Coventry Health Care Reports Record First Quarter Earnings of $1.09 pe

    Business Editors/Healthcare Editors

    BETHESDA, Md.--(BUSINESS WIRE)--May 3, 2005--Coventry Health Care, Inc. (NYSE:CVH) today reported operating results for the quarter ended March 31, 2005. Operating revenues totaled $1.57 billion for the quarter, a 21.5% increase over the first quarter of 2004. Net earnings were $112.7 million, or $1.09 per diluted share, a 51.6% increase over net earnings for the first quarter of 2004 and a 32.9% increase on a per diluted share basis. The quarter includes results from Coventry's First Health acquisition for the period from when the transaction closed on January 28, 2005 through March 31, 2005.
    "I am delighted with the progress our Company made in the first quarter of 2005," said Dale B. Wolf, chief executive officer of Coventry. "Our health plan earnings came in slightly ahead of plan, First Health revenue is settling in as expected, and operations and expense reduction progress is either at or ahead of schedule in almost all areas. Overall, our opportunities and prospects have never been better."

Consolidated First Quarter Highlights

-- Revenues up 21.5% over the prior year quarter

-- EPS up 32.9% over the prior year quarter

-- First Health $0.04 or 3.8% accretive in Q1 2005

-- Cash flow from operations of $217.3 million or 193% of net income

Health Plan Business First Quarter Highlights:

-- Health Plan Membership up 0.7% over the prior year quarter

-- Revenues up 10.5% over the prior year quarter

-- Medical Loss Ratio (MLR) of 79.8% improves 150 basis points over prior year quarter

-- SGA ratio of 11.2% is an improvement of 40 basis points over the prior year quarter

-- Operating Margin of 10.4%, up 180 basis points over the prior year quarter

-- Membership. As of March 31, 2005, Coventry had total health plan membership of 2.45 million members, an increase of 18,000 members, or 0.7%, over the prior year quarter and a decrease of 60,000 members over the prior quarter due to previously announced large group losses primarily in the St. Louis marketplace.

-- Health Plan Insured Commercial Rate Increases. Commercial insured yields rose to $242.10 PMPM (per member per month) in the quarter, an increase of 9.0% over the prior year quarter. The Company expects the 2005 commercial risk yield increase, net of benefit buydowns, to be in the range of 9.5% to 10.5%. Rate increases are expected to rise during the year as there is a higher mix of small group renewals than in the first quarter.

-- Medical Loss Ratio (MLR). Health Plan MLR was 79.8%, a 150 basis point improvement over the prior year quarter, primarily driven by Medicare results. Commercial MLR of 78.8% improved 60 basis points, Medicare MLR of 82.2% improved 670 basis points, and Medicaid MLR of 83.4% improved 350 basis points.

-- Selling, General & Administrative (SG&A) Expenses. SG&A expenses were 11.2% of operating revenues for the quarter, an improvement of 40 basis points over the prior year quarter. SG&A PMPM of $21.68 is an increase of 5.6% over the prior year quarter.

-- Balance Sheet. Net Premium Accounts Receivable of $86.5 million represent 5.5 days of sales outstanding (DSO) with the Health Plan commercial only DSO running at 4.4 days. Days in Claims Payable (DCP) were 54.0 compared to the prior quarter of 55.8. Reduction in DCP was primarily due to timing of claim payments and reduction of inventory levels from the prior quarter.

First Health Businesses First Quarter Highlights

The First Health acquisition closed on January 28, 2005 and therefore only results from January 28, 2005 through March 31, 2005 are included in Coventry's first quarter financial statements.

-- Revenues. Overall revenues of $141.9 million were consistent with Coventry's seasonally-adjusted expectations. Revenues by business line are contained in the First Health operating statistics schedule included with this press release.

-- Selling, General & Administrative (SG&A) Expenses. SG&A expenses were 65.3% of operating revenues for the quarter. Since the transaction closed on January 28, 2005, 213 positions have been eliminated, and an additional 255 positions have been notified of termination to become effective before the end of the year. Coventry is on track to achieve the $25 million of synergies for 2005 outlined in previous guidance.

-- Revenue Guidance. Overall revenue for 2005 for the First Health businesses is expected to be between $885 million and $905 million on a full year basis. Due to the timing of the closing on January 28, 2005, Coventry expects to realize approximately 11/12 of the full year estimate in calendar year 2005 results. This timing adjustment also applies to the First Health business specific guidance provided below.

-- Federal Employees Health Benefits (FEHB). Final January open enrollment results were slightly better than expected with 262,000 actual subscribers enrolled versus an expected enrollment of 260,000 subscribers. The 262,000 subscribers results in total Mail Handlers' membership of 483,000. Total revenue in 2005 is expected to be between $220 million and $230 million on a full year basis.

-- Corporate/ National Accounts. Total revenue in 2005 for Corporate/National Accounts is expected to be between $155 million and $165 million on a full year basis. As of March 31, 2005, the National Accounts business is comprised of approximately 806,000 members in 130 customer accounts.

-- Network Rental. Total revenue in 2005 for the Network Rental business is expected to be between $95 million and $105 million on a full year basis.

-- Workers' Compensation. Total revenue in 2005 for the Workers' Compensation business is expected to be between $215 million and $225 million on a full year basis.

-- Medicaid/Public Sector. Total revenue in 2005 for the Medicaid/Public Sector business is expected to be between $185 million and $195 million on a full year basis.

Consolidated 2005 Guidance Details

Q2 2005 Guidance

-- Total Revenues of $1.64 billion to $1.68 billion

-- Earnings per share (EPS) on a diluted basis of $1.12 to $1.14

2005 Full Year Guidance

-- Risk revenues in the range of $5.78 billion to $5.88 billion

-- Management services revenues of $875.0 million to $925.0 million

-- Medical loss ratio (MLR) of 80.0% to 81.0% of risk revenues

-- Selling, general, and administrative expenses (SG&A) of $1.15 billion to $1.17 billion

-- Depreciation and amortization expense of $85.0 million to $95.0 million

-- Investment income of $45.0 million to $48.0 million

-- Interest expense of $56.0 million to $60.0 million

-- Tax rate of 37.0 % to 37.5%

-- Diluted share count of 107.5 million to 108.5 million shares

-- Earnings per share (EPS) on a diluted basis of $4.48 to $4.58
    Mr. Wolf will host a conference call at 8:30 a.m. EST on Tuesday, May 3, 2005. To listen to the call, dial toll-free at (800) 810-0924 or, for international callers, (913) 981-4900. Callers will be asked to identify themselves and their affiliations. The conference call will also be broadcast over the Internet at www.cvty.com. Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission (SEC). A replay of the call will be available for one week at (888) 203-1112, or for international callers, (719) 457-0820. The access code is 4360719.

    This press release may contain forward-looking statements, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, relating to future events or future financial performance. Actual performance may be significantly impacted by certain risks and uncertainties, including those described in Coventry's Annual Report on Form 10-K for the year ended December 31, 2004.

    Coventry Health Care is a national managed health care company based in Bethesda, Maryland operating health plans, insurance companies, network rental / managed care services companies, and workers' compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services, including HMO, PPO, POS, Medicare Advantage, Medicaid, Workers' Compensation and Network Rental to a broad cross section of employer and government-funded groups, government agencies, and other insurance carriers and administrators in all 50 states as well as the District of Columbia and Puerto Rico. More information is available on the Internet at www.cvty.com and www.firsthealth.com.

COVENTRY HEALTH CARE, INC. HEALTH PLAN MEMBERSHIP (Amounts in thousands)

March 31, December 31, March 31, 2005 2004 2004 ------------ ------------ ------------

Health Plan Membership By Market Delaware 101 102 103 Georgia 70 73 82 Illinois - Central 86 87 86 Iowa 64 66 74 Kansas City 209 209 213 Louisiana 76 76 73 Michigan 63 62 0 Nebraska 47 50 49 North Carolina 118 119 123 Pennsylvania 723 740 716 St. Louis 451 495 488 Utah 195 187 179 Virginia 170 169 163 West Virginia 76 74 82 ------------------------------- ------------ ------------ ------------ Total Health Plans 2,449 2,509 2,431 ------------------------------- ------------ ------------ ------------

Membership By Product:

Fully-Insured Commercial 1,429 1,483 1,479 Medicare 73 69 67 Medicaid 403 397 335 ------------------------------- ------------ ------------ ------------ Total Fully Insured 1,905 1,949 1,881

Administrative Services Only 544 560 550

------------------------------- ------------ ------------ ------------ Total Membership 2,449 2,509 2,431 =============================== ============ ============ ============

COVENTRY HEALTH CARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data)

Quarters Ended March 31, ------------------------- 2005 2004 ------------ ------------ (unaudited) (unaudited) Operating revenues: Health Plan fully insured premiums $ 1,394,439 $ 1,259,581 Health Plan management services 28,892 28,386 First Heath fully insured premiums 6,932 0 First Health management services 134,937 0 ------------ ------------ Total operating revenues 1,565,200 1,287,967 ------------ ------------

Operating expenses: Medical costs - Health Plans 1,112,981 1,023,738 Medical costs - First Health 6,168 0 Selling, general, administrative - Health Plans 159,090 149,210 Selling, general, administrative - First Health 92,647 0 Depreciation and amortization 15,840 4,309 ------------ ------------ Total operating expenses 1,386,726 1,177,257 ------------ ------------

Operating earnings 178,474 110,710 Operating earnings percentage of total revenues 11.4% 8.6%

Debt interest and amortization expense 12,908 3,572 Other income, net 13,957 10,841 ------------ ------------

Earnings before income taxes 179,523 117,979

Provision for income taxes 66,872 43,652 ------------ ------------ Net earnings $ 112,651 $ 74,327 ============ ============

Net earnings per share, basic $ 1.12 $ 0.85 Net earnings per share, diluted $ 1.09 $ 0.82

Weighted average shares outstanding, basic 100,753 87,920 Weighted average shares outstanding, diluted 103,298 90,622

COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)

March 31, December 31, 2005 2004 ------------ ------------ (unaudited) Assets:

Current assets: Cash and cash equivalents $ 318,465 $ 417,636 Short-term investments 426,148 349,722 Accounts receivable, net 213,431 104,924 Other receivables, net 82,573 47,070 Deferred income taxes 59,856 37,368 Other current assets 32,402 16,307 -------------------------------------------- ------------ ------------ Total current assets 1,132,875 973,027

Long-term investments 1,059,290 960,379 Property and equipment, net 318,889 32,193 Goodwill 1,576,142 280,615 Other intangible assets, net 444,634 38,491 Other long-term assets 65,064 55,895 -------------------------------------------- ------------ ------------ Total assets $ 4,596,894 $ 2,340,600 ============================================ ============ ============

Liabilities and Stockholder's Equity

Current liabilities: Medical liabilities $ 712,516 $ 660,475 Accounts payable and accrued liabilities 361,917 211,809 Deferred revenue 115,825 59,536 Current portion of long-term debt 30,000 0 -------------------------------------------- ------------ ------------ Total current liabilities 1,220,258 931,820

Long-term debt 998,000 170,500 Other long-term liabilities 255,341 25,854 -------------------------------------------- ------------ ------------ Total liabilities 2,473,599 1,128,174 -------------------------------------------- ------------ ------------

Stockholders' equity 2,123,295 1,212,426 -------------------------------------------- ------------ ------------ Total liabilities and stockholders' equity $ 4,596,894 $ 2,340,600 ============================================ ============ ============

COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in thousands) (unaudited)

Quarter Ended March 31, 2005 --------------

Cash flows from operating activities: Net earnings $ 112,651 Depreciation and amortization 15,840 Amortization of deferred compensation 4,642 Changes in assets and liabilities Accounts receivables, net 20,620 Medical liabilities 10,272 Accounts payable and accrued liabilities 26,112 Deferred revenue 29,213 Other operating activities (2,085) ------------------------------------------------------- -------------- Net cash flows from operating activities 217,265 ------------------------------------------------------- --------------

Cash flows from investing activities Capital expenditures, net (15,710) Payments for investments, net of sales and maturities (84,239) Payments for acquisitions, net of cash acquired (863,454) ------------------------------------------------------- -------------- Net cash flows from investing activities (963,403) ------------------------------------------------------- --------------

Cash flows from financing activities Proceeds from issuance of stock 4,322 Proceeds from issuance of debt 850,145 Payments for retirement of debt (207,500) ------------------------------------------------------- -------------- Net cash flows from financing activities 646,967 ------------------------------------------------------- --------------

Net change in cash and cash equivalents for current period (99,171) Cash and cash equivalents at beginning of period 417,636 ------------------------------------------------------- -------------- Cash and cash equivalents at end of period $ 318,465 ======================================================= ==============

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Cash and Investments: Cash and cash equivalents $ 318,465 Short-term investments 426,148 Long-term investments 1,059,290 ------------------------------------------------------- -------------- Total cash and investments $ 1,803,903 ======================================================= ==============

COVENTRY HEALTH CARE, INC. SELECTED OPERATING STATISTICS HEALTH PLAN ONLY (Unaudited, excluding charges)

Total Q1 2005 2004 --------- ---------

Revenue PMPM Commercial 242.10 226.59 Medicare 768.60 695.96 Medicaid 157.46 145.23 Management Fees 17.71 17.10

Medical PMPM Commercial 190.71 179.21 Medicare 631.85 579.92 Medicaid 131.33 126.88

MLR % Commercial 78.8% 79.1% Medicare 82.2% 83.3% Medicaid 83.4% 87.4% --------- --------- Total 79.8% 80.5%

SGA % of revenues 11.2% 11.5% SGA PMPM 21.68 20.81

Claims Statistics Claims Inventory 139,462 Inventory Days on Hand 1.4 Total Medical Liabilities (000's) $668,132 Total Days in Medical Liabilities 54.03

Member Growth Same Store (60,000) 64,000 Acquisition 0 62,000

Total Q4 2004 Q3 2004 Q2 2004 Q1 2004 2003 --------- --------- --------- --------- ---------

Revenue PMPM Commercial 231.36 228.36 224.56 222.08 206.08 Medicare 707.74 698.82 693.74 683.12 629.52 Medicaid 153.43 143.87 140.61 141.49 139.69 Management Fees 17.37 16.68 17.06 17.28 17.86

Medical PMPM Commercial 181.17 182.12 177.19 176.36 164.59 Medicare 592.51 541.55 579.18 607.02 527.84 Medicaid 136.98 122.86 122.80 122.98 122.25

MLR % Commercial 78.3% 79.8% 78.9% 79.4% 79.9% Medicare 83.7% 77.5% 83.5% 88.9% 83.8% Medicaid 89.3% 85.4% 87.3% 86.9% 87.5% --------- --------- --------- --------- --------- Total 80.4% 80.1% 80.3% 81.3% 81.2%

SGA % of revenues 11.3% 11.6% 11.6% 11.6% 12.0% SGA PMPM 20.78 21.05 20.86 20.54 20.60

Claims Statistics Claims Inventory 149,263 143,645 161,212 142,080 128,556 Inventory Days on Hand 1.6 1.5 1.7 1.5 1.2 Total Medical Liabilities (000's) $660,475 $646,277 $644,652 $645,017 $597,190 Total Days in Medical Liabilities 55.80 56.99 56.96 57.33 56.69

Member Growth Same Store 1,000 (12,000) 27,000 48,000 157,000 Acquisition 62,000 0 0 0 191,000

COVENTRY HEALTH CARE, INC. SELECTED OPERATING STATISTICS FIRST HEALTH & CONSOLIDATED COVENTRY (Unaudited, excluding charges)

Q1 Total 2005 2004 ---------------- ---------

FIRST HEALTH --------------------

Membership National Accounts 806,000 n/a Mail Handlers 483,000 n/a

Member Growth National Accounts n/a n/a Federal Employees n/a n/a

Revenues By Product Line (000s) National Accounts 26,595 n/a FEHBP 30,295 n/a Network Rental 17,836 n/a Medicaid / Public Sector 30,727 n/a Workers' Compensation 36,416 n/a -------------------------- Total First Health Revenues 141,869 n/a

SGA % of revenues 65.3% n/a

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CONSOLIDATED COVENTRY --------------------

Operating income % of revenues 11.4% 9.4%

SGA % of revenues 16.1% 11.5%

Debt (millions) 8.125% Senior Notes due 2/15/12 170.5 170.5 5.875% Senior Notes due 1/15/12 250.0 0 6.125% Senior Notes due 1/15/15 250.0 0 Current Term Loan Facility 30.0 0 Long-Term Term Loan Facility 262.5 0 Drawn Revolving Credit Facility 65.0 0 -------------------------- Total Debt (a) 1,028.0 170.5

Stockholder's Equity (b) 2,123.3 Total Capital (c=a+b) 3,151.3

Debt to capital ratio (a/c) 32.6%

Total Q4 2004 Q3 2004 Q2 2004 Q1 2004 2003 -------------------------------------------------

FIRST HEALTH --------------------

Membership National Accounts n/a n/a n/a n/a n/a Mail Handlers n/a n/a n/a n/a n/a

Member Growth National Accounts n/a n/a n/a n/a n/a Federal Employees n/a n/a n/a n/a n/a

Revenues By Product Line (000s) National Accounts n/a n/a n/a n/a n/a FEHBP n/a n/a n/a n/a n/a Network Rental n/a n/a n/a n/a n/a Medicaid / Public Sector n/a n/a n/a n/a n/a Workers' Compensation n/a n/a n/a n/a n/a ------------------------------------------------- Total First Health Revenues n/a n/a n/a n/a n/a

SGA % of revenues n/a n/a n/a n/a n/a

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CONSOLIDATED COVENTRY --------------------

Operating income % of revenues 9.7% 9.6% 9.4% 8.6% 8.1%

SGA % of revenues 11.3% 11.6% 11.6% 11.6% 12.0%

Debt (millions) 8.125% Senior Notes due 2/15/12 170.5 170.5 170.5 170.5 170.5 5.875% Senior Notes due 1/15/12 0 0 0 0 0 6.125% Senior Notes due 1/15/15 0 0 0 0 0 Current Term Loan Facility 0 0 0 0 0 Long-Term Term Loan Facility 0 0 0 0 0 Drawn Revolving Credit Facility 0 0 0 0 0 ------------------------------------------------- Total Debt (a) 170.5 170.5 170.5 170.5 170.5

Stockholder's Equity (b) 1,212.4 1,104.1 1,003.2 927.1 929.0 Total Capital (c=a+b) 1,382.9 1,274.6 1,173.7 1,097.6 1,099.5

Debt to capital ratio (a/c) 12.3% 13.4% 14.5% 15.5% 15.5%

--30--SF/ph*

CONTACT: Coventry Health Care, Inc., Bethesda Shawn M. Guertin, 301-581-5701 or John Stelben, 301-581-5729

KEYWORD: MARYLAND INDUSTRY KEYWORD: INSURANCE MEDICAL BANKING EARNINGS CONFERENCE CALLS SOURCE: Coventry Health Care, Inc.

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