Universal American Financial Corp. Reports Third Quarter 2007 Results

Business Wire, Nov 1, 2007

RYE BROOK, N.Y. -- Universal American Financial Corp. (NASDAQ: UHCO) today announced financial results for the quarter ended September 30, 2007.

Third Quarter 2007 Highlights

* Revenues from continuing operations increased by 125% year over year to $738.2 million

* Net income was $27.1 million, or $0.40 per diluted share

* Total Medicare Advantage membership as of September 30, 2007 increased to approximately 237,000

* Acquisition of MemberHealth closed on September 21, 2007

2007 Guidance

* Revenues between $3.0 billion and $3.1 billion

* Diluted earnings per share of $1.46 to $1.51, excluding investment gains

Third Quarter 2007 Compared to Third Quarter 2006

Universal American reported net income of $27.1 million for the third quarter of 2007, or $0.40 per diluted share. This compares to net income of $30.2 million, or $0.50 per diluted share, reported for the third quarter of 2006.

Income from continuing operations for the third quarter of 2007 of $27.1 million included $0.3 million, after tax, of realized losses. Income from continuing operations for the third quarter of 2006 was $26.7 million, or $0.44 per diluted share. Income from discontinued operations for the third quarter of 2006, after taxes, was $3.5 million, or $0.06 per diluted share. Total revenues from continuing operations for the third quarter of 2007 increased to $738.2 million, or 125%, over the third quarter of 2006.

Results for the third quarter of 2007 incorporate accounting for the acquisition of MemberHealth, resulting in the inclusion of nine days of MemberHealth's operations, which generated incremental revenues of $31.0 million and net income of $3.7 million and the write-off of $0.6 million, after-tax, in unamortized loan fees. In addition, the Company issued 31.7 million common equivalent shares of equity securities as partial funding for the transaction. Taken together, the acquisition and related financing transaction generated $0.03 per share of earnings.

Management Comments

"We were quite pleased with the strong results posted by our Medicare Advantage and existing Part D businesses. In addition, we are delighted to have MemberHealth join our family of companies and look forward to the financial and strategic benefits that will result," said Richard Barasch, Chairman and CEO. "Our otherwise excellent results were somewhat offset by weakness in our legacy businesses."

Medicare Advantage

Revenues in the Medicare Advantage segment were $529.7 million, and pre-tax income was $16.5 million for the third quarter of 2007. Our overall third quarter loss ratio for the segment was 84.0%. For the first three quarters of the year, the medical loss ratio was 83.8%.

Private Fee-for-Service

As of the end of the third quarter, our Today's Options([R]) PFFS membership was approximately 190,000, up from 18,000 members at the end of 2006. The medical loss ratio for our PFFS business in the third quarter was 85.7%. For the first three quarters of the year, the medical loss ratio was 86.0%.

HMOs

Our total HMO membership as of September 30, 2007 is nearly 47,000, an increase of 33% over year-end 2006. Revenues increased 40% to $129.8 million for the quarter ended September 30, 2007, compared to the quarter ended September 30, 2006. The aggregate third quarter loss ratio for our Medicare Advantage HMO business was 78.4%. For the first three quarters of the year, the medical loss ratio was 77.5%.

Medicare Part D

As of September 30, 2007, we had approximately 471,000 members enrolled in our Prescription Pathway(SM) PDPs. The acquisition of MemberHealth and its Community CCRx(SM) Part D portfolio increased our Part D membership by 1,185,000 members to approximately 1.7 million members as of September 30, 2007.

Total premiums, before reinsurance ceded and before consideration of the government risk corridor adjustment, were $178.3 million for the third quarter of 2007, including $36.4 million from MemberHealth. Our PDPs generated net operating profit of $10.8 million for the third quarter of 2007 (including $5.9 million from MemberHealth), compared to net operating profit of $10.3 million for the third quarter of 2006. Part D Management Services, L.L.C., our joint venture with Pharmacare Management Services, Inc., contributed $12.8 million, pre-tax, to our Part D results for the third quarter of 2007, compared to $14.0 million for the third quarter of 2006. Third quarter results of 2007 included MemberHealth's operations from the date of acquisition (September 21, 2007). The MemberHealth acquisition, including the effect of the related financing transactions, added $0.03 per share to our profit for the third quarter.

Senior Market Health (excluding Part D)

For the third quarter of 2007, our Medicare Supplement business generated an operating profit of $1.5 million on $77.4 million of revenue. The loss ratio on our Medicare Supplement business was 73.3%, compared to 68.9% for the third quarter of 2006. Our expected range was 68.5% to 71.0%. The increase in our loss ratio was somewhat offset by lower than expected lapsation.