RYE BROOK, N.Y.--(BUSINESS WIRE)--July 31, 2008-- Universal American Corp. (NYSE: UAM) today announced financial
results for the quarter ended June 30, 2008.
Second Quarter 2008 Compared to Second Quarter 2007
Excluding net realized gains, Universal American's net operating
profit was $26.6 million, or $0.30 per share. Universal American
reported net income of $28.4 million for the second quarter of 2008,
or $0.32 per share, which includes $8.5 million, after tax resulting
from additional impairments on our fixed maturity portfolio, along
with $0.1 million, after tax, of realized losses. In addition,
Universal American released a tax valuation allowance of $10.4 million
that had been set up in the first quarter of 2008 in connection with
impairments taken in that period.
Total revenues for the second quarter of 2008 increased 77.3% to
$1.3 billion, as compared to the second quarter of 2007. Excluding
revenues from the MemberHealth business that we acquired in September
2007, total revenues increased by 16.5%.
Management Comments
Richard Barasch, Chairman and CEO, commented: "The results of the
second quarter again showed strength in our core businesses. The
expansion and profitability of our HMO businesses continued, as we
experienced 9% year over year membership growth in our core Southeast
Texas market as well as 205% membership growth in our expansion
markets in Oklahoma, Dallas and Milwaukee.
"We are also quite pleased with the results in our Medicare
Advantage Private Fee-for-Service business ("PFFS")," Mr. Barasch
continued. "Excluding prior period positive development of
approximately $11 million, our benefit ratio for the second quarter of
2008 is in line with our guidance and we remain comfortable with our
forecast for the balance of 2008. The recent legislation passed by
Congress will clearly require us to accelerate our activities in
establishing networks in the markets in which we have significant PFFS
membership. For 2009, we filed for 17 Medicare Advantage PPO's and
anticipate a significant increase for 2010. This is a major strategic
priority for Universal American.
"Our Part D business also performed well and we can report that
the MemberHealth business we acquired in 2007 is meeting the revised
targets that we set this past March. We are in the midst of
implementing improvements in the cost structure of this business and
remain confident that our 2009 bids are well-grounded.
"We have taken additional impairments in our subprime portfolio
based on further declines in market values. Nevertheless, we have a
strong balance sheet, including $126 million of unregulated cash at
the holding company at the end of the quarter, which gives us the
flexibility to resume repurchasing our shares under our second $50
million share buyback program."
Medicare Advantage
In the second quarter of 2008, Universal American's Medicare
Advantage business grew 2.0% to approximately 242,600 members from
approximately 238,000 members as of June 30, 2007. Revenues increased
by 26% year over year to $623.2 million. Pre-tax income for the same
period increased $13.0 million to $33.4 million largely as a result of
approximately $11 million of positive prior period reserve development
in PFFS. As a result, the benefit ratio for PFFS in 2007 was 86%,
after considering the positive reserve development. Backing out this
positive development, the benefit ratio for PFFS for the second
quarter of 2008 was 87.5%, which is consistent with our guidance for
the second quarter and the full year. As of the end of June, 2008, we
had approximately 188,000 PFFS members.
We continued to generate excellent results from our Medicare
Advantage HMOs. Our HMO membership grew 16% year over year to
approximately 54,600 as of June 30, 2008 and our profitability remains
strong.
Medicare Part D
As of June 30, 2008, Universal American had approximately
1,295,000 members in the Community CCRx(SM) prescription drug plans
("PDP's") and 507,000 members in the Prescription Pathway(SM) PDP's
that we currently operate in a strategic alliance with Caremark
Pharmacy Services, a subsidiary of CVS Caremark. In the second
quarter, our PDP segment reported pre-tax income of $10.6 million on
total premiums, before reinsurance and before consideration of the
government risk corridor adjustment, of $587.2 million. Part D
Management Services, L.L.C., our joint venture with Caremark Pharmacy
Services, contributed $15.3 million of pre-tax income for the quarter.
Senior Administrative Services
CHCS Services, Universal American's senior health insurance
third-party administrator, continued its important contribution to the
Company. Pre-tax income in the second quarter was $6.4 million, up
16.3% from the same period in 2007, as a result of a change in
business mix. Revenues for the second quarter of 2008 declined by
15.8% year over year to $22.1 million, as our affiliated PFFS
administration is no longer performed by CHCS.
Traditional Insurance
For the second quarter of 2008, Universal American earned $2.2
million, pre-tax, on $113.6 million of revenues in our traditional
insurance business. This compares to a pre-tax income of $8.5 million
on $129.3 million of revenues in the second quarter of 2007. This
decline partly reflects an increase in claims in our Medicare
supplement business, lower life and annuity revenues, as well as lower
investment income.
Balance Sheet Data
Total assets were $3.9 billion as of June 30, 2008, compared with
$4.1 billion at December 31, 2007. Total cash and investments were
$1.6 billion at June 30, 2008, compared to $1.8 billion at December
31, 2007. Total reserves for policyholder liabilities were $1.8
billion at June 30, 2008, unchanged from December 31, 2007.
Stockholders' equity as of June 30, 2008 was $1.3 billion, or $14.49
per common share, compared to $1.4 billion, or $14.66 per common
share, at December 31, 2007. The principal reasons for the decreases
in total assets, total cash and investments, and stockholders' equity
were the writedowns in the Company's investments and share
repurchases, both of which are described below.
The ratio of debt to total capitalization, excluding the effect of
FAS 115 and including Universal American's trust preferreds as debt,
increased to 25.6% at June 30, 2008 from 25.4% at December 31, 2007.
For more information, please see the discussion of Non-GAAP Financial
Measures contained in the Supplemental Financial Information at the
end of this press release.
Subprime Holdings
In the second quarter of 2008, Universal American recognized
additional impairments of $11.8 million on its subprime holdings.
These holdings had a carrying value as of June 30, 2008 of $60.1
million, which reflects $82.6 million of writedowns plus an additional
$3.7 million unrealized loss. In addition, during the second quarter,
the Company also recognized impairments of $1.4 million on two
commercial mortgage-backed securities. These holdings have a carrying
value of $1.1 million at June 30, 2008. During the second quarter, the
Company concluded that we can record tax benefits related to our
impairment losses for financial statement purposes. As a result, the
Company recorded a deferred tax benefit of $4.6 million related to
these second quarter impairments. In addition, the Company released a
deferred tax valuation allowance of $10.4 million that had been
established at March 31, 2008 in connection with impairments recorded
in the first quarter. The majority of the Company's subprime holdings
are in senior or senior-mezzanine level tranches, which have
preferential liquidation characteristics and have an average S&P
equivalent rating of AA. The Company continues to review the estimated
fair values provided by a third party pricing service and believes
that it will recover principal and interest greater than the market
prices currently indicate.
Share Repurchase Program
As of June 30, 2008, Universal American had repurchased 4.4
million shares of its stock at a total cost of $50.0 million during
2008, of which it repurchased 2.4 million shares at a total cost of
$26.2 million in the second quarter. The Company has not begun
purchases of stock under its second authorization announced on June 9,
2008. The Company is not obligated to repurchase any specific number
of shares under the program or to make repurchases at any specific
time or price.
Guidance
Universal American expects to earn approximately $1.56 to $1.74
per diluted share for 2008, excluding realized gains/losses on
investment transactions as well as subprime writedowns. The table
below provides additional information relating to our guidance.
Reported
Six
Months
ended
June 30,
2008 3Q08 FY 2008
--------- ------------------- -------------------
Diluted EPS (loss)
(1)
Operating EPS $0.11 $0.53 $ 0.57 $1.56 $1.74
Realized gains /
(losses) ( 0.31) 0.00 0.00 ( 0.31) ( 0.31)
--------- --------- --------- --------- ---------
Reported EPS (loss) ($ 0.20) $ 0.53 $ 0.57 $1.25 $1.43
========= ========= ========= ========= =========
Revenue ($ Million)
(2)
Senior Managed Care
- Medicare
Advantage $1,190 $580 $620 $2,250 $2,450
Medicare Part D (3) 1,100 400 430 1,850 2,000
Traditional
Insurance 235 110 115 455 470
Senior
Administrative
Services 45 20 23 84 90
Corporate /
Eliminations (30) (20) (22) (70) (80)
--------- --------- --------- --------- ---------
Total Revenue $2,540 $1,090 $1,166 $4,569 $4,930
========= ========= ========= ========= =========
Membership
End of quarter
Membership
PDP's 1,802,000 1,800,000 1,820,000 1,800,000 1,820,000
Private Fee-
for-Service 188,000 183,000 190,000 183,000 190,000
HMOs 55,600 53,000 56,000 52,000 56,000
--------- --------- --------- --------- ---------
Total 2,044,600 2,036,000 2,066,000 2,035,000 2,066,000
========= ========= ========= ========= =========
Medicare Advantage
HMO loss ratio 77.9% 76.0% 78.5% 76.0% 78.5%
Medicare Advantage
PFFS loss ratio 87.7% 86.0% 88.0% 86.0% 88.0%
(1) Assumes weighted average diluted shares outstanding of 86.4
million in 3Q 2008 and 88.2 million for full year 2008 and no
additional share repurchases.
(2) Excluding realized gains/losses.
(3) Includes Community CCRx, Prescription Pathway and equity income of
Part D Management Services, Inc.
Conference Call
Universal American will host a conference call at 9:30 a.m.
Eastern Time on Friday, August 1, 2008, to discuss the second quarter
results and other corporate developments. Interested parties may
participate in the call by dialing 706-679-0770. Please call in 10
minutes before the scheduled time and ask for the Universal American
call. This conference call will also be available live over the
Internet and can be accessed at Universal American's website at
www.universalamerican.com. To listen to the live call on the website,
please go to the website at least 15 minutes early to download and
install any necessary audio software. We will archive the conference
call; if you are unable to listen live, you can access it from the
investor relations area of the Company's website for approximately 60
days.
Prior to the conference call, Universal American will make
available on its website supplemental financial data in connection
with its quarterly earnings release. You can access this supplemental
financial data at www.universalamerican.com (under the heading
"Investor Relations; Financial Reports").
About Universal American Corp.
Universal American offers a diverse range of healthcare products -
including health insurance, managed care, and prescription drug
benefits - through its subsidiaries. Its companies are collectively
among the leading providers of Medicare Advantage and Medicare
prescription drug plans in the U.S., as over 2 million seniors rely on
Universal American's products for their health or prescription drug
coverage. For more information on Universal American, please visit our
website at www.universalamerican.com.
Matters discussed in this news release and oral statements made
from time to time by representatives of Universal American may
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and the Federal
securities laws. Although Universal American believes that the
expectations reflected in any forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Forward-looking information is subject
to risks, trends and uncertainties that could cause actual results to
differ materially from those projected. Many of these factors are
beyond Universal American's ability to control or predict. Important
factors that may cause actual results to differ materially and could
impact Universal American and the statements contained in this news
release can be found in Universal American's filings with the
Securities and Exchange Commission, including quarterly reports on
Form 10-Q, current reports on Form 8-K and annual reports on Form
10-K. For forward-looking statements in this news release, Universal
American claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act
of 1995. Universal American assumes no obligation to update or
supplement any forward-looking statements, whether as a result of new
information, future events or otherwise.
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
In millions, except per share amounts
(Unaudited)
Three Months
Ended Six Months Ended
June 30, June 30,
Consolidated Results 2008 2007 2008 2007
-------------------------------- --------- ------- --------- ---------
Direct and assumed premiums $1,429.1 $866.3 $2,873.4 $1,670.5
========= ======= ========= =========
Net premiums and policyholder
fees $1,224.9 $670.3 $2,442.6 $1,258.2
Net investment income 19.5 26.6 43.8 49.0
Other income 10.9 6.9 22.8 13.1
Realized gains / (losses) (13.3) (0.3) (42.3) 1.6
-------- ------ -------- --------
Total revenues 1,242.0 703.5 2,466.9 1,321.9
-------- ------ -------- --------
Policyholder benefits 1,046.4 555.5 2,162.3 1,056.5
Interest credited to
policyholders 3.4 4.3 7.5 9.0
Change in deferred acquisition
costs 3.3 1.8 10.8 12.2
Amortization of present value of
future profits 9.9 1.9 11.8 4.0
Commissions and general
expenses, net of allowances 165.7 117.5 332.5 225.1
-------- ------ -------- --------
Total benefits and expenses 1,228.7 681.0 2,524.9 1,306.8
-------- ------ -------- --------
Income (loss) from continuing
operations before equity in
earnings of unconsolidated
subsidiary 13.3 22.5 (58.0) 15.1
Equity in earnings of
unconsolidated subsidiary 15.3 13.1 31.3 26.3
-------- ------ -------- --------
Income (loss) from continuing
operations before income taxes 28.6 35.6 (26.7) 41.4
Provision for income taxes (1) (0.2) (13.3) 9.1 (14.8)
--------- ------- --------- ---------
Net income (loss) $ 28.4 $ 22.3 $ (17.6) $ 26.6
========= ======= ========= =========
Per Share Data (Diluted)
-------------------------------- --------- ------- --------- ---------
Net income (loss) $ 0.32 $ 0.35 $ (0.20) $ 0.43
Weighted Average Shares
Outstanding 87.7 63.4 90.0 62.0
========= ======= ========= =========
See following page for explanation of footnotes.
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
In millions, except per share amounts
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
------------- --------------
Income (Loss) before Taxes by Segment 2008 2007 2008 2007
---------------------------------------- ------ ----- ------ ------
Senior Managed Care-Medicare Advantage $ 33.4 $20.3 $ 33.7 $ 26.3
Medicare Part D 10.6 9.2 (19.0) 14.2
Traditional Insurance 2.2 8.5 3.2 3.3
Senior Administrative Services 6.4 5.5 12.4 11.3
Corporate (10.7) (7.6) (14.7) (15.3)
Realized (losses) gains (13.3) (0.3) (42.3) 1.6
------ ----- ------ ------
Income (loss) from continuing
operations before income taxes $ 28.6 $35.6 $(26.7) $ 41.4
====== ===== ====== ======
BALANCE SHEET DATA June 30, December 31,
2008 2007
-------------------------------------------- ------------ ------------
Total cash and investments $ 1,554.2 $ 1,815.6
Total assets $ 3,904.7 $ 4,089.8
Total policyholder related liabilities $ 1,847.9 $ 1,800.7
Outstanding bank debt $ 322.4 $ 349.1
Other long term debt $ 110.0 $ 110.0
Total stockholders' equity $ 1,248.8 $ 1,351.1
Book value per common share $ 14.49 $ 14.66
Diluted weighted average shares outstanding-
year to date 90.0 71.5
Non-GAAP Financial Measures *
--------------------------------------------
Total stockholders' equity (excluding FAS
115) * $ 1,255.5 $ 1,351.2
Diluted book value per common share
(excluding FAS 115) * (2) $ 14.32 $ 14.40
Debt to total capital ratio * (3) 25.6% 25.4%
* Non-GAAP Financial Measures - See supplemental tables on the
following pages of this release for a reconciliation of these
items to financial measures calculated under U.S. generally
accepted accounting principles (GAAP).
(1) The effective tax rate for the quarter ended June 30, 2008 was
0.7% and was 37.4% for the same quarter of 2007. The effective
tax rate for the second quarter of 2008 includes release of a tax
valuation allowance relating to net deferred tax assets of $10.4
million for subprime impairment. Excluding net realized losses,
the effective tax rate for the quarter ended June 30, 2008 was
36.5% and was 37.5% for the same period in 2007. The effective
tax rate for the six months ended June 30, 2008 was 34.1% and was
35.7% for the same period in 2007. Excluding net realized losses,
the effective tax rate for the six months ended June 30, 2008 was
36.5% and was 35.8% for the same period in 2007.
(2) Diluted book value per common share (excluding FAS 115) represents
Total Stockholders' Equity, excluding accumulated other
comprehensive income (loss) ("FAS 115"), plus assumed proceeds
from the exercise of vested options, divided by the total shares
outstanding plus the shares assumed issued from the exercise of
vested options.
(3) The Debt to Total Capital Ratio is calculated as the ratio of the
sum of the Outstanding Bank Debt and Other Long Term Debt to the
sum of Stockholders' Equity (excluding FAS 115) plus Outstanding
Bank Debt plus Other Long Term Debt.
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
In millions, except per share amounts
(Unaudited)
Universal American uses both GAAP and non-GAAP financial measures to
evaluate the Company's performance for the periods presented in this
press release. You should not consider non-GAAP measures to be an
alternative to measurements required by GAAP. Because Universal
American's calculation of these measures may differ from the
calculation of similar measures used by other companies, investors
should be careful when comparing Universal American's non-GAAP
financial measures to those of other companies. The key non-GAAP
measures presented in our press release, including reconciliation to
GAAP measures, are set forth below.
Total Stockholders' Equity June 30, December 31,
(excluding FAS 115) 2008 2007
----------- ------------
Total stockholders' equity $ 1,248.8 $ 1,351.1
Less: Accumulated other comprehensive loss 6.7 0.1
----------- ------------
Total stockholders' equity (excluding FAS
115) $ 1,255.5 $ 1,351.2
=========== ============
Universal American uses total stockholders' equity (excluding FAS
115), as a basis for evaluating growth in equity on both an absolute
dollar basis and on a per share basis, as well as in evaluating the
ratio of debt to total capitalization. We believe that fluctuations in
stockholders' equity that arise from changes in unrealized
appreciation or depreciation on investments, as well as changes in the
other components of accumulated other comprehensive income, do not
relate to the core performance of Universal American's business
operations.
June 30, December 31,
Diluted Book Value per Common Share 2008 2007
------------ -------------
Total stockholders' equity $ 1,248.8 $ 1,351.1
Proceeds from assumed exercises of vested
options 9.3 24.5
------------ -------------
$ 1,258.1 $ 1,375.6
============ =============
Diluted common shares outstanding 88.3 95.6
============ =============
Diluted book value per common share $ 14.24 $ 14.39
============ =============
Total stockholders' equity (excluding FAS
115) $ 1,255.5 $ 1,351.2
Proceeds from assumed exercises of vested
options 9.3 24.5
------------ -------------
$ 1,264.8 $ 1,375.7
============ =============
Diluted common shares outstanding 88.3 95.6
============ =============
Diluted book value per common share
(excluding FAS 115) $ 14.32 14.40
============ =============
As noted above, Universal American uses total stockholders' equity
(excluding FAS 115), as a basis for evaluating growth in equity on a
per share basis. We believe that fluctuations in stockholders' equity
that arise from changes in unrealized appreciation or depreciation on
investments, as well as changes in the other components of accumulated
other comprehensive income, do not relate to the core performance of
Universal American's business operations.
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
In millions
(Unaudited)
June 30, December 31,
Debt to Total Capital Ratio 2008 2007
---------- ------------
Outstanding bank debt $ 322.4 $ 349.1
Other long term debt 110.0 110.0
---------- ------------
Total outstanding debt $ 432.4 $ 459.1
========== ============
Total stockholders' equity $ 1,248.8 $ 1,351.1
Outstanding bank debt 322.4 349.1
Other long term debt 110.0 110.0
---------- ------------
Total Capital $ 1,681.2 $ 1,810.2
========== ============
Debt to total capital ratio 25.7% 25.4%
========== ============
Total stockholders' equity (excluding FAS
115) $ 1,255.5 $ 1,351.2
Total outstanding bank debt 322.4 349.1
Total outstanding trust preferred securities 110.0 110.0
---------- ------------
Total Capital $ 1,687.9 $ 1,810.3
========== ============
Debt to total capital ratio (excluding
FAS 115) 25.6% 25.4%
========== ============
As noted above, Universal American uses total stockholders' equity
(excluding FAS 115), as a basis for evaluating the ratio of debt to
total capital. We believe that fluctuations in stockholders' equity
that arise from changes in unrealized appreciation or depreciation on
investments, as well as changes in the other components of accumulated
other comprehensive income, do not relate to the core performance of
Universal American's business operations.
CONTACT: Universal American Corp.
Robert A. Waegelein, Executive Vice President &
Chief Financial Officer, 914-934-8820
or
Investor Relations Counsel:
The Equity Group Inc.
www.theequitygroup.com
Linda Latman, 212-836-9609
SOURCE: Universal American Corp.