.7 percent.

About UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. With headquarters in Minnetonka, Minn., UnitedHealth Group offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services. Through its businesses, UnitedHealth Group serves more than 85 million people worldwide. For more information, visit UnitedHealth Group at www.unitedhealthgroup.com.

Earnings Conference Call

As previously announced, UnitedHealth Group will discuss the Company’s results, strategy and future outlook on a conference call with investors at 8:45 a.m. Eastern time today. UnitedHealth Group will host a live webcast of this conference call from the Investors page of the Company’s website ( www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site through August 1, 2013, following the live call. The conference call replay can also be accessed by dialing 1-800-283-4595. This earnings release and the Form 8-K dated July 18, 2013, may also be accessed from the Investors page of the Company’s website.

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this press release include “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. Generally the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “plan,” “project,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors.

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