Humana Inc. (NYSE:HUM) Q1 2018 Earnings Conference Call Transcript

May 02, 2018 • 09:00 am ET

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Humana Inc. (NYSE:HUM) Q1 2018 Earnings Conference Call Transcript

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Presentation
Executive
Brian A. Kane

year-over-year decline in pre-tax earnings for the quarter was expected. You will recall that we have undergone an optimization process that ensures the appropriate level of member interaction with clinicians, including graduating members into a monitoring program as their needs change, and transitioning them out of the care management program when they no longer benefit from these services. This drives higher quality outcomes and better returns on investment, while leading to reduced segment earnings. The full impact of this optimization is reflected in the quarter and projected full year results.

In addition, the first quarter of 2018 includes the impact of investments made as a result of tax reform law, primarily investments in our employees, as described previously, and significant operating cost efficiencies in 1Q '18, as a result of productivity initiatives implemented in 2017. From a capital deployment perspective, in the first quarter, we completed our $1 billion accelerated share repurchase program that began in 4Q '17. We continue to expect and execute additional share repurchases of approximately $500 million in the back half of the year. Our expectation is that the Kindred and Curo acquisitions will utilize approximately $1.1 billion in parent cash on a combined basis when the transactions close sometime this summer, though the debt-financing plans are still being finalized with our private equity partners.

With regard to sources of parent cash, we expect subsidiary dividends to the parent in 2018 to be approximately $1.9 billion to $2 billion, almost all of which will be paid in the second quarter. This represents an increase of approximately $500 million to $600 million over the $1.4 billion we received for full year 2017, primarily reflecting higher regulated subsidiary earnings in 2017 relative to 2016. As a reminder, there's typically a one-year lag in our ability to pull cash out of our regulated subsidiaries.

Additionally, the parent company receives the cash from the earnings of our Healthcare Services segment immediately. From an M&A perspective, as I said last quarter, we continue to evaluate strategic acquisitions to build out our capabilities, particularly the primary care arena. But, we also look for any other assets that could enhance our other Healthcare Services segments.

Additionally, we would also have interest in Medicare Advantage assets that increase our presence in under-penetrated markets. We continue to target a debt-to-capitalization ratio of 30% to 35%, consistent with rating agency expectations, with the ability to go higher for the right strategic opportunity.

With that, we'll open the lines for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller.