UnitedHealth Group Inc. (UNH)

Q2 2010 Earnings Call

July 20, 2010 8:45 a.m. ET


Stephen Hemsley - President & CEO

Gail Boudreaux - EVP & President, UnitedHealthcare

Mike Mikan - EVP & CFO

Andy Slavitt - CEO, Ingenix

Dawn Owens - CEO, OptumHealth

Tom Paul - President, UnitedHealth Group


Christine Arnold - Cowen

Joshua Raskin - Barclays Capital

Matthew Borsch - Goldman Sachs

John Rex - JPMorgan

Justin Lake - UBS

Kevin Fischbeck - Bank of America Merrill Lynch

Tom Carroll - Stifel

Scott Fidel - Deutsche Bank

Ana Gupte - Sanford Bernstein

Stuart Hosansky - Vanguard

Peter Costa - Wells Fargo Securities

Michael Baker - Raymond James

Charles Boorady - Credit Suisse

Doug Simpson - Morgan Stanley

Carl Mcdonald - Citigroup



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Good morning, I will be your conference facilitator today. At this time I would like to welcome everyone to the UnitedHealth Group Second Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be question and answer period. (Operator Instructions).

We request that you do not utilize a speakerphone or headset if you will be asking a question. This will aid in a better quality listening environment. For purposes of getting to as many participants as possible we also ask those with questions to limit to one question per person. As a reminder, this conference is being recorded. This call and its contents are a property of UnitedHealth Group. Any use, copying or distribution without written permission from UnitedHealth Group is strictly prohibited.

Here is some important introductory information. This call will reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amounts is available on the financial reports and SEC filing section of the Company's investor's page at www.unitedhealthgroup.com. This call contains forward looking statements under U.S. federal security's laws. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.

A description of some of the risks and uncertainties can be found in reports that we filed with the Securities and Exchange Commission from time to time, including the cautionary statements included in our current and periodic filings. Information presented on this call is contained in the earnings release we issued this morning and in our form 8-K dated July 20th, 2010 which may be accessed from the investors page of the Company's website at www.unitedhealthgroup.com.

I would now like to turn the conference over to the President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.



Good morning and thank you for joining us today. This morning we will share with you a review of our second quarter performance, a brief assessment of our 2010 performance at the halfway mark and some early themes for 2011.

In the second quarter we again delivered consistent, positive performance across our businesses. Customers and care providers are seeing and responding to the increasing benefits of our steady focus on fundamental execution, coupled with the advantages of our scale and our commitment to the steady advancement of practical innovation that translates to more affordable cost and a better healthcare experience for them. Collectively these drive value for our customers, consumers and the healthcare system in total and they anchor our growth in financial performance.

Second quarter financial results were once more highlighted by stronger than expected revenues, related to stronger overall business growth. We earned $0.99 per share, down slightly on a sequential basis, due to the greater level of favorable reserve development in the first quarter.

Second quarter cash flows from operations of 723 million brought our year-to-date cash flows to $1.9 billion. This morning we will update our full year 2010 financial outlook. We now estimate 2010 revenue of about $93 billion, up approximately $1 billion since our April call and an increase of more than $2 billion over the December revenue forecast.

Despite the weak U.S. economic environment, we're driving to a full year organic revenue growth rate of 6%. Once again in this quarter, four of our businesses had year-over-year revenue growth in access of 10%. We now expect full year net earnings in a range of $3.40 to $3.60 per share, led by diversified revenue growth and continued operating and medical cost discipline all supported by the advancing benefits of our scale.

Let's turn to an update of our two major business groups. We believe our health benefit businesses serving the employer, individual, Medicare and Medicaid in community program markets, all gained market share this quarter and delivered revenues of $21.6 billion, an increase of 7% year-over-year. Operating earnings increased to more than $1.5 billion. In the public and senior sector, we added a net 165,000 consumers in the quarter, bringing us to a total addition of 800,000 people served through the first six months of 2010.

Better than expected growth in Medicaid, Medicare Advantage in Part D is driven our portfolio of strong consistent and reliable benefit offerings, in tune with the distinct needs and local market preferences for the communities we serve. Our team is steadily improving cost management in Medicare and senior products while advancing the consumer service experience and above all preserving the benefits seniors care about the most.

Our sales and distribution processes have worked more effectively this year than ever before. In Medicaid, our positioning as a committed community-based organization that cost effectively provides quality care in local communities is translating into growth.

Economic weakness continues to move people to state sponsored programs but we're also growing through new contract awards such as our recent success in Mississippi. Operating margins expanded year-over-year both in the quarter and through six months to an increasingly effective cost management and the advantage that our operating scale provides in this weight constraint state budgetary environment.

Perhaps, most significantly on the commercial benefits side this quarter, we grew by 70,000 people, led by growth of 95,000 in risk-based offering. Nearly two-thirds of our local markets grew risk-based membership and nearly half of our markets generated fee-based growth in the quarter.

These methods show the steady advancement of a strong turnaround from this time last year. There are a number of reasons for this momentum, even in the face of a challenging economy. We are using ever improving local market focus and engagement while leveraging the advantage of our national scale to deliver more specific, market relevant and cost-effective products at affordable price points.

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