Coventry Health Care's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Coventry Health Care (CVH)

Q4 2011 Earnings Call

February 08, 2012 8:30 am ET

Executives

Drew Asher - Senior Vice President of Corporate Finance

Allen F. Wise - Executive Chairman and Chief Executive Officer

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

Michael D. Bahr - Executive Vice President of Commercial Business

Analysts

Doug Simpson - Morgan Stanley, Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Presentation

Operator

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Good morning, and welcome to the Coventry Health Care's Fourth Quarter 2011 Earnings Conference Call. Today's conference is being recorded [Operator Instructions] Today's call will begin with an 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 September 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, and thank you for your interest in Coventry Health Care. Today, I'd like to share with you our outlook for 2012, and in addition, some very brief comments and overview of 2011.

We're increasingly positive about the opportunities ahead of us, which includes our projected double-digit revenue growth in 2012. On an overall basis, we ended 2011 above our previous forecast at $3.02 of earnings per share, of which $2.87 of the EPS represents our core 2011 results, as presented in our press release, excluding the private fee-for-service runout. And we're also pleased to forecast 2012 EPS of $3.10 to $3.30, which is an 8% to 15% growth rate compared to 2011's core EPS of $2.87.

I want to spend most my time this morning talking about the 2012 and the future, which much of the groundwork is based on work that we completed in 2010 and 2011. Randy Giles, our CFO, will review the quarter and provide more detailed guidance.

Randy Giles

2011 is a year where we're able to surpass our early financial expectations, and more importantly, lay the foundation for prospective growth. If early 2012 financial expectations were a bit cautious, it's because it was a year marked by a transition to the first major impact of health care reform with a very considerable task of implementing minimum MLRs in our commercial business.

I'd like to begin a more detailed discussion about our future, discussing our Medicaid business and the various significant progress that we are making in seizing opportunities and growing this business.

We were awarded the Kentucky contract in July of 2011, with the contract commencing in November of the same year. Based on our positioning and network efforts throughout the Commonwealth of Kentucky, we're able to achieve an outsized membership allocation compared to the other participants. In fact, we've grown again this past month, and we're now up to approximately 232,000 members.

One of the key elements to this recent growth was our ability to rapidly execute on building out a cost-competitive network. We're able to bring our collective resources to bear, including leveraging our centralized operational functions, and we imported one of our experienced executives to Kentucky from our existing business. The point of all this is that we're a resourceful company with over 14,000 employees with experience in all lines of business and the ability to execute simultaneous opportunities. It's really early in the Kentucky contract, and we're still refining operational processes and programs as this was a previously unmanaged population entering managed care. Even though it's really, we're very optimistic and confident that we'll have a successful partnership with the Commonwealth of Kentucky for years to come.

I want to continue on the Medicaid topic, and we have some additional news to report, which is another recent win that we would like to highlight this morning. Our company has been notified by the state of Nebraska of its intent to award a contract to Coventry to provide services for the state's expansion of the existing Medicaid managed care program. The Nebraska Department of Health and Human Services intends to expand managed Medicare services from the existing 10-county program to cover all 93 counties in the state, which is an estimated incremental 70,000 additional Nebraskans.

As you may recall, we won a bid in 2010 for the original program and currently serve approximately 50,000 members in the existing Medicaid program. So subject to the finalization of the contract with the state of Nebraska, we expect to be 1 of 2 managed care contractors providing services to this expanded population later this year.

Staying with Medicaid, also during 2011, we were able to seize an attractive 2-state Medicaid acquisition opportunity by acquiring Family Health Partners and entering into a long-term relationship with its previous owner, Children's Mercy of Kansas City. This acquisition, which closed effective January 1 of 2012, has Medicaid contracts in both Kansas and Missouri. We were able to expand in Missouri, a state we have served for over 15 years, and entered the Kansas Medicaid program, where there's an expansion opportunity for 2013 and beyond.

Including this acquisition, we have a meaningful multiline presence throughout our Midwest 7-state region, which now serves 1.5 million members. We were able to execute on this multifaceted transaction for a reasonable net investment of approximately $50 million, net of tax benefit and statutory capital we were able to leave behind based on the structure of this transaction.

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