CYPRESS, Calif., April 29 /PRNewswire-FirstCall/ -- PacifiCare Health Systems, Inc. , today announced that reported net income for the first quarter ended March 31, 2004 was $67 million, or $0.71 per diluted share. This compares with reported net income of $71 million, or $0.96 per diluted share, for the first quarter of 2003. Results in the first quarter of 2003 included $40 million ($25 million net of tax, or $0.33 per diluted share) in favorable changes in estimates for health care costs in 2002 and prior periods. All EPS numbers in this release have been adjusted to reflect the 2-for-1 stock split that was effective January 20, 2004.
“The first quarter results demonstrated continued positive momentum that has carried over from the prior year, especially in our commercial business,” said Chairman and Chief Executive Officer Howard Phanstiel. “This is the third consecutive quarter of profitable commercial membership growth, and the first sequential increase in our Medicare+Choice membership in three years. We are encouraged by the outlook for the rest of 2004 and are pleased to be in a position to increase our net income estimates for the year to $296 to $306 million, which translates into diluted EPS of $3.07 to $3.17 based on an average of 96.6 million shares outstanding during 2004.”
This new net income guidance represents a 33% increase over 2003, after excluding the favorable reserve developments and the effect of equity clawback costs as the company previously disclosed for that year.
Revenue and Membership
First quarter 2004 revenue of $3.0 billion was 8.2% higher than the same quarter a year ago, primarily due to an increase in commercial premiums of 10% per member per month (PMPM) and senior premium increases of 5% PMPM. Additionally, commercial risk membership rose by 35,000, or 2%, sequentially and Medicare+Choice membership grew by 7,000 from the prior quarter.
Specialty and Other revenue grew 28% over the first quarter last year, primarily due to a 43% increase in revenue at the company’s pharmacy benefit management subsidiary, Prescription Solutions. This revenue growth was driven by an increase in unaffiliated membership, which rose by 630,000 or 35% year- over-year, and an increase in the mail order prescription fulfillment rate for total membership, which has risen from 19.5% to 24.5%.
Health Care Costs
The private sector commercial medical loss ratio (MLR) improved 130 basis points year-over year, to 83.6%. This was the result of the company’s continued pricing discipline and focus on health care cost management, as well as a shift in the mix of business to smaller groups that typically have lower MLRs.
The government sector senior MLR was up 160 basis points, to 86.6%, compared with the first quarter of last year. This is consistent with previously disclosed expectations for a full-year government sector senior MLR of 86.5% to 87.5%. Before the recent passage of new Medicare legislation, the company had already planned for an increase in this MLR to reflect a more normal seasonal pattern of utilization than in 2003. Additionally, the new legislation required that 100% of the increased funding for the Medicare+Choice program in 2004 be passed through to members and providers in the form of increased member benefits and provider payments, further increasing the MLR.
The first quarter consolidated medical loss ratio (MLR) of 85.1% increased 30 basis points from the first quarter of 2003 and was up 150 basis points sequentially.
Selling, General & Administrative Expenses
The SG&A expense ratio of 12.5% for the first quarter of 2004 increased by 30 basis points year-over-year, but decreased 230 basis points from the prior quarter. Two-thirds of the year-over-year rise in this ratio is attributable to an increase in stock-based compensation expense, which the company elected to expense beginning in 2003 in connection with Statements of Financial Accounting Standards No. 123.
Other Financial Data
Medical claims and benefits payable (MCBP) totaled $1.1 billion at March 31, 2004, which was approximately $77 million higher than the prior quarter, while the IBNR component of MCBP increased by $65 million, or 8%, sequentially.
Cash flow used in operations in the first quarter of 2004 was $218 million. However, adjusted cash flow from operations was $164 million, or 2.4 times net income, excluding the normal first quarter timing effect of the receipt of the January 2004 Medicare+Choice premium payment in December 2003.
Days claims payable for the first quarter compared to the prior quarter decreased to 40.6 days from 41.3 days. After excluding the non-risk, capitated portion of the company’s business, days claims payable decreased 4.3 days to 69.5. The decrease in days claims payable is due principally to the effect of favorable changes in estimates that occurred and were previously disclosed in 2003.
Conference Call, Webcast and Website Information
PacifiCare will host a conference call and webcast on Thursday, April 29, 2004 at 2:00 PM Pacific time, 5:00 PM Eastern, to discuss this release in further detail. Interested parties can access the live conference by dialing (800) 857-9879, password “PacifiCare”. A replay of the call will be available through May 20, 2004 at (800) 568-9697. Additionally, a live webcast of the call will be available at http://www.pacificare.com/. Click on About PacifiCare, Investor Relations, and then Conference Calls to access the link. In accordance with Regulation G, a reconciliation of GAAP results to non-GAAP measurements referred to in this release and during the conference call will be posted with the earnings press release on our website.
Risk Factors Regarding Forward-Looking Statements
The statements in this news release, including those made by Howard Phanstiel that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited to, the effects of the new Medicare legislation, the success of the company’s new commercial products and related increases in commercial membership, and statements related to 2004 earnings guidance. Important factors that could cause results to differ materially from those expected by management include, but are not limited to, failure to implement programs to achieve expected membership targets as a result of premiums or benefit adjustments, inability to execute cost control strategies, including medical management programs, actual medical claims differing from current estimates, inability to maintain required capital levels at the company’s regulated subsidiaries, inability to maintain profitability and growth at the company’s specialty businesses, provider financial problems or bankruptcy, provider contracts oversight relations and other matters, unexpected increases in competition, new regulations or laws relating to capitation, Medicare reimbursements, benefit mandates, service, utilization management, provider contracts and similar matters, inability of proposed new portfolio offerings to improve membership and profitability, the inability to comply with existing bank covenants, and earnings dilution caused by potential conversion of the company’s convertible debt into common stock. Additional information on factors, risks, and uncertainties that could potentially affect our financial results may be found in documents filed with the Securities and Exchange Commission.
PacifiCare Health Systems serves more than 3 million health plan members and approximately 9 million specialty plan members nationwide, and had annual revenues in 2003 of about $11 billion. PacifiCare is one of the nation’s largest consumer health organizations, offering individuals, employers and Medicare beneficiaries a variety of consumer-driven health care and life insurance products. Specialty operations include behavioral health, dental and vision, and complete pharmacy and medical management through its wholly owned subsidiary, Prescription Solutions. More information on PacifiCare Health Systems is available at http://www.pacificare.com/.
PacifiCare Health Systems, Inc. Membership Information (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, (In thousands, except per share amounts) 2004 2003 (1) Revenue: Commercial $1,386,318 $1,232,116 Senior 1,410,113 1,369,748 Specialty and other 149,847 116,743 Net investment income 17,845 20,988 Total operating revenue 2,964,123 2,739,595 Expenses: Health care services and other: Commercial 1,168,563 1,052,673 Senior 1,224,961 1,161,556 Specialty and other 81,072 61,534 Total health care services and other 2,474,596 2,275,763 Selling, general and administrative expenses 369,052 331,231 Operating income 120,475 132,601 Interest expense (10,817) (19,550) Income before income taxes 109,658 113,051 Provision for income taxes 42,657 42,281 Net income $67,001 $70,770 Weighted average common shares outstanding used to calculate basic earnings per share (2) 84,271 72,084 Basic earnings per share (2) $0.80 $0.98 Weighted average common shares and equivalents outstanding used to calculate diluted earnings per share (2) 95,463 74,010 Diluted earnings per share (2) $0.71 $0.96 OPERATING STATISTICS Medical loss ratio: Consolidated 85.1% 84.8% Private - Commercial 83.6% 84.9% Private - Senior 83.1% 63.1% Private - Consolidated 83.6% 84.6% Government - Senior 86.6% 85.0% Government - Consolidated 86.6% 85.0% Selling, general and administrative expenses as a percentage of operating revenue (excluding net investment income) 12.5% 12.2% Operating income as a percentage of operating revenue 4.1% 4.8% Effective tax rate 38.9% 37.4% (1) Presentation changes have been made to March 31, 2003 to conform to the 2004 presentation. (2) All applicable per share amounts reflect the retroactive effect of the two-for-one common stock split in the form of a stock dividend that was effective January 20, 2004 PACIFICARE HEALTH SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (In thousands) 2004 2003 (1) Operating activities: Net income $67,001 $70,770 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 12,016 11,260 Tax benefit realized upon exercise of stock-based compensation 9,811 236 Stock-based compensation expense 9,452 3,158 Amortization of intangible assets 4,946 5,566 Deferred income taxes 2,215 2,520 Amortization of notes receivable from sale of fixed assets (1,360) (1,368) Provision for doubtful accounts (1,220) 2,264 Amortization of capitalized loan fees 1,077 1,222 Loss on disposal of property, plant and equipment and other 205 2,540 Amortization of discount on 10 3/4% senior notes 71 109 Employee benefit plan contributions in treasury stock -- 1,363 Changes in assets and liabilities: Receivables, net (47,373) (33,519) Prepaid expenses and other assets (12,615) (35,706) Medical claims and benefits payable 77,000 56,200 Accounts payable and accrued liabilities 42,525 58,626 Unearned premium revenue (381,782) (402,293) Net cash flows used in operating activities $(218,031) $(257,052) Investing activities: (Purchase) sale of marketable securities, net $(58,689) $41,950 Sale (purchase) of marketable securities - restricted 29,190 (3,144) Purchase of property, plant and equipment (14,241) (9,977) Proceeds from the sale of property, plant and equipment -- 15 Net cash flows (used in) provided by investing activities $(43,740) $28,844 Financing activities: Proceeds from issuance of common stock $21,246 $2,898 Payments on software financing agreement (2,605) (1,089) Purchase of treasury stock (2,512) -- Principal payments on long-term debt (491) (20,200) Net cash flows provided by (used in) financing activities $15,638 $(18,391) Net decrease in cash and equivalents $(246,133) $(246,599) Beginning cash and equivalents 1,198,422 951,689 Ending cash and equivalents $952,289 $705,090 (1) Presentation changes have been made to March 31, 2003 to conform to the 2004 presentation. PACIFICARE HEALTH SYSTEMS, INC. BALANCE SHEET DATA (Unaudited) March 31, December 31, March 31, (in thousands) 2004 2003 2003 Assets: Cash, equivalents and marketable securities $2,380,435 $2,558,142 $1,898,559 Receivables, net 315,896 265,943 322,358 Property, plant and equipment, net 151,427 149,407 157,847 Goodwill and intangible assets, net 1,199,266 1,204,212 1,220,554 Other assets 420,340 441,600 417,860 Total assets $4,467,364 $4,619,304 $4,017,178 Liabilities and equity: Total medical claims and benefits payable $1,104,500 $1,027,500 $1,100,700 Current portion of long-term debt 6,232 7,496 107,229 Long-term debt 610,939 612,700 710,620 Other liabilities 778,288 1,120,071 690,818 Total stockholders’ equity 1,967,405 1,851,537 1,407,811 Total liabilities and equity $4,467,364 $4,619,304 $4,017,178 MEMBERSHIP DATA March 31, December 31, March 31, 2004 2003 2003 Commercial: HMO 1,973,100 1,994,800 2,039,700 PPO 240,000 183,500 99,700 Employer self-funded 26,900 24,600 29,900 2,240,000 2,202,900 2,169,300 Senior: M+C 689,000 682,300 706,600 Medicare Supplement 30,400 26,900 21,200 719,400 709,200 727,800 Total membership 2,959,400 2,912,100 2,897,100 Pharmacy benefit management (A) 5,385,300 4,983,500 4,693,100 Behavioral health (B) 3,789,600 3,660,100 3,778,200 Dental and vision (B) 807,800 719,600 694,700 (A) Pharmacy benefit management membership includes PacifiCare members that are in our commercial, M+C or Medicare Supplement plans. All of these members either have a prescription drug benefit or are able to purchase their prescriptions utilizing our retail network contracts or our mail service. (B) Behavioral health, dental and vision membership includes PacifiCare members in our commercial, M+C and Medicare Supplement that are also enrolled in our behavioral health, dental and/or vision plans.
PRNewswire -- April 29
PacifiCare Health Systems, Inc.
