Coventry Health Care (CVH)

Q3 2011 Earnings Call

October 28, 2011 8:30 am ET


Randy Giles - Chief Financial Officer, Executive Vice President and Treasurer

Allen F. Wise - Executive Chairman and Chief Executive Officer

Drew Asher - Senior Vice President of Corporate Finance


Charles Andrew Boorady - Crédit Suisse AG, Research Division

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Doug Simpson - Morgan Stanley, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Joshua Kaplan-Marans

John F. Rex - JP Morgan Chase & Co, Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division



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Good morning, and welcome to Coventry Health Care's Third Quarter 2011 Earnings Conference Call. Today's conference is being recorded [Operator Instructions] Today's call will begin by opening remarks by Chief Executive Officer of Coventry Health Care, Mr. Allen Wise, after a brief forward-looking statement read by Mr. Drew Asher. Please go ahead, Drew.

Drew Asher

Ladies and gentlemen, during this call we will make forward-looking statements, certain risks, and uncertainties including those referenced in our press release and described in the company's filings with the SEC on Form 10-K for the year ended December 31, 2010, and Form 10-Q for the quarter ended June 30 2011, may materially impact those statements and could cause actual future results to differ materially from those anticipated and discussed. Allen?

Allen F. Wise

Good morning. Thank you for your interest in Coventry Health Care. I'm pleased to share with you the results of the quarter and I believe, more importantly, to discuss the progression of our business and our plans for growth.

As you saw this morning, the company had another good quarter. And accordingly, we were able to increase our full year 2011 guidance for the third time this year. For the quarter, we reported $0.84 per diluted share, and we are now targeting a 2011 EPS in the range of $2.95 to $3, which excludes last quarter's $0.68 one-time gain. This compares favorably to our original 2011 guidance midpoint of $2.60 and the most recent guidance midpoint of $2.88 per share, both on an equivalent basis, excluding the $0.68 gain from the prior quarter.

Today I will spend most of my time, during the prepared remarks, talking about seizing growth opportunities and the positioning of our company. And I also will follow up, as promised, on our CEO role on the company. Randy Giles will address the details of the quarter and the performances of our businesses in his prepared remarks. While we are squarely focused on growth and both organically and through acquisition, I'd like to talk about recent accomplishments that we believe will not only deliver growth but will better position the company for the future.

Starting with Medicaid. As you recall in 2009, one of our priorities was to better position the company for Medicaid growth. Last quarter, we walked you through our Medicaid accomplishments over the past year or so, which included the 2010 Nebraska RFP win, qualification entry into the Pennsylvania Medicaid program. Probably, most notably, the July 7 award for Coventry to provide services for the Commonwealth of Kentucky's Medicaid program in 7 of 8 regions. This second quarter we've opened up offices in Louisville and Lexington, which totals about 120 employees. We have a fleet of network development representatives on the ground. The success of our bid and network development has resulted in Coventry saving an outsized initial allocation of auto-assign, in the region, of approximately 200,000 members. And although Medicaid recipients will have a chance to switch payers during a 90-day transition phase, we like our positioning out of the gate. I'm really very pleased with how the organization responded, organizationally, in implementing a very large contract in short order. We look forward to next Tuesday's program commencement and being a partner with the Commonwealth of Kentucky for many years to come.

As you saw earlier this week, we announced an agreement to acquire the business of Family Health Partners, a large Medicaid plan operated by Children's Mercy in Kansas City, serving Kansas and Missouri Medicaid recipients. Once this transaction closes, Kansas will represent our 10th Medicaid state. Family Health Partners enjoys the #1 Medicaid market position in Kansas, with approximately 155,000 members. We're also looking forward to fortifying our position in the Western part of Missouri with the addition of approximately 55,000 Family Health Partner Missouri members. Our company has been working with Children's Mercy for much of 2011 to structure mutually benefit transaction and contractual partnership to serve the Medicaid populations of Kansas and Missouri. Once these 2 most recent opportunities are completed and implemented, we'll be serving our Medicaid and state-sponsored programs in a portfolio of 10 states, with approximately $2.5 billion in annualized revenue. This compares to 6 states and $1.1 billion revenue at the end of 2009. And we will continue to seize additional opportunities in the Medicaid space.

A few comments on the Medicare front. Since the last call, we received a notification of approval of all of our 2012 Medicare products, and we've started a marketing process pursuant to the annual election period. As you may have seen, on October 1 we announced the new innovative Part D product for 2012 with a preferred pharmacy network including Walgreens, Walmart, and Target. We're also pleased to be able to reintroduce a third low-cost product to our portfolio, and more importantly, team up with major pharmacy and retail partners to establish a creative product that we believe will be very attractive and cost-effective to the senior population. We told you in early 2011, when we had disappointing, and personally, unacceptable Part D membership results coming in the year, that we would position ourself to grow in 2012. We like our Part D position and our new enhanced product, First Health Value Plus, and feel reasonably confident about our growth prospects in this area. In addition, our basic Part D product, First Health Premier, qualified in 23 auto-assign regions in 2012 as compared to 15 in 2011. As you will recall, both are mainstream and low-income auto-assign products that performed overtime, and we're pleased to grow the number of auto-assign regions, back above 20, which is similar to the 4 years prior to 2011. With regard to our Medicare Advantage product, after reviewing our competitive position in our 20 Medicare Advantage markets, we feel positive about our positioning for 2012. We're going to have a lot better visibility on the Medicare open enrollment season, for both Part D and Medicare Advantage, at the time of our next earnings call and we'll be able to share with you the actual membership results and related guidance at that point.

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