10-QPeriod: Q2 FY2010

Elevance Health, Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 28, 2010For Securities:ELV

Summary

Elevance Health, Inc. (formerly WellPoint, Inc.) reported its financial results for the quarter ending June 30, 2010. The company experienced a decrease in total operating revenue, primarily driven by the conversion of a large municipal account to a self-funded status and the transition of some UniCare members to HCSC. This revenue decline was partially offset by higher premium revenues to cover cost trends and growth in Medicare Advantage and Federal Employee Program membership. Net income saw a modest increase of 4% year-over-year for the quarter, benefiting from improved operating results in the Commercial segment, increased realized investment gains, and lower other-than-temporary impairment losses. Diluted EPS also showed a significant 20% increase, largely attributed to a reduction in outstanding shares due to an active share repurchase program. The company highlighted its strong financial position with substantial cash and investment holdings, though operating cash flow was negatively impacted by a large tax payment related to a prior divestiture.

Financial Highlights

49 data points
Beta

Revenue

$14.43B

Net Income

$722.40M

5.0% Net Margin

EPS (Diluted)

$1.71

Total Assets

$50.16B

Cash & Equivalents

$2.03B

Free Cash Flow

$153.50M

Financial Statements
Beta
Revenue$14.43B
SG&A Expenses$2.15B
Operating Income$1.06B
Interest Expense$100.20M
Net Income$722.40M
EPS (Basic)$1.73
EPS (Diluted)$1.71
Shares Outstanding (Basic)417.30M
Shares Outstanding (Diluted)421.80M

Key Highlights

  • 1Total operating revenue for the quarter decreased by 7% to $14.2 billion compared to the prior year quarter, primarily due to membership changes and a large municipal account conversion.
  • 2Net income increased by 4% to $722.4 million, while diluted EPS grew by 20% to $1.71, driven by improved segment performance and share buybacks.
  • 3The company repurchased approximately 28.8 million shares for $1.5 billion during the quarter, continuing its active share repurchase program.
  • 4Benefit expense decreased by 7% year-over-year, largely mirroring the decline in premiums due to membership shifts.
  • 5Selling, general, and administrative expenses saw a slight decrease of 1%, but the SG&A expense ratio increased due to lower operating revenue.
  • 6Other-than-temporary impairment losses recognized in income significantly decreased year-over-year, contributing positively to net income.
  • 7The company's Commercial segment reported improved operating gain and margin, while the Consumer and Other segments experienced declines in operating gain.

Frequently Asked Questions

The primary drivers for the revenue decline were the conversion of a large municipal account from fully-insured to self-funded status, the transition of certain UniCare members to HCSC, a decline in fully-insured membership in Local Group and National Accounts due to economic conditions, and the loss of Medicare Part D Low-Income Subsidy (LIS) membership. These were partially offset by higher premium revenues and growth in Medicare Advantage and FEP membership.

The company continued its active share repurchase program, repurchasing approximately 28.8 million shares for $1.5 billion during the quarter. This reduced the number of outstanding shares, leading to a significant 20% increase in diluted Earnings Per Share (EPS) to $1.71, despite a more modest increase in net income.

Elevance Health acknowledges the significant changes introduced by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. While many provisions are still awaiting detailed guidance, the company is evaluating their potential impact, which could significantly affect future operations, including potential impairments of goodwill and intangible assets. Certain provisions are expected to impact revenue, costs, and pricing strategies.

The company reported an increase in net realized gains on investments, primarily from the sale of fixed maturity securities, which more than offset net realized losses on equity securities. Importantly, other-than-temporary impairment losses recognized in income significantly decreased compared to the prior year, contributing positively to net income.