Anthem Reports Fourth Quarter and Full Year 2018 Results Reflecting Strong Core Performance

|Business Wire|About: ANTM
  • Fourth quarter net income was $1.61 per share, including net negative adjustment items of $0.83 per share. Adjusted net income was $2.44 per share.
  • Full year net income was $14.19 per share, including net negative adjustment items of $1.70 per share. Adjusted net income was $15.89 per share.
  • Medical enrollment increased by 37 thousand members sequentially to 39.9 million members.
  • Operating gain grew by 30% year-over-year to $5.4 billion in 2018.
  • IngenioRx now scheduled to launch in 2Q 2019.
  • Full year 2019 net income is expected to be greater than $18.00 per share, an increase of 27% versus 2018 net income per share. Adjusted net income is expected to be greater than $19.00* per share, an increase of 20% versus 2018 adjusted net income per share.
  • Quarterly dividend increased by 6.7% to $0.80 per share.

INDIANAPOLIS--(BUSINESS WIRE)-- Anthem, Inc. (ANTM) reported fourth quarter and full year 2018 financial results that reflected enhanced performance across the core businesses and increasing operating momentum.

"In 2018, we achieved our objectives of improving execution and strengthening our value proposition with innovative and affordable solutions designed to more effectively meet the unique needs of our customers," said Gail K. Boudreaux, President and CEO. "Our fourth quarter and full year performance provides a strong foundation for 2019. In addition, I am pleased to announce that we are accelerating the launch of IngenioRx and now expect to begin transitioning members in the second quarter of this year. Since announcing our intent to create IngenioRx, we have been carefully planning the transition, including the possibility of an early launch, and are confident in our ability to execute the transition under the accelerated schedule. This will allow us to go to market with better economics earlier, and also accelerate our whole person health strategy, which is proven to reduce total cost of care."

Anthem continues to expect gross annual savings through IngenioRx of greater than $4 billion, with more than 20% of that amount being returned to our shareholders. The Company, pursuant to the terms of its pharmacy benefits management services agreement with Express Scripts, Inc. (ESRX) (the "PBM Agreement"), has provided notice to Express Scripts that it will exercise its contractual rights to terminate the PBM Agreement earlier than the original expiration date of December 31, 2019 due to the recent acquisition of Express Scripts by Cigna Corporation. As a result of exercising our early termination rights, the PBM Agreement will now terminate on March 1, 2019 and the twelve month transition period to migrate the business will begin on March 2, 2019.

Anthem expects its full year 2019 adjusted net income to be greater than $19.00* per share, which reflects the benefit from the accelerated launch of IngenioRx, including expected expenses related to the revised transition schedule.

* Refer to the GAAP reconciliation tables.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled approximately 39.9 million members at December 31, 2018, an increase of 37 thousand members from September 30, 2018. Commercial & Specialty Business enrollment increased by 30 thousand members, as the Company experienced growth in the fully insured and fee-based Local Group businesses and growth in the National business. The increase was partially offset by a decline in Individual enrollment. Government Business enrollment increased by 7 thousand members, driven by growth in Medicare that was partially offset by a decrease in Medicaid membership.

Medical enrollment declined by 361 thousand members from 40.3 million members at December 31, 2017. The decrease reflected declines due to a reduced footprint in the Individual ACA-compliant marketplace and declines in Local Group enrollment. These declines were partially offset by growth in the Medicare, National, and Medicaid businesses.

Operating Revenue: Operating revenue was $23.3 billion in the fourth quarter of 2018, an increase of $857 million, or 3.8 percent, versus $22.4 billion in the prior year quarter. The growth in operating revenue reflected premium rate increases to cover overall cost trends and the return of the health insurance tax in 2018 as well as growth in Medicare. The increase was partially offset by a reduced footprint in the Individual ACA-compliant marketplace.

Benefit Expense Ratio: The benefit expense ratio was 86.8 percent in the fourth quarter of 2018, a decrease of 180 basis points from 88.6 percent in the prior year quarter. The decrease, as expected, was largely driven by the return of the health insurance tax in 2018 and improved medical cost performance in our Commercial & Specialty Business.

Medical claims reserves established at December 31, 2017 developed moderately better than the Company’s expectation during 2018.

Medical Cost Trend: For the full year 2018, Local Group medical cost trend was approximately 5.9%. The Company anticipates medical cost trend will be in the range of 6.0% +/- 50 bps in 2019.

Days in Claims Payable: Days in Claims Payable (“DCP”) was 36.2 days as of December 31, 2018, a decrease of 2.5 days from 38.7 days as of September 30, 2018.

SG&A Expense Ratio: The SG&A expense ratio was 15.5 percent in the fourth quarter of 2018, an increase of 40 basis points from 15.1 percent in the fourth quarter of 2017. The increase, as expected, was primarily driven by the return of the health insurance tax in 2018, partially offset by expense efficiency initiatives.

Operating Cash Flow: Operating cash flow was $463 million, or 1.1 times net income in the fourth quarter of 2018, bringing full year 2018 operating cash flow to $3.8 billion, or 1.0 times net income.

Share Repurchase Program: During the fourth quarter of 2018, the Company repurchased 1.8 million shares of its common stock for $493 million, or a weighted average price of $270.66. For the full year, the Company repurchased 6.8 million shares of its common stock for $1.7 billion, or a weighted average price of $248.34. As of December 31, 2018, the Company had approximately $5.5 billion of Board-approved share repurchase authorization remaining.

Cash Dividend: During the fourth quarter of 2018, the Company paid a quarterly dividend of $0.75 per share, representing a distribution of cash totaling $193 million.

On January 29, 2019, the Audit Committee declared a first 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 first quarter dividend is payable on March 29, 2019 to shareholders of record at the close of business on March 18, 2019.

Investment Portfolio & Capital Position: During the fourth quarter of 2018, the Company recorded net realized losses on financial instruments totaling $185 million and other-than-temporary impairment losses totaling $8 million. During the fourth quarter of 2017, the Company recorded net realized gains of $7 million and other-than-temporary impairment losses totaling $12 million.

As of December 31, 2018, the Company’s net unrealized loss position in the investment portfolio was $201 million, consisting of fixed maturity securities. The adoption of a change in accounting standards has resulted in the Company accounting for unrealized changes in the value of equity securities in realized gains or losses. As of December 31, 2018 cash and investments at the parent company totaled approximately $1.9 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 and Medicare businesses, National Government Services, and the Federal Employee Program); and Other (comprised of certain eliminations and corporate expenses not allocated to either of our other reportable segments).

                         
Anthem, Inc.
Reportable Segment Highlights
(Unaudited)
           
(In millions) Three Months Ended December 31 Twelve Months Ended December 31
2018 2017 Change 2018 2017 Change
Operating Revenue
Commercial & Specialty Business $8,843 $10,006 (11.6 )% $35,782 $40,363 (11.3 )%
Government Business 14,462 12,444 16.2 % 55,567 48,702 14.1 %
Other (1 ) (3 ) NM2 (8 ) (4 ) NM2
Total Operating Revenue1 $23,304 $22,447 3.8 % $91,341 $89,061 2.6 %
 
Operating Gain / (Loss)
Commercial & Specialty Business $322 $67 380.6 % $3,629 $2,847 27.5 %
Government Business 444 360 23.3 % 1,895 1,445 31.1 %
Other (16 ) (46 ) NM2 (98 ) (117 ) NM2
Total Operating Gain1 $750 $381 96.9 % $5,426 $4,175 30.0 %
 
Operating Margin
Commercial & Specialty Business 3.6 % 0.7 % 290 bp 10.1 % 7.1 % 300 bp
Government Business 3.1 % 2.9 % 20 bp 3.4 % 3.0 % 40 bp
Total Operating Margin1 3.2 % 1.7 % 150 bp 5.9 % 4.7 % 120 bp
                                 

(1) See “Basis of Presentation.”

(2) "NM" = calculation not meaningful.

Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $322 million in the fourth quarter of 2018, an increase of $255 million, or 380.6 percent, from $67 million in the fourth quarter of 2017. The increase reflected improved medical cost performance and a decrease in certain general and administrative expenses compared to the prior year quarter.

Government Business: Operating gain in the Government Business segment was $444 million in the fourth quarter of 2018, an increase of $84 million, or 23.3 percent, from $360 million in the fourth quarter of 2017. The increase is a result of the acquisitions of HealthSun and America's 1st Choice and the return of the health insurer fee in 2018. The increase was partially offset by higher medical costs in the Medicaid business.

Other: The Company reported an operating loss of $16 million in the Other segment for the fourth quarter of 2018, compared with an operating loss of $46 million in the prior year quarter.

OUTLOOK

Full Year 2019:

  • GAAP net income is expected to be greater than $18.00 per share, including approximately $1.00 per share of net unfavorable items. Excluding these items, adjusted net income is expected to be greater than $19.00* per share.
  • Medical membership is expected to be in the range of 40,900,000 - 41,300,000. Fully-insured membership is expected to be in the range of 15,500,000 - 15,700,000 and self-funded membership is expected to be in the range of 25,400,000 - 25,600,000.
  • Operating revenue is expected to be approximately $100.0 billion, including premium revenue of $90.5 billion - $92.5 billion.
  • Benefit expense ratio is expected to be in the range of 86.2% plus or minus 30 basis points.
  • Cost of products sold of $1.6 billion - $1.8 billion.
  • SG&A ratio is expected to be in the range of 13.5% plus or minus 30 basis points.
  • Operating cash flow is expected to be greater than $5.2 billion.
  • Share count is expected to be between 261 - 263 million.
  • Effective tax rate is expected to be between 19.5% - 21.5%.
  • Investment income is expected to be $1.0 billion.

* 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 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 Standard Time (“EST”) to discuss the company’s fourth 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:

          800-230-1059 (Domestic)     800-475-6701 (Domestic Replay)
612-234-9960 (International) 320-365-3844 (International Replay)
 

An access code is not required for today’s conference call. The access code for the replay is 432041. The replay will be available from 11:00 a.m. EST today, until the end of the day on February 13, 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 74 million people, including nearly 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
December 31, December 31, September 30, December 31, September 30,

Medical Membership

2018 2017 2018 2017 2018
Customer Type
Local Group 15,733 15,888 15,688 (1.0 )% 0.3 %
Individual 655 1,588 692 (58.8 )% (5.3 )%
 
National:
National Accounts 7,588 7,463 7,610 1.7 % (0.3 )%
BlueCard® 5,838   5,733   5,794   1.8 % 0.8 %
Total National 13,426 13,196 13,404 1.7 % 0.2 %
 
Medicare:
Medicare Advantage 1,006 746 992 34.9 % 1.4 %
Medicare Supplement 846   823   837   2.8 % 1.1 %
Total Medicare 1,852 1,569 1,829 18.0 % 1.3 %
 
Medicaid 6,716 6,496 6,731 3.4 % (0.2 )%
FEP® 1,556   1,562   1,557   (0.4 )% (0.1 )%
Total Medical Membership 39,938   40,299   39,901   (0.9 )% 0.1 %
Funding Arrangement
Self-Funded 25,287 24,862 25,253 1.7 % 0.1 %
Fully-Insured 14,651   15,437   14,648   (5.1 )% %
Total Medical Membership 39,938   40,299   39,901   (0.9 )% 0.1 %
Reportable Segment
Commercial & Specialty Business 29,814 30,672 29,784 (2.8 )% 0.1 %
Government Business 10,124   9,627   10,117   5.2 % 0.1 %
Total Medical Membership 39,938   40,299   39,901   (0.9 )% 0.1 %

Other Membership

Life and Disability Members 4,795 4,700 4,701 2.0 % 2.0 %
Dental Members 5,807 5,864 5,804 (1.0 )% 0.1 %
Dental Administration Members 5,327 5,342 5,367 (0.3 )% (0.7 )%
Vision Members 6,946 6,867 6,906 1.2 % 0.6 %
Medicare Part D Standalone Members 309 318 312 (2.8 )% (1.0 )%
 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
     
Three Months Ended
(In millions, except per share data) December 31
2018 2017 Change
Revenues
Premiums $ 21,819 $ 21,087 3.5 %
Administrative fees and other revenue 1,485   1,360   9.2 %
Total operating revenue 23,304 22,447 3.8 %
Net investment income 262 240 9.2 %
Net realized (losses)/gains on financial instruments (185 ) 7 NM
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments (9 ) (12 ) (25.0 )%
Portion of other-than-temporary impairment losses recognized in other comprehensive income 1     NM
Other-than-temporary impairment losses recognized in income (8 ) (12 ) (33.3 )%
 
Total revenues 23,373 22,682 3.0 %
 
Expenses
Benefit expense 18,936 18,672 1.4 %
Selling, general and administrative expense 3,618 3,394 6.6 %
Interest expense 189 164 15.2 %
Amortization of other intangible assets 94 44 113.6 %
(Gain) loss on extinguishment of debt (6 ) 282   NM
 
Total expenses 22,831   22,556   1.2 %
 
Income before income tax expense 542 126 330.2 %
 
Income tax expense 118   (1,106 ) NM
 
Net income $ 424   $ 1,232   (65.6 )%
 
Net income per diluted share $ 1.61   $ 4.67   (65.5 )%
 
Diluted shares 264.2 263.3 0.3 %
 
Benefit expense as a percentage of premiums 86.8 % 88.6 % (180 )bp
Selling, general and administrative expense as a percentage of total operating revenue 15.5 % 15.1 % 40 bp
Income before income taxes as a percentage of total revenue 2.3 % 0.6 % 170 bp

(1) "NM" = calculation not meaningful

 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
     
Twelve Months Ended
(In millions, except per share data) December 31
2018 2017 Change
Revenues
Premiums $ 85,421 $ 83,648 2.1 %
Administrative fees and other revenue 5,920   5,413   9.4 %
Total operating revenue 91,341 89,061 2.6 %
Net investment income 970 867 11.9 %
Net realized (losses)/gains on financial instruments (180 ) 145 (224.1 )%
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments (29 ) (35 ) (17.1 )%
Portion of other-than-temporary impairment losses recognized in other comprehensive income 3   2   50.0 %
Other-than-temporary impairment losses recognized in income (26 ) (33 ) (21.2 )%
 
Total revenues 92,105 90,040 2.3 %
 
Expenses
Benefit expense 71,895 72,236 (0.5 )%
Selling, general and administrative expense 14,020 12,650 10.8 %
Interest expense 753 739 1.9 %
Amortization of other intangible assets 358 169 111.8 %
Loss on extinguishment of debt 11   282   (96.1 )%
 
Total expenses 87,037   86,076   1.1 %
 
Income before income tax expense 5,068 3,964 27.9 %
 
Income tax expense 1,318   121   989.3 %
 
Net income $ 3,750   $ 3,843   (2.4 )%
 
Net income per diluted share $ 14.19   $ 14.35   (1.1 )%
 
Diluted shares 264.2 267.8 (1.3 )%
 
Benefit expense as a percentage of premiums 84.2 % 86.4 % (220 )bp
Selling, general and administrative expense as a percentage of total operating revenue 15.3 % 14.2 % 110 bp
Income before income taxes as a percentage of total revenue 5.5 % 4.4 % 110 bp

(1) "NM" = calculation not meaningful

 
Anthem, Inc.
Consolidated Balance Sheets
 
  December 31,   December 31,
(In millions) 2018 2017
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 3,934 $ 3,609
Fixed maturity securities 16,692 17,377
Equity securities 1,493 3,599
Other invested assets, current 21 17
Accrued investment income 162 163
Premium receivables 4,465 3,605
Self-funded receivables 2,278 2,580
Other receivables 2,558 2,267
Income taxes receivable 10 342
Securities lending collateral 604 455
Other current assets 2,104   2,249  
Total current assets 34,321 36,263
 
Long-term investments:
Fixed maturity securities 487 561
Equity securities 33 33
Other invested assets 3,726 3,344
Property and equipment, net 2,735 2,175
Goodwill 20,504 19,231
Other intangible assets 9,007 8,368
Other noncurrent assets 758   565  
Total assets $ 71,571   $ 70,540  
 
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Policy liabilities:
Medical claims payable $ 7,454 $ 7,992
Reserves for future policy benefits 75 70
Other policyholder liabilities 2,590   2,950  
Total policy liabilities 10,119 11,012
Unearned income 902 860
Accounts payable and accrued expenses 4,959 5,024
Security trades pending payable 197 113
Securities lending payable 604 454
Short-term borrowings 1,145 1,275
Current portion of long-term debt 849 1,275
Other current liabilities 3,190   3,343  
Total current liabilities 21,965 23,356
 
Long-term debt, less current portion 17,217 17,382
Reserves for future policy benefits, noncurrent 706 647
Deferred tax liabilities, net 1,960 1,727
Other noncurrent liabilities 1,182   925  
Total liabilities 43,030   44,037  
 
Shareholders’ equity
Common stock 3 3
Additional paid-in capital 9,536 8,547
Retained earnings 19,988 18,054
Accumulated other comprehensive loss (986 ) (101 )
Total shareholders’ equity 28,541   26,503  
Total liabilities and shareholders’ equity $ 71,571   $ 70,540  
 
Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
   
(In millions) Twelve Months Ended December 31
2018 2017
Operating activities
Net income $3,750 $3,843
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses/(gains) on financial instruments 180 (145 )
Other-than-temporary impairment losses recognized in income 26 33
Loss on extinguishment of debt 11 282
Loss on disposal of assets 13 13
Deferred income taxes 91 (1,272 )
Amortization, net of accretion 1,008 780
Depreciation expense 119 111
Impairment of property and equipment 5 2
Share-based compensation 226 170
Changes in operating assets and liabilities:
Receivables, net (707 ) (22 )
Other invested assets (1 ) (36 )
Other assets (26 ) (629 )
Policy liabilities (1,059 ) 732
Unearned income (36 ) (120 )
Accounts payable and accrued expenses 134 922
Other liabilities (25 ) (120 )
Income taxes 323 (194 )
Other, net (205 ) (165 )
Net cash provided by operating activities 3,827 4,185
 
Investing activities
Purchases of fixed maturity securities (8,244 ) (9,795 )
Proceeds from sales and maturities of fixed maturity securities 8,380 9,780
Purchases of equity securities (896 ) (5,416 )
Proceeds from sales of equity securities 2,809 3,463
Purchases of other invested assets (531 ) (1,164 )
Proceeds from sales of other invested assets 411 219
Change in collateral and settlements of non-hedging derivatives 65
Changes in securities lending collateral (150 ) 625
Purchases of subsidiaries, net of cash acquired (1,760 ) (2,080 )
Net purchases of property and equipment (1,208 ) (791 )
Other, net (70 ) 12  
Net cash used in investing activities (1,259 ) (5,082 )
 
Financing activities
Net (repayments of)/proceeds from commercial paper borrowings (106 ) 175
Net (repayments of)/proceeds from short-term borrowings (130 ) 835
Net (repayments of)/proceeds from long-term borrowings (849 ) 2,643
Changes in securities lending payable 150 (625 )
Changes in bank overdrafts (210 ) 71
Proceeds from sale of put options 1
Premiums paid on equity call options (1 )
Proceeds from issuance of common stock under Equity Units stock purchase contracts 1,250
Repurchase and retirement of common stock (1,685 ) (1,998 )
Change in collateral and settlements of debt-related derivatives 24 (149 )
Cash dividends (776 ) (705 )
Proceeds from issuance of common stock under employee stock plans 173 225
Taxes paid through withholding of common stock under employee stock plans (81 ) (46 )
Net cash (used in)/provided by financing activities (2,241 ) 427
 
Effect of foreign exchange rates on cash and cash equivalents (2 ) 4  
 
Change in cash and cash equivalents 325 (466 )
Cash and cash equivalents at beginning of year 3,609   4,075  
 
Cash and cash equivalents at end of period $3,934   $3,609  
 
Anthem, Inc.
Reconciliation of Medical Claims Payable
 
  Years Ended December 31
2018   2017   2016
(In millions) (Unaudited)
 
Gross medical claims payable, beginning of year $ 7,814 $ 7,656 $ 7,360
Ceded medical claims payable, beginning of year (105 ) (539 ) (646 )
Net medical claims payable, beginning of year 7,709   7,117   6,714  
 
Business combinations and purchase adjustments 199 76
 
Net incurred medical claims:
Current year 69,581 70,377 64,868
Prior years redundancies(1) (930 ) (1,133 ) (835 )
Total net incurred medical claims 68,651   69,244   64,033  
 
Net payments attributable to:
Current year medical claims 62,748 62,923 57,879
Prior years medical claims 6,579   5,805   5,751  
Total net payments 69,327   68,728   63,630  
 
Net medical claims payable, end of year 7,232 7,709 7,117
Ceded medical claims payable, end of year 34   105   539  
Gross medical claims payable, end of year* $ 7,266   $ 7,814   $ 7,656  
 
Current year medical claims paid as a percentage of current year net incurred medical claims 90.2 % 89.4 % 89.2 %
 
Prior year redundancies in the current year as a percentage of prior year net medical claims payable less prior year redundancies in the current year 13.7 % 18.9 % 14.2 %
 
Prior year redundancies in the current year as a percentage of prior year net incurred medical claims 1.3 % 1.8 % 1.4 %
 
(1) Negative amounts reported for net incurred medical claims related to prior years result from claims being settled for
amounts less than originally estimated.
* Excludes insurance lines other than short duration.

       
Anthem, Inc.

GAAP Reconciliation

(Unaudited)

 

Anthem, Inc. has referenced “Adjusted Net Income” and “Adjusted Net Income Per Share,” which are non-GAAP measures, in this document. These non-GAAP measures are not intended to be alternatives to any measure calculated in accordance with GAAP. In addition to these non-GAAP measures, references are made to the measures “Operating Revenue” and “Operating Gain.” Each of these measures is provided to further aid investors in understanding and analyzing the company’s core operating results and comparing Anthem, Inc.’s financial results. A reconciliation of Operating Revenue to Total Revenue is set forth in the Consolidated Statements of Income herein. A reconciliation of the non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP, together with a reconciliation of reportable segments operating gain to income before income tax expense, is reported below. Prior amounts may be rounded differently to conform to current presentation.

 
 
Three Months Ended Twelve Months Ended
December 31 December 31
(In millions, except per share data) 2018   2017 Change 2018   2017 Change
Net income $ 424 $ 1,232 (65.6 )% $ 3,750 $ 3,843 (2.4 )%
Add / (Subtract):
Net realized losses/(gains) on financial instruments 185 (7 ) 180 (145 )
Amortization of other intangible assets 94 44 358 169
Other-than-temporary impairment losses recognized in income 8 12 26 33
(Gain)/Loss on extinguishment of debt (6 ) 282 11 282
Transaction related costs 9 9 166
2015 cyber attack litigation 115
Penn Treaty assessment costs 254
Income tax true-up of prior transaction costs (69 )
Deferred tax benefit from corporate tax reform (1,108 ) (1,108 )
Tax impact of non-GAAP adjustments (61 ) (125 ) (135 ) (316 )
Net adjustment items 220   (893 ) 449   (619 )
Adjusted net income $ 644   $ 339   90.0 % $ 4,199   $ 3,224   30.2 %
 
Net income per diluted share $ 1.61 $ 4.67 (65.5 )% $ 14.19 $ 14.35 (1.1 )%
Add / (Subtract):
Net realized losses/(gains) on financial instruments 0.70 (0.03 ) 0.68 (0.54 )
Amortization of other intangible assets 0.36 0.17 1.36 0.63
Other-than-temporary impairment losses recognized in income 0.03 0.05 0.10 0.12
(Gain)/Loss on extinguishment of debt (0.02 ) 1.07 0.04 1.05
Transaction related costs 0.03 0.03 0.62
2015 cyber attack litigation 0.43
Penn Treaty assessment costs 0.95
Income tax true-up of prior transaction costs (0.26 )
Deferred tax benefit from corporate tax reform (4.21 ) (4.14 )
Tax impact of non-GAAP adjustments (0.23 ) (0.47 ) (0.51 ) (1.18 )
Rounding Impact (0.01 ) 0.01     0.01  
Net adjustment items 0.83   (3.38 ) 1.70   (2.31 )
Adjusted net income per diluted share $ 2.44   $ 1.29   89.1 % $ 15.89   $ 12.04   32.0 %
 
Full Year 2019 Outlook
Net income per diluted share Greater than $18.00
Add / (Subtract):
Amortization of other intangible assets Approximately $1.30
Tax impact of non-GAAP adjustments Approximately ($0.30)
Net adjustment items Approximately $1.00
Adjusted net income per diluted share Greater than $19.00
 
Three Months Ended Twelve Months Ended
December 31 December 31
(In millions) 2018 2017 Change 2018 2017 Change
Reportable segments operating gain $ 750 $ 381 96.9 % $ 5,426 $ 4,175 30.0 %
Net investment income 262 240 970 867
Net realized gains/(losses) on financial instruments (185 ) 7 (180 ) 145
Other-than-temporary impairment losses recognized in income (8 ) (12 ) (26 ) (33 )
Interest expense (189 ) (164 ) (753 ) (739 )
Amortization of other intangible assets (94 ) (44 ) (358 ) (169 )
(Gain)/Loss on extinguishment of debt 6   (282 ) (11 ) (282 )
Income before income tax expense $ 542   $ 126   330.2 % $ 5,068   $ 3,964   27.9 %
 
Anthem, Inc.
Reclassified Membership Summary
(Unaudited and in Thousands)
       
Three Months Ended

Medical Membership

March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017
Customer Type
Local Group 15,714 15,720 15,875 15,888
Individual 1,886 1,779 1,696 1,588
 
National:
National Accounts 7,570 7,538 7,497 7,463
BlueCard® 5,868   5,775   5,704   5,733  
Total National 13,438 13,313 13,201 13,196

 

 
Medicare:

 

Medicare Advantage 672 683 697 746
Medicare Supplement 826   824   825   823  
Total Medicare 1,498 1,507 1,522 1,569
 
Medicaid 6,577 6,550 6,454 6,496

 

FEP® 1,573   1,569   1,564   1,562  

 

Total Medical Membership 40,686   40,438   40,312   40,299  

 

Funding Arrangement
Self-Funded 25,068 24,833 24,844 24,862

 

Fully-Insured 15,618   15,605   15,468   15,437  

 

Total Medical Membership 40,686   40,438   40,312   40,299  

 

Reportable Segment
Commercial & Specialty Business 31,038 30,812 30,772 30,672

 

Government Business 9,648   9,626   9,540   9,627  

 

Total Medical Membership 40,686   40,438   40,312   40,299  

 

Other Membership

Life and Disability Members 4,715 4,705 4,717 4,700

 

Dental Members 5,859 5,818 5,803 5,864

 

Dental Administration Members 5,395 5,335 5,351 5,342

 

Vision Members 6,793 6,791 6,905 6,867

 

Medicare Part D Standalone Members 324 322 320 318
 
Anthem, Inc.
Reclassified Membership Summary
(Unaudited and in Thousands)
       
Three Months Ended

Medical Membership

March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018
Customer Type
Local Group 15,670 15,634 15,688 15,733
Individual 755 712 692 655
 
National:
National Accounts 7,684 7,658 7,610 7,588
BlueCard® 5,820   5,819   5,794   5,838  
Total National 13,504 13,477 13,404 13,426
 
Medicare:

 

Medicare Advantage 916 937 992 1,006
Medicare Supplement 823   827   837   846  
Total Medicare 1,739 1,764 1,829 1,852
 
Medicaid 6,457 6,414 6,731 6,716

 

FEP® 1,562   1,560   1,557   1,556  

 

Total Medical Membership 39,687   39,561   39,901   39,938  
Funding Arrangement
Self-Funded 25,282 25,245 25,253 25,287

 

Fully-Insured 14,405   14,316   14,648   14,651  

 

Total Medical Membership 39,687   39,561   39,901   39,938  
Reportable Segment
Commercial & Specialty Business 29,929 29,823 29,784 29,814

 

Government Business 9,758   9,738   10,117   10,124  

 

Total Medical Membership 39,687   39,561   39,901   39,938  

Other Membership

Life and Disability Members 4,641 4,673 4,701 4,795

 

Dental Members 5,786 5,788 5,804 5,807

 

Dental Administration Members 5,357 5,384 5,367 5,327

 

Vision Members 6,781 6,760 6,906 6,946

 

Medicare Part D Standalone Members 316 312 312 309
       
Anthem, Inc.
Reclassified Reportable Segment Highlights
(unaudited)
 
(In millions) Three Months Ended
March 31, 2017 June 30, 2017 September 30, 2017   December 31, 2017
Operating Revenue
Commercial & Specialty Business $10,192 $10,211 $9,954 $10,006
Government Business 12,128 11,987 12,143 12,444
Other (1 )       (3 )
Total Operating Revenue1 $22,319 $22,198 $22,097 $22,447
 
Operating Gain / (Loss)
Commercial & Specialty Business $1,294 $963 $523 $67
Government Business 324 296 465 360
Other (33 ) (32 ) (6 )   (46 )
Total Operating Gain1 $1,585 $1,227 $982 $381
 
(In millions) Three Months Ended
March 31, 2018 June 30, 2018 September 30, 2018   December 31, 2018
Operating Revenue
Commercial & Specialty Business $8,951 $9,055 $8,933 $8,843
Government Business 13,390 13,665 14,050 14,462
Other 1   (5 ) (3 )   (1 )
Total Operating Revenue1 $22,342 $22,715 $22,980 $23,304
 
Operating Gain / (Loss)
Commercial & Specialty Business $1,409 $1,056 $842 $322
Government Business 481 524 446 444
Other (22 ) (21 ) (39 )   (16 )
Total Operating Gain1 $1,868 $1,559 $1,249 $750

(1) See “Basis of Presentation.

 
Anthem, Inc.
Financial Guidance Summary
(Unaudited)
     
Full Year 2018 Actual Full Year 2019 Outlook Approximate Change
Year-End Medical Enrollment
Self-funded 25,287 25,400 - 25,600 113k - 313k
Fully-Insured 14,651 15,500 - 15,700 849k - 1,049k
Total 39,938 40,900 - 41,300 962k - 1,362k
 
Operating Revenue $91.3 billion Approximately $100.0 billion Approximately $8.7 billion

or 9.5%

 
Premium Revenue $85.4 billion $90.5 billion - $92.5 billion $5.1 billion - $7.1 billion or 6.0% - 8.3%
 
Benefit Expense Ratio 84.2% 86.2% +/- 30 basis points (200 bps) +/- 30 bps
 
Cost of Products Sold $— $1.6 billion - $1.8 billion $1.6 billion - $1.8 billion
 
SG&A Expense Ratio 15.3% 13.5% +/- 30 basis points 180 bps +/- 30 bps
 
Operating Gain $5.4 billion Greater than $6.0 billion Greater than $600 million or 11.1%
 
Other Pre-Tax Items:
Net Investment income $970 million $1.0 billion $30 million
Interest Expense ($753) million ($800) million ($47) million
Amortization of Intangible Assets ($358) million ($340 million) $18 million
Net Pre-Tax Expense ($141) million ($140) million $1 million
 
Effective Tax Rate 26.0% 19.5% - 21.5% 4.5% - 6.5%
 

GAAP EPS

$14.19 Greater than $18.00 26.8% or better
 

Adjusted EPS

$15.89 Greater than $19.00 19.6% or better
 
Diluted Shares 264.2 million 261 - 263 million 0.5% - 1.2%
 
Operating Cash Flow $3.8 billion Greater than $5.2 billion Greater than $1.4 billion
 

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include, but are not limited to: the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA and the ultimate outcome of legal challenges to the ACA; trends in healthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquires, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon, our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our health care product mix; costs and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, or Cigna, and us related to the merger agreement between the parties, including our claim for damages against Cigna, Cigna’s claim for payment of a termination fee and other damages against us, and the potential for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and financial condition; non-compliance by any party with the pharmacy benefit management services agreement between Express Scripts, Inc., or Express Scripts and us, as well as any agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CaremarkPCS Health, L.L.C., a subsidiary of CVS Health Corporation, which could result in financial penalties, our inability to meet customer demands, and sanctions imposed by governmental entities, including CMS; medical malpractice or professional liability claims or other risks related to health care services and pharmacy benefit management services provided by our subsidiaries; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; large scale medical emergencies, such as future public health epidemics and catastrophes; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; changes in U.S. tax laws; intense competition to attract and retain employees; and, various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.

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Anthem Contacts:
Investor Relations
Chris Rigg
Chris.rigg@anthem.com

Media
Jill Becher, 414-234-1573
Jill.becher@anthem.com

Source: Anthem, Inc.

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