Why is there a gap between GAAP and adjusted EPS this quarter?

The adjusted EPS of $7.15 excludes $0.37 per share of direct response costs related to the Change Healthcare cyberattack (before tax effects of $0.09), and it also adds back intangible amortization. The $0.12 per share of business disruption impacts is reduced revenue, so it is not included in the net earnings adjustment but is disclosed separately. Investors should weigh both GAAP and adjusted figures, since cyberattack costs have been significant.

What drove the increase in the medical care ratio?

The medical care ratio rose to 85.2% from 82.3% a year earlier. Management cited previously noted CMS Medicare funding reductions, the absence of favorable medical reserve development in the quarter, and changes in business and member mix. Days claims payable also rose to 47.4 from 45.2 in the second quarter, due to a return to more normal claims submission patterns from providers.

Did UnitedHealth change its 2024 earnings outlook?

The adjusted EPS outlook of $27.50 to $27.75 remains within the prior $27.50 to $28.00 range, even though Change Healthcare business disruption impacts are now estimated at about $0.75 per share, roughly $0.10 higher than the previous estimate. The GAAP EPS outlook of $15.50 to $15.75 reflects the South America disposition losses and cyberattack impacts.

How strong is the company's cash generation and capital return?

Third quarter operating cash flow was $14.0 billion, or 2.2 times net income, though management noted this partly reflected the timing of cash receipts. Over the first nine months of 2024, the company returned more than $9.6 billion to shareholders through dividends and share repurchases, and reported a 26.3% return on equity for the quarter.

What is the status of membership and business growth?

UnitedHealthcare's commercial domestic offerings grew to 29.7 million consumers, up 2.4 million year to date, and Medicare Advantage enrollment reached 7.8 million. Optum Health revenue grew $2.1 billion to $25.9 billion, and the Optum Insight contract backlog reached $32.8 billion, up from $31.6 billion a year earlier.

UNH 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed October 15, 2024. Cited figures are marked; the original filing is the authoritative source.

UnitedHealth Group reported third quarter 2024 results on October 15, 2024, with revenue of $100.8 billion^a, up $8.5 billion year over year, driven by growth in people served at Optum and UnitedHealthcare.

GAAP diluted EPS was $6.51^b, and adjusted EPS was $7.15, which excludes $0.12 of Change Healthcare business disruption impacts and $0.28 of cyberattack direct response costs. Earnings were pressured by a higher medical care ratio of 85.2% (versus 82.3% a year earlier), which management attributed to Medicare funding reductions, medical reserve development effects, and business and member mix. The company recorded no favorable reserve development in the quarter.

Full-year 2024 guidance was set at GAAP EPS of $15.50 to $15.75^c and adjusted EPS of $27.50 to $27.75. Management said the adjusted range remains within the $27.50 to $28.00 range set about a year earlier, even after absorbing an estimated $0.75 per share of business disruption impacts from the Change Healthcare cyberattack, up roughly $0.10 from the prior estimate. The GAAP outlook reflects the first-half South America disposition activities, which produced a large loss for the nine months (a $8.3 billion loss on sale of subsidiary and subsidiaries held for sale).

Cash flow and capital returns were solid. Third quarter operating cash flow was $14.0 billion^d, or 2.2 times net income, partly due to timing of cash receipts. Through the first nine months, the company returned over $9.6 billion to shareholders through dividends and share repurchases.

Return on equity was 26.3%. Operating cost efficiency improved, with the operating cost ratio at 13.2% versus 15.0% a year earlier. Investors will likely focus on medical cost trends, reserve development, and the ongoing cyberattack costs, which the filing indicates are not yet fully resolved.

02—Key points

Key Highlights

Q3 2024 revenue of $100.8 billion grew $8.5 billion (about 9%) year over year, led by Optum (+$7.2 billion) and UnitedHealthcare (+$5.0 billion).
GAAP diluted EPS was $6.51 versus $6.24 a year earlier; adjusted EPS was $7.15 versus $6.56, excluding cyberattack-related costs and impacts.
Medical care ratio rose to 85.2% from 82.3% a year ago, reflecting Medicare funding reductions, lack of favorable reserve development, and mix shifts.
Full-year 2024 adjusted EPS outlook of $27.50 to $27.75 was maintained within the prior range, despite an estimated $0.75 per share in Change Healthcare business disruption impacts.
Full-year 2024 GAAP EPS outlook of $15.50 to $15.75 reflects the South America disposition activity and cyberattack impacts.
Operating cash flow was $14.0 billion in Q3 (2.2x net income), and the company returned over $9.6 billion to shareholders in the first nine months of 2024.
Commercial domestic consumers served grew 2.4 million year to date to 29.7 million, while Optum Rx adjusted scripts reached about 407 million in the quarter, up from 383 million a year earlier.

03—Questions

Frequently Asked Questions

Why is there a gap between GAAP and adjusted EPS this quarter?
The adjusted EPS of $7.15 excludes $0.37 per share of direct response costs related to the Change Healthcare cyberattack (before tax effects of $0.09), and it also adds back intangible amortization. The $0.12 per share of business disruption impacts is reduced revenue, so it is not included in the net earnings adjustment but is disclosed separately. Investors should weigh both GAAP and adjusted figures, since cyberattack costs have been significant.
What drove the increase in the medical care ratio?
The medical care ratio rose to 85.2% from 82.3% a year earlier. Management cited previously noted CMS Medicare funding reductions, the absence of favorable medical reserve development in the quarter, and changes in business and member mix. Days claims payable also rose to 47.4 from 45.2 in the second quarter, due to a return to more normal claims submission patterns from providers.
Did UnitedHealth change its 2024 earnings outlook?
The adjusted EPS outlook of $27.50 to $27.75 remains within the prior $27.50 to $28.00 range, even though Change Healthcare business disruption impacts are now estimated at about $0.75 per share, roughly $0.10 higher than the previous estimate. The GAAP EPS outlook of $15.50 to $15.75 reflects the South America disposition losses and cyberattack impacts.
How strong is the company's cash generation and capital return?
Third quarter operating cash flow was $14.0 billion, or 2.2 times net income, though management noted this partly reflected the timing of cash receipts. Over the first nine months of 2024, the company returned more than $9.6 billion to shareholders through dividends and share repurchases, and reported a 26.3% return on equity for the quarter.
What is the status of membership and business growth?
UnitedHealthcare's commercial domestic offerings grew to 29.7 million consumers, up 2.4 million year to date, and Medicare Advantage enrollment reached 7.8 million. Optum Health revenue grew $2.1 billion to $25.9 billion, and the Optum Insight contract backlog reached $32.8 billion, up from $31.6 billion a year earlier.

04—Continue

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