Unitedhealth Group, Inc., Q4 2009 Earnings Call, Jan-21-2010 - NYSE:UNH

NYSE:UNH

During the UnitedHealth Group's Q4 2009 Earnings Call, Rick Jelinek provided the following comments:

1. AmeriChoice Business Update:
   • Rick noted that the AmeriChoice business had a strong year and is well-positioned.
   • He mentioned that the strategic positioning of diversifying the portfolio so that the company is not overly reliant on any single customer or product line has been effective.
   • Regarding the outlook, he feels good about the current positioning and the breadth of the state contracts.
   • He acknowledged that some states will continue to face challenges but mentioned that about 40% of the 2010 calendar year rates are already locked in.
   • Rick stated that they will closely monitor certain markets to ensure that revenue meets medical trend requirements and, if necessary, work with states on benefit designs or other structural changes for long-term sustainability.

These remarks were in response to a question about the AmeriChoice business and how it is performing geographically, including any challenging markets or better results in specific areas.

Stephen J. Hemsley, the Non-Independent Non-Executive Chairman of UnitedHealth Group, provided a comprehensive overview of the company’s performance and strategies during the Q4 2009 Earnings Call. Below is a detailed list of his statements:

Opening Remarks

• Financial Performance Overview:

  • UnitedHealth Group achieved solid fourth quarter results with earnings per share of $0.81 and operating cash flows of $1.3 billion.
  • Full year 2009 results included revenues of over $87 billion, representing 7% year-over-year growth, earnings of $3.24 per share, and cash flows from operations of $5.6 billion, which improved year-over-year by 10% and 16% respectively.
  • Cash flows were 1.5 times net earnings.
  • Despite facing significant obstacles, including higher unemployment, low short-term investment yields, the H1N1 outbreak, and other challenges, the company maintained strong performance.

• Key Performance Metrics:

  • All key performance metrics for the quarter were in line or improved relative to expectations.
  • Performance drivers included disciplined commercial pricing, effective management of medical and operating costs, strong membership growth and market share gains, and double-digit percentage revenue growth in services businesses.

• Customer Satisfaction:

  • Satisfaction levels improved meaningfully for consumers, physicians and care providers, employers and benefit sponsors, brokers, and consultants.
  • Proactive engagement with regulators, medical societies, and elected officials had a meaningful and positive impact.

• Service and Response Metrics:

  • Service and response metrics, processing and response accuracy, all improved steadily each quarter.

• Integration Efforts:

  • 93% of total commercial, public, and senior membership now resides on end-state operating platforms, with a target of 95% by the end of 2010.

• Innovation:

  • The company introduced the Diabetes Health Plan, the Consumer Activation Index, the Personalized Health Score, the integrated eSync personalized care platform, and the Connected Care telehealth program.
  • Advanced clinically integrated premium networks across 20 clinical specialties in the majority of markets.
  • Piloting new types of physician incentives and developing medical home programs.

• Local Market Insights:

  • UnitedHealthcare is benefiting from its work to more effectively translate local market insights to national level initiatives and vice versa, leading to stronger local market relationships and more effective local market deployment of new products.

• Employee Engagement:

  • Employee engagement levels advanced by 600 basis points over the past 24 months.

• Health Services Businesses:

  • Health Services businesses continued to steadily diversify, edging into market adjacencies such as revenue and claim cycle management, consumer health change consulting services, global employee assistance, and prescription decision support in Europe, while strengthening positions in Electronic Health Record software.

• Financial Position:

  • Reduced debt-to-total capital ratio by more than eight percentage points over the past 18 months to 32%.
  • Announced a $750 million debt tender offer for a portion of notes, expected to improve financial flexibility and reduce net debt service cost in 2010.

Business Model Evolution

• Business Model Diversification:
  • In 2000, UnitedHealth Group’s business was about 60% Commercial Benefits, 35% Public and Senior Benefits, and 5% Health Services.
  • Entering 2010, the company sees over $90 billion of revenues with approximately 40% in Commercial Benefits, 40% in Public and Senior Benefits, and 20% in Health Services.
  • Over the next decade, the company sees opportunities to further diversify into healthcare IT services, healthcare financial services, deeper integration with primary care, and international markets.

Health Services Businesses Growth

• Revenue Growth:
  • Combined revenues in Health Services businesses grew to $21.8 billion, a 13% year-over-year increase.
  • Earnings from operations of $1.6 billion increased 20% over the previous year.
  • Prescription Solutions’ revenues reached nearly $14.5 billion, a 15% year-over-year gain, with pretax earnings growing 90% to $689 million.
  • Ingenix increased revenues 17% in 2009 to $1.8 billion and earnings from operations to nearly $250 million, after significant investments in start-up efforts.

Health Benefits Businesses

• Membership Decline:

  • More than half of the 2009 commercial membership decline was driven by attrition.
  • Fourth quarter commercial enrollment was slightly ahead of the Investor Day outlook, posting underlying growth of 40,000 members before employment-related attrition.
  • Full year commercial decline was offset by stronger-than-expected growth in the Medicare and Medicaid markets.

• Revenue and Cost Management:

  • Health Benefits revenues increased 7% to more than $81 billion.
  • Effectively managed both medical and operating cost trends, with capabilities becoming more mature and consistent.

Outlook

• Early 2010 Indicators:

  • Momentum from 2009 is carrying through in the earliest 2010 indicators.
  • Expect first quarter commercial membership to be slightly stronger than the Investor Day outlook.
  • First quarter net growth in Medicare Advantage is expected to be above 100,000 seniors, with strong mix towards network-based products and 225,000 Part D stand-alone participants.
  • First quarter Medicaid membership should grow in the area of 100,000 to 125,000 people.

• Consolidated Revenue and Earnings Outlook:

  • Expects consolidated 2010 revenues to grow above $90 billion.
  • Reconfirmed 2010 earnings outlook at $2.90 to $3.10 per share, not including any proposed federal healthcare reform elements.
  • Believes the earnings range to be appropriate given Medicare and Medicaid rate pressures, the loss of Part D performance-based pricing, ongoing COBRA costs, and lower commercial membership levels.

Future Opportunities

• 2011 and Beyond:
  • Will factor in business and market changes driven by healthcare reform and modernization.
  • Believes coverage will expand, and increasing healthcare costs will continue to make the work to promote access to quality care even more important.
  • Strong market demand for affordable quality care will create the next generation of growth in markets.
  • Focus on fundamental execution and intelligent adaptation.

Closing Remarks

• Operational Strength:

  • Entering 2010 as an operating enterprise much stronger than at the beginning of 2009.

  • Respectful of the challenges facing the company in 2010.

  • Well-positioned for the next generation of growth over the next several years.