Sierra Notes Continued Growth in Nev. Market

April 25, 2005

Sierra Health Services Inc. reported that income from continuing operations for the quarter ended March 31, 2005, was $28.6 million or $0.85 per diluted share, compared to $26.3 million or $0.75 per diluted share for the same period in 2004, an earnings per share increase of 13 percent.

For the quarter, a tax benefit for discontinued operations resulted in income of $838,000, compared to a loss of $486,000 for the same period in 2004. Net income for the quarter, after the tax gain from discontinued operations, was $29.4 million, or $0.87 per diluted share, compared to $25.8 million, or $0.74 per diluted share for the same period in 2004, an earnings per share increase of 18 percent.

Assuming dilution, on average, analysts had expected Sierra to post first quarter 2005 earnings per share of $0.79, and annual earnings per share of $3.33. The company had previously announced it expected to earn between $3.20 and $3.30 for the year 2005. Sierra now expects to earn between $3.35 and $3.45 per share for 2005, fully diluted.

Revenues from continuing operations for the quarter were $335.8 million, compared to $408.2 million for the same period in 2004. This decrease is due to the cessation of health care delivery operations in the third quarter of 2004 at the company’s military health services subsidiary. Medical premium revenues from Sierra’s core managed care operations were $311.4 million for the quarter, compared to $265.4 million for the same period in 2004, an increase of 17 percent.

In the first quarter, Sierra’s medical care ratio was 76.3 percent, a 60 basis point increase from 75.7 percent for the same period in 2004. The increase is primarily due to higher bed days during the current quarter. Sierra’s medical claims payable balance increased to $128.1 million at March 31, 2005, compared to $119.3 million at Dec. 31, 2004. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 47 days for the first quarter of 2005, compared to the same number of days from the first quarter of 2004 and 48 days sequentially.

As a percentage of premium revenue, general and administrative expenses for the first quarter improved 70 basis points to 13.3 percent from 14.0 percent for the same period in 2004. Excluding the general and administrative expenses related to the sold workers’ compensation operations, expenses as a percentage of premium revenue would have been 13.1 percent, an improvement of 140 basis points from 14.5 percent for the fourth quarter of 2004.

Operating cash flow from continuing operations was $23.4 million for the quarter, compared to $32.2 million for the same period in 2004. Operating cash flow from continuing operations, adjusted for the timing of payments from the Centers for Medicare and Medicaid Services (CMS), was $64.2 million for the first quarter of 2005, compared to $65.2 million for the same period in 2004.

The company received two monthly payments from CMS in the first three months of 2005 and 2004, with the January CMS payments received at the end of December. Sierra believes that reflecting three monthly CMS payments for the quarter provides a more useful measure of cash provided by operations. Adjusted cash flow for the quarter represents 218 percent of net income.

“Once again, as we continue to benefit from a strong local economy, our performance in the first quarter appears to bode well for the remainder of the year,” said Anthony Marlon, M.D., chairman, president and chief executive officer of Sierra. “We have exceeded our preliminary estimates on a variety of indices, including membership growth, income and earnings per share. The Las Vegas market continues be a very good place in which to conduct business.”

In the first quarter of 2005, same store commercial membership in the company’s core Las Vegas market grew by 6.2 percent, or 13,600 lives. Sierra continues to benefit from a mix of new business and in-group growth, across all account sizes and segments. In the quarter Medicare membership grew by 1 percent, or 700 lives. Medicaid membership, while increasing 3.1 percent, or 1,500 lives year over year, is down 600 lives sequentially, due to a state reconciliation adjustment.

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