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Anthem Reports Third Quarter 2019 Results

INDIANAPOLIS--(BUSINESS WIRE)--

  • Third quarter net income was $4.55 per share, including net negative adjustment items of $0.32 per share. Adjusted net income was $4.87* per share.
  • Operating revenue increased $3.5 billion, or 15.1 percent, over the prior year quarter to $26.4 billion.
  • Medical enrollment was 41.0 million members, an increase of 1.1 million members over the prior year quarter, driven by growth in the fully insured businesses.
  • The Company now expects full year net income to be greater than $18.45 per share. Full year adjusted net income is now expected to be greater than $19.40* per share.
  • Fourth quarter 2019 dividend of $0.80 per share declared to shareholders. 

Anthem, Inc. (ANTM) today announced third quarter financial results driven by strong revenue growth and improved operational execution.

"Anthem's third quarter results showed continued membership growth – together with strong operating revenue growth – giving us great momentum as we head into 2020," said Gail K. Boudreaux, President and CEO.

"I am pleased with our success to date as we remain committed to delivering a simpler, more affordable and more personalized healthcare experience for those we serve."

* Refer to the GAAP reconciliation tables.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled approximately 41.0 million members at September 30, 2019, an increase of 1.1 million, or 2.7 percent, from September 30, 2018. Total fully insured enrollment grew by 968 thousand lives, or 6.6 percent, and self-funded enrollment grew by 115 thousand lives, or 0.5 percent. Government Business enrollment increased by 864 thousand lives as the Company experienced growth in Medicaid and Medicare. Commercial & Specialty Business enrollment increased by 219 thousand lives driven by growth in the National and Individual businesses, partially offset by a decline in Local Group enrollment.

Medical enrollment increased sequentially by 132 thousand lives during the third quarter of 2019, reflecting growth in Medicaid and Medicare, partially offset by declines in Commercial & Specialty Business enrollment.

Operating Revenue: Operating revenue was $26.4 billion in the third quarter of 2019, an increase of $3.5 billion, or 15.1 percent, versus the prior year quarter. The increase in operating revenue reflected membership growth across our businesses, premium rate increases to cover overall cost trends, and growth in our value-added services, including our pharmacy and integrated health offerings. The increase was partially offset by the one year waiver of the health insurance tax in 2019.

Benefit Expense Ratio: The benefit expense ratio was 87.2 percent in the third quarter of 2019, an increase of 240 basis points from 84.8 percent in the prior year quarter. The increase, as expected, was primarily driven by the one year waiver of the health insurance tax in 2019.

Medical claims reserves established at December 31, 2018 developed in line with the Company’s expectation during the first nine months of 2019.

Medical Cost Trend: For the full year 2019, the Company continues to expect underlying Local Group medical cost trend will be in the range of 6.0% +/- 50 basis points.

Days in Claims Payable: Days in Claims Payable was 39.8 days as of September 30, 2019, an increase of 0.7 days from 39.1 days as of June 30, 2019.

SG&A Expense Ratio: The SG&A expense ratio was 12.9 percent in the third quarter of 2019, a decrease of 250 basis points from 15.4 percent in the third quarter of 2018. The decrease, as expected, was primarily driven by growth in operating revenue and the one year waiver of the health insurance tax in 2019.

Operating Cash Flow: Operating cash flow in the third quarter of 2019 was $1.7 billion, or 1.4 times net income, and an increase of $1.1 billion compared to the third quarter of 2018. Operating cash flow was $4.7 billion, or 1.2 times net income for the nine months ending September 30, 2019.

Share Repurchase Program: During the third quarter of 2019, the Company repurchased 2.4 million shares of its common stock for $644 million, or a weighted average price of $266.52. As of September 30, 2019, the Company had approximately $4.1 billion of Board-approved share repurchase authorization remaining.

Cash Dividend: During the third quarter of 2019, the Company paid a quarterly dividend of $0.80 per share, representing a distribution of cash totaling $204 million.

On October 22, 2019, the Audit Committee declared a fourth quarter 2019 dividend to shareholders of $0.80 per share. On an annualized basis, this equates to a dividend of $3.20 per share. The fourth quarter dividend is payable on December 20, 2019 to shareholders of record at the close of business on December 5, 2019.

Investment Portfolio & Capital Position: During the third quarter of 2019, the Company recorded net realized gains of $1 million and other-than-temporary impairment losses totaling $13 million. During the third quarter of 2018, the Company recorded net realized gains of $27 million and other-than-temporary impairment losses totaling $6 million.

As of September 30, 2019, the Company’s net unrealized gain position in the investment portfolio was $711 million, consisting of fixed maturity securities. As of September 30, 2019 cash and investments at the parent company totaled approximately $3.0 billion.

REPORTABLE SEGMENTS

Anthem, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid, Medicare, and Federal Health Products & Services businesses); and Other (comprised of IngenioRx, the Diversified Business Group, and corporate expenses not allocated to our other reportable segments).

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthem, Inc.

 

 

 

Reportable Segment Highlights

 

 

 

(Unaudited)

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

   

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

 

 

 

   

2019

 

2018

 

Change

 

 

2019

 

2018

 

Change

 

 

 

Operating Revenue

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Specialty Business

   

$9,284

 

 

$8,933

 

 

3.9

%

 

 

$28,093

 

 

$26,939

 

 

4.3

%

 

 

 

Government Business

   

15,955

 

 

13,979

 

 

14.1

%

 

 

46,419

 

 

40,951

 

 

13.4

%

 

 

 

Other

   

2,508

 

 

398

 

 

530.2

%

 

 

3,850

 

 

1,108

 

 

247.5

%

 

 

 

Eliminations

   

(1,303

)

 

(330

)

 

NM2

 

 

(2,353

)

 

(961

)

 

NM2

 

 

 

Total Operating Revenue1

   

$26,444

 

$22,980

 

15.1

%

 

 

$76,009

 

$68,037

 

11.7

%

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Gain / (Loss)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Specialty Business

   

$930

 

 

$834

 

 

11.5

%

 

 

$3,511

 

 

$3,284

 

 

6.9

%

 

 

 

Government Business

   

616

 

 

456

 

 

35.1

%

 

 

1,471

 

 

1,477

 

 

(0.4

)%

 

 

 

Other

   

(18

)

 

(41

)

 

NM2

 

 

(81

)

 

(85

)

 

NM2

 

 

 

Total Operating Gain1

   

$1,528

 

$1,249

 

22.3

%

 

 

$4,901

 

 

$4,676

 

 

4.8

%

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Specialty Business

   

10.0

%

 

9.3

%

 

70 bp

 

 

12.5

%

 

12.2

%

 

30 bp

 

 

 

Government Business

   

3.9

%

 

3.3

%

 

60 bp

 

 

3.2

%

 

3.6

%

 

(40) bp

 

 

 

Total Operating Margin1

   

5.8

%

 

5.4

%

 

40 bp

 

 

6.4

%

 

6.9

%

 

(50) bp

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) See “Basis of Presentation” herein.
(2) "NM" = calculation not meaningful.

Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $930 million in the third quarter of 2019, an increase of $96 million, or 11.5 percent, from $834 million in the third quarter of 2018. The increase is primarily driven by greater penetration of value-added services, including our pharmacy and integrated health offerings, partially offset by unfavorable reserve development.

Government Business: Operating gain in the Government Business segment was $616 million in the third quarter of 2019, an increase of $160 million, or 35.1 percent, from $456 million in the third quarter of 2018. The increase is driven by improved medical cost performance in Medicaid partially offset by the one year waiver of the health insurance tax.

Other: The Company reported an operating loss of $18 million in the Other segment for the third quarter of 2019, compared with an operating loss of $41 million in the prior year quarter.

OUTLOOK

Full Year 2019:

  • GAAP net income is now expected to be greater than $18.45 per share, including approximately $0.95 per share of net unfavorable items. Excluding these items, adjusted net income is now expected to be greater than $19.40*.
  • Medical membership is now expected to be approximately 41.0 million. Fully-insured membership is now expected to be approximately 15.6 million and self-funded membership now is expected to be approximately 25.4 million.
  • Operating revenue is now expected to be approximately $103.0 billion, including premium revenue of $94.0 billion - $95.0 billion.
  • Benefit expense ratio is now expected to be in the range of 86.5% - 86.8%.
  • SG&A ratio is now expected to be in the range of 13.0% - 13.3%.
  • Operating cash flow is now expected to be greater than $5.5 billion.
  • Share count is now expected to be approximately 260 - 261 million.

* Refer to the GAAP reconciliation tables.

Basis of Presentation

  1. Operating revenue and operating gain are the key measures used by management to evaluate performance in each of its reporting segments, allocate resources, set incentive compensation targets and to forecast future operating performance. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense. It does not include net investment income, net realized gains/losses on financial instruments, other-than-temporary impairment losses recognized in income, interest expense, amortization of other intangible assets, gains/losses on extinguishment of debt or income taxes, as these items are managed in a corporate shared service environment and are not the responsibility of operating segment management. Refer to the GAAP reconciliation tables.
  2. Operating margin is defined as operating gain divided by operating revenue.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time (“EDT”) to discuss the company’s third quarter results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:

877-260-8898 (Domestic)

800-475-6701 (Domestic Replay)

612-332-0530 (International)

320-365-3844 (International Replay)

An access code is not required for today’s conference call. The access code for the replay is 432048. The replay will be available from 11:00 a.m. EDT today, until the end of the day on November 6, 2019. The call will also be available through a live webcast at www.antheminc.com under the “Investors” link. A webcast replay will be available following the call.

About Anthem, Inc.

Anthem is a leading health benefits company dedicated to improving lives and communities, and making healthcare simpler. Through its affiliated companies, Anthem serves more than 77 million people, including over 40 million within its family of health plans. We aim to be the most innovative, valuable and inclusive partner. For more information, please visit www.antheminc.com or follow @AnthemInc on Twitter.

Anthem, Inc.

Membership Summary

(Unaudited and in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change from

Medical Membership

September 30,

2019

 

September 30,
2018

 

December 31,

2018

 

September 30,
2018

 

December 31,
2018

Customer Type

 

 

 

 

 

 

 

 

 

Local Group

15,659

 

 

15,688

 

 

15,733

 

 

(0.2

)%

 

(0.5

)%

Individual

711

 

 

692

 

 

655

 

 

2.7

%

 

8.5

%

 

 

 

 

 

 

 

 

 

 

National:

 

 

 

 

 

 

 

 

 

National Accounts

7,666

 

 

7,610

 

 

7,588

 

 

0.7

%

 

1.0

%

BlueCard®

5,967

 

 

5,794

 

 

5,838

 

 

3.0

%

 

2.2

%

Total National

13,633

 

 

13,404

 

 

13,426

 

 

1.7

%

 

1.5

%

 

 

 

 

 

 

 

 

 

 

Medicare:

 

 

 

 

 

 

 

 

 

Medicare Advantage

1,203

 

 

992

 

 

1,006

 

 

21.3

%

 

19.6

%

Medicare Supplement

893

 

 

837

 

 

846

 

 

6.7

%

 

5.6

%

Total Medicare

2,096

 

 

1,829

 

 

1,852

 

 

14.6

%

 

13.2

%

 

 

 

 

 

 

 

 

 

 

Medicaid

7,293

 

 

6,731

 

 

6,716

 

 

8.3

%

 

8.6

%

Federal Health Products & Services

1,592

 

 

1,557

 

 

1,556

 

 

2.2

%

 

2.3

%

Total Medical Membership

40,984

 

 

39,901

 

 

39,938

 

 

2.7

%

 

2.6

%

Funding Arrangement

 

 

 

 

 

 

 

 

 

Self-Funded

25,368

 

 

25,253

 

 

25,287

 

 

0.5

%

 

0.3

%

Fully-Insured

15,616

 

 

14,648

 

 

14,651

 

 

6.6

%

 

6.6

%

Total Medical Membership

40,984

 

 

39,901

 

 

39,938

 

 

2.7

%

 

2.6

%

Reportable Segment

 

 

 

 

 

 

 

 

 

Commercial & Specialty Business

30,003

 

 

29,784

 

 

29,814

 

 

0.7

%

 

0.6

%

Government Business

10,981

 

 

10,117

 

 

10,124

 

 

8.5

%

 

8.5

%

Total Medical Membership

40,984

 

 

39,901

 

 

39,938

 

 

2.7

%

 

2.6

%

Other Membership

 

 

 

 

 

 

 

 

 

Life and Disability Members

4,970

 

 

4,701

 

 

4,795

 

 

5.7

%

 

3.6

%

Dental Members

5,942

 

 

5,804

 

 

5,807

 

 

2.4

%

 

2.3

%

Dental Administration Members

5,526

 

 

5,367

 

 

5,327

 

 

3.0

%

 

3.7

%

Vision Members

7,232

 

 

6,906

 

 

6,946

 

 

4.7

%

 

4.1

%

Medicare Part D Standalone Members

285

 

 

312

 

 

309

 

 

(8.7

)%

 

(7.8

)%

Anthem, Inc.

Consolidated Statements of Income

(Unaudited)

 

 

 

 

 

 

 

(In millions, except per share data)

 

Three Months Ended
September 30

 

 

 

 

2019

 

2018

 

Change

Revenues

 

 

 

 

 

 

Premiums

 

$

23,793

 

 

$

21,451

 

 

10.9

%

Administrative fees and other revenue

 

2,651

 

 

1,529

 

 

73.4

%

Total operating revenue

 

26,444

 

 

22,980

 

 

15.1

%

Net investment income

 

242

 

 

250

 

 

(3.2

)%

Net realized gains on financial instruments

 

1

 

 

27

 

 

(96.3

)%

Other-than-temporary impairment losses on investments:

 

 

 

 

 

 

Total other-than-temporary impairment losses on investments

 

(14

)

 

(8

)

 

NM

Portion of other-than-temporary impairment losses recognized in other comprehensive income

 

1

 

 

2

 

 

(50.0

)%

Other-than-temporary impairment losses recognized in income

 

(13

)

 

(6

)

 

NM

 

 

 

 

 

 

 

Total revenues

 

26,674

 

 

23,251

 

 

14.7

%

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Benefit expense

 

20,753

 

 

18,185

 

 

14.1

%

Cost of products sold

 

745

 

 

 

 

NM

Selling, general and administrative expense

 

3,418

 

 

3,546

 

 

(3.6

)%

Interest expense

 

185

 

 

188

 

 

(1.6

)%

Amortization of other intangible assets

 

84

 

 

91

 

 

(7.7

)%

Gain on extinguishment of debt

 

 

 

(1

)

 

NM

 

 

 

 

 

 

 

Total expenses

 

25,185

 

 

22,009

 

 

14.4

%

 

 

 

 

 

 

 

Income before income tax expense

 

1,489

 

 

1,242

 

 

19.9

%

 

 

 

 

 

 

 

Income tax expense

 

306

 

 

282

 

 

8.5

%

 

 

 

 

 

 

 

Net income

 

$

1,183

 

 

$

960

 

 

23.2

%

 

 

 

 

 

 

 

Net income per diluted share

 

$

4.55

 

 

$

3.62

 

 

25.7

%

 

 

 

 

 

 

 

Diluted shares

 

260.0

 

 

265.4

 

 

(2.0

)%

 

 

 

 

 

 

 

Benefit expense as a percentage of premiums

 

87.2

%

 

84.8

%

 

240

bp

Selling, general and administrative expense as a percentage of total operating revenue

 

12.9

%

 

15.4

%

 

(250

)bp

Income before income taxes as a percentage of total revenue

 

5.6

%

 

5.3

%

 

30

bp

 

"NM" = calculation not meaningful

Anthem, Inc.

Consolidated Statements of Income

(Unaudited)

 

 

 

 

 

 

 

(In millions, except per share data)

 

Nine Months Ended
September 30

 

 

 

 

2019

 

2018

 

Change

Revenues

 

 

 

 

 

 

Premiums

 

$

70,137

 

 

$

63,602

 

 

10.3

%

Administrative fees and other revenue

 

5,872

 

 

4,435

 

 

32.4

%

Total operating revenue

 

76,009

 

 

68,037

 

 

11.7

%

Net investment income

 

737

 

 

708

 

 

4.1

%

Net realized gains on financial instruments

 

90

 

 

5

 

 

NM

Other-than-temporary impairment losses on investments:

 

 

 

 

 

 

Total other-than-temporary impairment losses on investments

 

(36

)

 

(20

)

 

NM

Portion of other-than-temporary impairment losses recognized in other comprehensive income

 

6

 

 

2

 

 

NM

Other-than-temporary impairment losses recognized in income

 

(30

)

 

(18

)

 

NM

 

 

 

 

 

 

 

Total revenues

 

76,806

 

 

68,732

 

 

11.7

%

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Benefit expense

 

60,403

 

 

52,959

 

 

14.1

%

Cost of products sold

 

843

 

 

 

 

NM

Selling, general and administrative expense

 

9,862

 

 

10,402

 

 

(5.2

)%

Interest expense

 

556

 

 

564

 

 

(1.4

)%

Amortization of other intangible assets

 

256

 

 

265

 

 

(3.4

)%

(Gain) loss on extinguishment of debt

 

(1

)

 

17

 

 

NM

 

 

 

 

 

 

 

Total expenses

 

71,919

 

 

64,207

 

 

12.0

%

 

 

 

 

 

 

 

Income before income tax expense

 

4,887

 

 

4,525

 

 

8.0

%

 

 

 

 

 

 

 

Income tax expense

 

1,014

 

 

1,200

 

 

(15.5

)%

 

 

 

 

 

 

 

Net income

 

$

3,873

 

 

$

3,325

 

 

16.5

%

 

 

 

 

 

 

 

Net income per diluted share

 

$

14.83

 

 

$

12.58

 

 

17.9

%

 

 

 

 

 

 

 

Diluted shares

 

261.1

 

 

264.3

 

 

(1.2

)%

 

 

 

 

 

 

 

Benefit expense as a percentage of premiums

 

86.1

%

 

83.3

%

 

280

bp

Selling, general and administrative expense as a percentage of total operating revenue

 

13.0

%

 

15.3

%

 

(230

)bp

Income before income taxes as a percentage of total revenue

 

6.4

%

 

6.6

%

 

(20

)bp

 

"NM" = calculation not meaningful

Anthem, Inc.

Consolidated Balance Sheets

 

(In millions)

September 30,
2019

 

December 31,
2018

Assets

(Unaudited)

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

4,190

 

 

$

3,934

 

Fixed maturity securities, current

19,960

 

 

16,692

 

Equity securities, current

2,300

 

 

1,493

 

Other invested assets, current

10

 

 

21

 

Accrued investment income

168

 

 

162

 

Premium receivables

4,782

 

 

4,465

 

Self-funded receivables

2,555

 

 

2,278

 

Other receivables

2,870

 

 

2,558

 

Income taxes receivable

91

 

 

10

 

Securities lending collateral

465

 

 

604

 

Other current assets

2,113

 

 

2,104

 

Total current assets

39,504

 

 

34,321

 

 

 

 

 

Long-term investments:

 

 

 

Fixed maturity securities

518

 

 

487

 

Equity securities

29

 

 

33

 

Other invested assets

3,914

 

 

3,726

 

Property and equipment, net

2,921

 

 

2,735

 

Goodwill

20,500

 

 

20,504

null