Coventry Health Care Reports First Quarter Earnings

BETHESDA, Md.--([ BUSINESS WIRE ])--Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended March 31, 2011. Operating revenues totaled $3.0 billion for the quarter with net earnings of $110.2 million, or earnings per diluted share (EPS) of $0.74. These results include EPS of $0.08 from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product.

"In addition, today we are increasing our 2011 EPS guidance driven by an improved revenue outlook coupled with SG&A leverage."

aWe are pleased to report a strong start to the year with performance across all seven of our core businesses meeting or exceeding our expectations,a said Allen F. Wise, chairman and chief executive officer of Coventry. aIn addition, today we are increasing our 2011 EPS guidance driven by an improved revenue outlook coupled with SG&A leverage.a

First Quarter 2011 Consolidated Highlights

Revenues up 6.6% from the prior year quarter
EPS up 12.1% from the prior year quarter
Commercial risk membership of 1,636,000, an increase of 135,000 members from the prior year quarter
Approximately $750 million of deployable free cash at the parent at quarter-end
- $150.5 million payment into escrow for potential litigation settlement⁽¹⁾ made in February
Repurchased 1.7 million shares for $50.2 million during the quarter
- Increased share repurchase authorization by 7.5 million shares
- Total remaining share repurchase authorization of 11.0 million shares at quarter-end

Selected First Quarter 2011 Highlights

Health Plan Commercial Risk.As of March 31, 2011, health plan commercial risk membership was 1,636,000, an increase of 135,000 members from the prior year quarter. The health plan commercial group risk medical loss ratio (MLR) of 80.2% in the quarter was unchanged from the MLR reported in the prior year quarter.
Medicare Advantage.As of March 31, 2011, Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 219,000, an increase of 29,000 members from the prior year quarter, largely driven by the acquisition of Mercy Health Plans which closed on October 1, 2010. The MA-CCP MLR was 84.2% in the quarter, a decrease of 150 basis points (bps) from the prior year quarter. During the first quarter, the MA-PFFS product line contributed $0.08 EPS. As previously announced, the Company did not renew this product line effective January 1, 2010.
Medicare Part D.As of March 31, 2011, Medicare Part D membership was 1,159,000, a decrease of 441,000 members from the prior year quarter. The Medicare Part D MLR was 95.8% in the quarter, an increase of 50 bps from the prior year quarter.
Medicaid.As of March 31, 2011, Medicaid membership was 468,000, an increase of 62,000 members from the prior year quarter, largely driven by entry into new markets in Nebraska and Pennsylvania during 2010. The Medicaid MLR was 86.0% in the quarter, an increase of 200 bps from the prior year quarter.

2011 FULL YEAR GUIDANCE

Risk revenue of $10.50 billion to $10.90 billion
Management services revenue of $1.175 billion to $1.195 billion
Consolidated revenue of $11.675 billion to $12.095 billion
Consolidated MLR of 81.9% to 82.5%
Cost of sales expense of $264.0 million to $271.0 million
Selling, general, and administrative expense (SG&A) of $2.00 billion to $2.04 billion
Depreciation and amortization expense of $136.0 million to $140.0 million
Other income of $74.0 million to $78.0 million
Interest expense of $95.0 million to $102.0 million
- Includes projected interest expense that would result from any refinancing activities that the Company may pursue in advance of 2012 debt maturities
Tax rate of 36.0% to 37.0%
Diluted share count of 147.0 million to 149.0 million
EPS of $2.65 to $2.85

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, April 29, 2011. To listen to the call, dial toll-free at (800) 316-8317 or, for international callers, (719) 325-2443. Callers will be asked to identify themselves and their affiliations. The conference call will also be webcast from Coventrya�s Investor Relations site at [ www.coventryhealthcare.com ]. Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission. A replay of the call will be available for one week at (888) 203-1112 or, for international callers, (719) 457-0820. The access code is 7228999.

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are defined as statements that are not historical facts and include those statements relating to future events or future financial performance, including the guidance herein. Actual performance may be significantly impacted by certain risks and uncertainties including those described in Coventrya�s Annual Report on Form 10-K for the year ended December 31, 2010, and Coventrya�s subsequent filings with the Securities and Exchange Commission. Among the factors that may materially affect Coventrya�s business, operations or financial condition are the ability to accurately estimate and control future health care costs; the ability to increase premiums to offset increases in the Companya�s health care costs; general economic conditions and disruptions in the financial markets; changes in laws or regulations or government investigations; potential state guaranty fund assessments; changes in government funding and various other risks associated with our participation in Medicare and Medicaid programs; a reduction in the number of members in the Companya�s health plans; the Companya�s ability to acquire additional managed care businesses and the Companya�s ability to successfully integrate acquired businesses into its operations; an ability to attract new members or to increase or maintain premium rates; the non-renewal or termination of the Companya�s government contracts, or unsuccessful bids for business with government agencies; failure of the Companya�s independent agents and brokers to continue to market its products to employers; a failure to obtain cost-effective agreements with a sufficient number of providers that could result in higher medical costs and a decrease in membership; negative publicity regarding the managed health care industry generally or the Company in particular; a failure to effectively protect, maintain, and develop our information technology systems; periodic reviews, audits and investigations under the Companya�s contracts with federal and state government agencies; litigation, including litigation based on new or evolving legal theories; volatility in the Companya�s stock price and trading volume; the Companya�s indebtedness, which imposes certain restrictions on its business and operations; an inability to generate sufficient cash to service the Companya�s indebtedness; a substantial amount of Coventrya�s cash flow is generated by its regulated subsidiaries; the Companya�s certificate of incorporation and bylaws and Delaware law, which could delay, discourage or prevent a change in control of the Company that its stockholders may consider favorable; and an impairment of the Companya�s intangible assets. Coventry undertakes no obligation to update or revise any forward-looking statements.

Coventry Health Care ([ www.coventryhealthcare.com ]) is a diversified national managed healthcare company based in Bethesda, Maryland, operating health plans, insurance companies, network rental and workersa� compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators.


COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)

	Quarters Ended
	March 31,
	2011		2010
Operating revenues:	(unaudited)		(unaudited)
Managed care premiums	$	2,755,336	$	2,570,575
Management services		293,602		288,403
Total operating revenues		3,048,938		2,858,978

Operating expenses:
Medical costs		2,275,161		2,114,343
Cost of sales		67,898		59,145
Selling, general, and administrative		498,590		494,905
Depreciation and amortization		35,816		35,519
Total operating expenses		2,877,465		2,703,912

Operating earnings		171,473		155,066
Operating earnings percentage of total revenues		5.6%		5.4%

Interest expense		20,038		20,130
Other income, net		19,469		20,287

Earnings before income taxes		170,904		155,223

Provision for income taxes		60,671		57,898
Net earnings	$	110,233	$	97,325

Net earnings per share:
Basic earnings per share	$	0.75	$	0.67
Diluted earnings per share	$	0.74	$	0.66

Weighted average shares outstanding, basic		147,219		145,782
Weighted average shares outstanding, diluted		149,184		147,281


COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

		March 31,		December 31,
		2011		2010
		(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	1,358,531	$	1,853,988
Restricted cash a" litigation escrow		150,500		-
Short-term investments		308,845		16,849
Accounts receivable, net		275,821		276,694
Other receivables, net		566,170		515,882
Other current assets		331,612		371,528
Total current assets		2,991,479		3,034,941

Long-term investments		2,349,200		2,184,606
Property and equipment, net		262,365		262,282
Goodwill		2,554,966		2,550,570
Other intangible assets, net		415,706		431,886
Other long-term assets		30,267		31,300
Total assets	$	8,603,983	$	8,495,585



Liabilities and Stockholdersa� Equity:

Current liabilities:
Medical liabilities	$	1,307,378	$	1,237,690
Accounts payable and accrued liabilities		849,479		942,226
Deferred revenue		161,409		103,082
Current portion of long-term debt		233,903		-
Total current liabilities		2,552,169		2,282,998

Long-term debt		1,365,585		1,599,396
Other long-term liabilities		416,391		414,025
Total liabilities		4,334,145		4,296,419

Stockholdersa� equity		4,269,838		4,199,166

Total liabilities and stockholdersa� equity	$	8,603,983	$	8,495,585


COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)

		Quarter Ended
		March 31, 2011

Cash flows from operating activities:
Net earnings	$	110,233
Adjustments to earnings:
Depreciation and amortization		35,816
Amortization of stock compensation		8,227
Changes in assets and liabilities:
Accounts receivable, net		1,693
Medical liabilities		68,942
Accounts payable and other accrued liabilities		(35,478)
Restricted cash a" litigation escrow		(150,500)
Deferred revenue		58,409
Other operating activities		(68,728)
Net cash flows from operating activities		28,614

Cash flows from investing activities:
Capital expenditures, net		(19,658)
Payments for investments, net of sales and maturities		(463,320)
Net cash flows from investing activities		(482,978)

Cash flows from financing activities:
Proceeds from issuance of stock		8,865
Payments for repurchase of stock		(51,784)
Excess tax benefit from stock compensation		1,826
Net cash flows from financing activities		(41,093)

Net change in cash and cash equivalents for current period		(495,457)
Cash and cash equivalents at beginning of period		1,853,988
Cash and cash equivalents at end of period	$	1,358,531



Cash and Investments:
Cash and cash equivalents	$	1,358,531
Short-term investments		308,845
Long-term investments		2,349,200
Total cash and investments	$	4,016,576


COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)

			Total
	Q1 2011		2010		Q4 2010		Q3 2010		Q2 2010		Q1 2010
Membership by Product (000s)
Health Plan Commercial Risk		1,636				1,641		1,533		1,522		1,501
Health Plan Commercial ASO		688				698		636		657		663
Medicare Advantage CCP		219				224		193		192		190
Medicaid Risk		468				468		462		413		406
Health Plan Total		3,011				3,031		2,824		2,784		2,760

Other National ASO		383				459		462		466		482
Total Medical Membership		3,394				3,490		3,286		3,250		3,242

Medicare Part D		1,159				1,628		1,618		1,631		1,600

Total Membership		4,553				5,118		4,904		4,881		4,842

Revenues by Product Type (000s)
Commercial Risk	$	1,491,099	$	5,540,470	$	1,475,773	$	1,380,019	$	1,367,457	$	1,317,221
Commercial Management Services		77,842		327,084		81,861		79,869		82,395		82,957
Medicare Advantage		591,242		2,114,205		579,329		522,202		505,084		507,592
Medicaid Risk		311,066		1,133,353		312,359		286,762		268,460		265,771
Total Health Plan and Medical Services Businesses		2,471,249		9,115,112		2,449,322		2,268,852		2,223,396		2,173,541

Medicare Part D		358,445		1,604,198		357,941		348,784		423,664		473,809
Other Premiums		26,415		100,130		24,770		25,054		25,201		25,105
Other Management Services		218,141		856,072		215,279		215,185		217,706		207,904
Total Specialized Managed Care Businesses		603,001		2,560,400		597,990		589,023		666,571		706,818

Total Premiums		2,778,267		10,492,356		2,750,172		2,562,821		2,589,866		2,589,498
Total Management Services		295,983		1,183,156		297,140		295,054		300,101		290,861
Other/Eliminations		(25,312)		(87,596)		(22,296)		(22,094)		(21,826)		(21,381)
Total Revenue	$	3,048,938	$	11,587,916	$	3,025,016	$	2,835,781	$	2,868,141	$	2,858,978

Consolidated Coventry

Operating Income % of Revenues		5.6%		5.9%		7.8%		10.3%		0.2%		5.4%

SGA % of Revenues		16.4%		16.9%		17.6%		17.0%		15.8%		17.3%

Total Health Plan Medical Liabilities (000s)⁽²⁾	$	1,087,137			$	1,021,667	$	952,810	$	1,026,355	$	979,173
Health Plan Days in Claims Payable (DCP)⁽²⁾		50.40				48.62		51.70		55.47		54.14

Total Debt (millions)	$	1,599.5			$	1,599.4	$	1,599.3	$	1,599.2	$	1,599.1
Total Capital (millions)	$	5,869.3			$	5,798.6	$	5,655.7	$	5,442.7	$	5,418.2
Debt to Capital		27.3%				27.6%		28.3%		29.4%		29.5%


COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)

			Total
	Q1 2011		2010		Q4 2010		Q3 2010		Q2 2010		Q1 2010
Revenue PMPM
Health Plan Commercial Group Risk	$	320.97	$	314.58	$	316.34	$	315.82	$	313.92	$	312.05
Medicare Advantage^{(3), (4)}	$	883.09	$	876.67	$	857.39	$	899.89	$	867.43	$	885.26
Medicare Part D⁽⁵⁾	$	90.86	$	87.96	$	85.74	$	87.56	$	90.49	$	88.05
Medicaid	$	221.16	$	218.98	$	223.54	$	215.51	$	217.77	$	218.76


MLR%
Consolidated Total		82.6%		79.4%		79.0%		77.2%		79.1%		82.3%

Health Plan Commercial Group Risk		80.2%		79.2%		81.3%		76.8%		78.3%		80.2%
Medicare Advantage⁽⁴⁾		84.2%		82.0%		84.1%		77.0%		81.2%		85.7%
Medicare Part D		95.8%		83.7%		64.7%		79.0%		90.7%		95.3%
Medicaid		86.0%		85.7%		85.4%		89.0%		84.2%		84.0%


		Explanatory Notes

(1)		On February 2, 2011, in relation to a class action lawsuit filed by providers in Louisiana, the Company entered into a definitive settlement agreement with plaintiffs counsel and attorneys representing the provider class setting forth the settlement terms for an amount payable of $150.5 million. Please refer to the Companya�s Form 10-K for the year ended December 31, 2010 for more information, including certain contingencies that must be satisfied before the settlement becomes final.

(2)		aTotal Health Plan Medical Liabilitiesa and aHealth Plan Days in Claims Payablea are calculated consistent with prior disclosures to exclude MA-PFFS for all periods presented due to the Companya�s non-renewal of this product line effective January 1, 2010. These statistics exclude the effect of the Preferred Health Systems acquisition for the first quarter of 2010 due to the timing of closing (February 1, 2010).

(3)		Revenue PMPM excludes the impact of revenue ceded to external parties.

(4)		Beginning with Q1 2010, Medicare Advantage revenue and medical cost statistics represent the MA-CCP business only as the Company did not renew the MA-PFFS product line effective January 1, 2010.

(5)		Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.

N@N

Coventry Health Care Reports First Quarter Earnings