EXHIBIT 99.1
[UNIVERSAL AMERICAN FINANCIAL CORP. LOGO]
FOR IMMEDIATE RELEASE
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UNIVERSAL AMERICAN FINANCIAL CORP. REPORTS RECORD
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SECOND QUARTER RESULTS
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Rye Brook, NY - August 2, 2004 - UNIVERSAL AMERICAN FINANCIAL CORP.
(NASDAQ NATIONAL MARKET: UHCO) ("Universal American") today announced record
results for the second quarter ended June 30, 2004.
SECOND QUARTER 2004 COMPARED TO SECOND QUARTER 2003
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Universal American reported net income of $13.0 million for the
second quarter of 2004, an 18% increase over the $11.0 million reported last
year. We earned $.23 per diluted share, an increase of 15% over the $.20
reported for the second quarter of 2003. Results for the second quarter of 2004
include the operations of Heritage Health Systems, Inc. ("Heritage") since May
28, 2004, the date of acquisition.
Net income for the second quarter of 2004 included after-tax realized
investment gains of $0.1 million, or $0.0 per diluted share. Net income for the
second quarter of 2003 included after-tax realized investment gains of $0.8
million, or $.01 per diluted share.
Total revenues for the second quarter of 2004 increased 21% to $166.5
million. Direct and assumed premiums for the second quarter of 2004 increased
12% to $208.4 million and net premiums for the second quarter increased 23% to
$146.6 million, compared to the second quarter of 2003.
Annualized return on equity (excluding FAS 115) for the second
quarter 2004 was 15.9% which includes 20 basis points that resulted from capital
gains realized in the second quarter of 2004 (see discussion of non-GAAP
financial measures contained in the supplemental financial information later in
this press release).
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Universal American Financial Corp. Page 2
August 2, 2004
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Our reported net income for the six months ended June 30, 2004 was
$26.9 million, a 45% increase over the $18.6 million reported last year. We
earned $.48 per diluted share an increase of 41% over the $.34 reported for the
comparable period of 2003.
Net income for the six months ended June 30, 2004 included after-tax
realized investment gains of $2.5 million, or $.04 per diluted share. Net income
for the six months ended June 30, 2003 included after-tax realized investment
gains of $0.8 million, or $.01 per diluted share, and a charge of $1.8 million,
or $.02 per diluted share after tax, relating to the expensing of unamortized
deferred fees on the loan that was repaid in order to finance the Pyramid
acquisition.
Total revenues for the six months ended June 30, 2004 increased 38%
to $325.0 million. Direct and assumed premiums for the six months ended June 30,
2004 increased 18% to $410.6 million and net premiums increased 43% to $282.7
million, compared to the six months ended June 30, 2003.
Annualized return on equity (excluding FAS 115) for the six months
ended June 30, 2004 was 16.8%, which includes 150 basis points that resulted
from capital gains realized during that period (see discussion of non-GAAP
financial measures contained in the supplemental financial information later in
this press release).
BALANCE SHEET DATA
Stockholders' equity as of June 30, 2004 was $356.6 million, or $6.53
per common share, compared to $345.7 million, or $6.41 per common share, at
December 31, 2003. Excluding the effect of FAS 115, which includes the net
unrealized appreciation of the Company's investment portfolio, stockholders'
equity was $336.1 million and fully diluted book value per common share was
$6.03, an 18% increase since June 30, 2003 (see discussion of non-GAAP financial
measures contained in the supplemental financial information later in this press
release). Since 1998, fully diluted book value per share, excluding the effect
of FAS 115, has grown at a compounded rate of 17.2%.
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Universal American Financial Corp. Page 3
August 2, 2004
MANAGEMENT COMMENTS
Richard Barasch, chairman and CEO of Universal American, commented,
"The second quarter of 2004 was another strong quarter for our company. In
addition to our continued internal growth, we began to see the accretion from
the acquisition of Heritage Health Systems.
"Our efforts to expand distribution continue to succeed. Building on
the two distribution forces that we acquired in 2003, we wrote $34.6 million of
new business in the second quarter, which is 15% higher than in the comparable
period in 2003. After taking into account our reduced use of reinsurance, our
net retained new business produced in the second quarter of 2004 was
approximately 20% higher than in the second quarter of 2003.
CAREER AGENCY
"The Career Agency division continued its excellent performance
bolstered by the addition of Pyramid Life and increased sales of senior market
products in Pennsylvania Life. With the addition of Pyramid, revenues increased
6% to $75.3 million and profits increased 32% to $12.9 million compared to the
second quarter of 2003.
"We continue to be excited with the results and prospects for our
Senior Solutions program, which has spurred increased recruiting and sales. A
prime indicator is that sales of senior market products in Pennsylvania Life
increased 82% over the second quarter of 2003, representing 63% of Pennsylvania
Life's new production. Thus far this year, we have designated 51 existing
offices of Pennsylvania Life as Senior Solutions Service Centers ("SSSC's") in
addition to the 30 SSSC's of Pyramid Life previously designated and opened 21
SSSC's in new locations. We should see further improvement in senior market
sales from this activity.
SENIOR MARKET BROKERAGE
"Our Senior Market Brokerage segment had another strong quarter.
Revenues rose by 20% to $76.1 million, as compared to the second quarter of
2003, and profits increased 2% to $5.5 million. The increase in profitability
compared to the second quarter of 2003 was driven by higher revenues and a
modest decrease in our Medicare Supplement loss ratios. These improvements were
partially offset by higher expenses incurred in the segment. Sequentially,
profits increased 57% over the first quarter of 2004, largely as a result of the
expected decrease in loss ratios.
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Universal American Financial Corp. Page 4
August 2, 2004
"Further, our effort to increase our sales of life insurance to
complement our health insurance has been quite successful, largely due to the
acquisition of the Guarantee Reserve Life field force. This activity began on
July 1, 2003, and we wrote over $15.2 million of new life business during the
second half of 2003 and $14.4 million during the first half of 2004, of which we
retained half.
ADMINISTRATIVE SERVICES
"CHCS Services, one of the country's leading senior market
third-party administrators, continued its important contribution to the
profitability and cash flow of our company. Revenues for the second quarter of
2004 increased by 21% to $14.0 million, as compared to those of the second
quarter of 2003, and operating income increased 27% to $3.3 million. Earnings
before interest, taxes, depreciation and amortization for the first quarter of
2004 increased 23% to $3.9 million, compared to the second quarter of 2003 (see
discussion of non-GAAP financial measures contained in the supplemental
financial information later in this press release). The pipeline for new
business continues to be active, from both internal and external sources, and we
expect to see continued growth in this segment.
MEDICARE ADVANTAGE
"The acquisition of Heritage Health Systems, Inc. closed on May 28,
2004, and we are delighted with the progess that has already been made. Just
prior to the closing, Heritage added the Kelsey-Seybold Clinic, a prestigious
practice group in the Houston area, to its roster of providers, and we have
already begun to see an uptick in sales as a result of this association. In
addition, our existing Senior Solutions centers in Houston have embraced the
opportunity to sell a Medicare Advantage product. In the two months since the
closing, Heritage has added 1,000 new members, bringing the enrollment up to
more than 17,000 as of August 1, 2004. Annualized revenues are now $147 million,
a 29% increase since the beginning of the year.
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Universal American Financial Corp. Page 5
August 2, 2004
In addition, we began to market a Medicare Advantage private
fee-for-service plan in upstate New York, and we are very pleased with the
initial market acceptance of this product. In the first three months of
operation, we have enrolled approximately 700 members in this program, resulting
in $5.5 million of annualized revenue.
INVESTMENT PORTFOLIO
"Our investment portfolio, now totaling approximately $1.2 billion,
remains sound with over 99% of the portfolio invested in debt securities rated
investment grade by at least one of the rating agencies. As of the end of the
second quarter, our bonds were worth $27 million more than our cost. In
anticipation of increased interest rates, we had accumulated a significant
amount of cash and floating rate bonds in our insurance company portfolios
during the first quarter of this year. Our patience was rewarded as rates
started to move up in the second quarter, and we have begun to invest our
accumulated cash.
CAPITALIZATION
"In connection with the Heritage acquisition, we increased our bank
facility to $120 million, including a $15 million revolver, and amended its
terms to include a slower amortization of principal. We were very pleased that
Standard & Poor's placed an investment grade rating on this facilty, thus
reducing our expected interest costs. In order to reduce our exposure to rising
interest rates, we have locked in the interest rate on $50 million of our Trust
Preferred Securities to a fixed weighted average annual rate of 7.0%.
CONFERENCE CALL
Universal American will host a conference call at 10 am Eastern Time
on Tuesday, August 3, 2004 to discuss the second quarter results and other
corporate developments. Interested parties may participate in the call by
dialing 913-905-3173. Please call in 10 minutes before the scheduled time and
ask for the Universal American call. This conference call will also be webcast
live over the Internet and can be accessed at Universal American's website at
www.uafc.com. To listen to the live call, please go to the website at least 15
minutes early to download and install any necessary audio software. If you are
unable to listen live, the conference call will be archived and can be accessed
for approximately 60 days.
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Universal American Financial Corp. Page 6
August 2, 2004
Prior to the conference call, Universal American will make available
on its website supplemental financial data in connection with its quarterly
earnings release. This supplemental financial data can be accessed at
www.uafc.com (under the heading "Investor Relations; Financial Reports").
ABOUT UNIVERSAL AMERICAN FINANCIAL CORP.
Universal American Financial Corp. offers a portfolio of health and
life insurance products, primarily to the senior market, as well as third party
administrator services for insurance and non-insurance programs in the senior
market. Universal American is included in the Russell 2000 and 3000 Indexes. For
more information on Universal American, please visit our website at
www.uafc.com.
Except for the historical information contained above, this document
may contain some forward looking statements, including statements related to
2004 operating results, which involve a number of risks and uncertainties that
could cause actual results to differ materially. These risk factors are listed
from time to time in Universal American's SEC reports.
(Tables to follow)
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Universal American Financial Corp. Page 7
August 2, 2004
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
CONSOLIDATED OPERATING RESULTS 2004 2003 2004 2003
- ------------------------------ ---- ---- ---- ----
Direct and assumed premiums $ 208.4 $ 186.2 $ 410.6 $ 347.3
=========== ============ ============ ============
Net premiums and policyholder fees $ 146.6 $ 118.7 $ 282.7 $ 197.8
Net investment income 16.1 15.4 32.1 29.8
Other income 3.6 2.8 6.4 7.1
Realized gains 0.2 1.2 3.8 1.3
----------- ------------ ------------ ------------
Total Operating revenue 166.5 138.1 325.0 236.0
----------- ------------ ------------ ------------
Policyholder benefits 99.6 83.2 194.1 139.0
Interest credited to policyholders 4.3 3.7 8.5 6.8
Change in deferred acquisition costs (14.9) (11.1) (31.2) (19.3)
Amortization of present value of future profits and
Goodwill 0.9 1.1 1.9 1.2
Commissions and general expenses, net of
Allowances 56.7 44.6 110.6 78.2
Amortization of deferred loan fees relating to
refinancing of credit facility - - - 1.8
----------- ------------ ------------ ------------
Total benefits and expenses 146.6 121.5 283.9 207.7
----------- ------------ ------------ ------------
Income before income taxes 19.9 16.6 41.1 28.3
Income taxes, excluding capital gains (6.8) (5.2) (12.9) (9.9)
Income taxes on capital gains (2) (0.1) (0.4) (1.3) (0.4)
Income tax benefit on early extinguishment of debt (2) - - - 0.6
----------- ------------ ------------ ------------
Total income taxes (1) (6.9) (5.6) (14.2) (9.7)
----------- ------------ ------------ ------------
NET INCOME $ 13.0 $ 11.0 $ 26.9 $ 18.6
=========== ============ ============ ============
Per Share Data (Diluted):
NET INCOME $ 0.23 $ 0.20 $ 0.48 $ 0.34
=========== ============ ============ ============
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Universal American Financial Corp. Page 8
August 2, 2004
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
Consolidated Operating Results by Segment 2004 2003 2004 2003
---- ---- ---- ----
Career Agency $ 12.9 $ 9.7 $ 26.3 $ 19.2
Senior Market Brokerage 5.5 5.3 9.0 8.4
Medicare Advantage(5) 0.8 - 0.8 -
Administrative Services 3.3 2.6 6.5 5.2
Corporate (2.8) (2.2) (5.3) (5.8)
Realized gains 0.2 1.2 3.8 1.3
-------------- --------------- -------------- ---------------
Income before income taxes $ 19.9 $ 16.6 $ 41.1 $ 28.3
============== =============== ============== ===============
Balance Sheet Data JUNE 30, 2004 DECEMBER 31, 2003
- ------------------ ------------- -----------------
Total Cash and Investments $ 1,267.2 $ 1,286.5
Total Assets $ 1,888.9 $ 1,780.9
Total Policyholder Related Liabilities $ 1,290.4 $ 1,251.1
Total Outstanding Bank Debt $ 103.7 $ 38.2
Other Long Term Debt $ 75.0 $ 75.0
Total Stockholders' Equity $ 356.6 $ 345.7
Book Value per Common Share $ 6.53 $ 6.41
Diluted Weighted Average Shares Outstanding YTD 54.4 55.0
NON-GAAP FINANCIAL MEASURES *
- -----------------------------
Total Stockholders' Equity (excluding FAS 115) * $ 336.1 $ 305.9
Diluted Book Value per Common Share (excluding FAS 115) * (3) $ 6.03 $ 5.55
Debt to Total Capital Ratio * (4) 20.1% 9.1%
* Non-GAAP Financial Measures - See supplemental tables on the following
pages of this release for a reconciliation of these items to financial
measures calculated under accounting principles generally accepted in the
United States (GAAP).
(1) The effective tax rates were 34.5% for the periods ended June 30, 2004 and
2003.
(2) Tax on realized capital gains (losses) and other non-recurring items is
based on a 35.0% effective tax rate for all periods.
(3) Diluted book value per share represents Total Stockholders' Equity,
excluding accumulated other comprehensive income ("FAS 115"), plus assumed
proceeds from the exercise of vested options, divided by the total shares
outstanding plus the shares assumed issued from the exercise of vested
options.
(4) The Debt to Total Capital Ratio is calculated as the ratio of the Total
Outstanding Bank Debt to the sum of Stockholders' Equity (excluding FAS
115) plus Total Outstanding Bank Debt plus Trust Preferred Securities.
(5) In connection with the acquisition of Heritage Health Systems, Inc. on May
28, 2004, we added a new segement, Medicare Advantage. This segment
includes the operations of Heritage, as well as the private fee-for-service
plan recently introduced in New York by our existing insurance
subsidiaries.
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Universal American Financial Corp. Page 9
August 2, 2004
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
Universal American uses certain non-GAAP financial measures to evaluate the
company's performance for the periods presented in this press release. These
measures should not be considered an alternative to measurements required by
GAAP. Because Universal American's calculation of these measures may differ from
similar measures used by other companies, investors should be careful when
comparing Universal American's non-GAAP financial measures to those of other
companies. The key non-GAAP measures presented in our press release, including a
reconciliation to GAAP measures, are presented below.
TOTAL STOCKHOLDERS' EQUITY (EXCLUDING FAS 115)
JUNE 30, DECEMBER 31,
2004 2003
Total stockholders' equity $ 356.6 $ 345.7
Less: Accumulated other comprehensive income (20.5) (39.8)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY (EXCLUDING FAS 115) $ 336.1 $ 305.9
============== ==============
Universal American uses total stockholders' equity (excluding FAS 115), as a
basis for evaluating growth in equity on both an absolute dollar basis and on a
per share basis, as well as in evaluating the ratios of debt to total
capitalization. We believe that fluctuations in stockholders' equity that arise
from changes in unrealized appreciation or depreciation on investments, as well
as changes in the other components of accumulated other comprehensive income, do
not relate to the core performance of Universal American's business operations.
DILUTED BOOK VALUE PER COMMON SHARE
(EXCLUDING FAS 115) (3)
JUNE 30, DECEMBER 31,
2004 2003
Total stockholders' equity $ 356.6 $ 345.7
Proceeds from assumed exercises of vested options 17.0 15.2
-------------- --------------
373.6 360.9
============== ==============
Diluted common shares outstanding 58.6 57.9
============== ==============
DILUTED BOOK VALUE PER COMMON SHARE (3) $ 6.38 $ 6.23
============== ==============
Total stockholders' equity (excluding FAS 115) $ 336.1 $ 305.9
Proceeds from assumed exercises of vested options 17.0 15.2
-------------- --------------
353.1 321.1
Diluted common shares outstanding 58.6 57.9
============== ==============
DILUTED BOOK VALUE PER COMMON SHARE (EXCLUDING FAS 115) (3) $ 6.03 $ 5.55
============== ==============
As noted above, Universal American uses total stockholders' equity (excluding
FAS 115), as a basis for evaluating growth in equity on a per share basis. We
believe that fluctuations in stockholders' equity that arise from changes in
unrealized appreciation or depreciation on investments, as well as changes in
the other components of accumulated other comprehensive income, do not relate to
the core performance of Universal American's business operations.
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Universal American Financial Corp. Page 10
August 2, 2004
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
IN MILLIONS
(UNAUDITED)
DEBT TO TOTAL CAPITAL RATIO (4)
JUNE 30, DECEMBER 31,
2004 2003
Total outstanding bank debt $ 103.7 $ 38.2
============ ============
Total stockholders' equity $ 356.6 $ 345.7
Total outstanding bank debt 103.7 38.2
Total outstanding trust preferred securities 75.0 75.0
------------ ------------
Total Capital $ 535.3 $ 458.9
============ ============
DEBT TO TOTAL CAPITAL RATIO (4) 19.4% 8.3%
============ ============
Total stockholders' equity (excluding FAS 115) $ 336.1 $ 305.9
Total outstanding bank debt 103.7 38.2
Total outstanding trust preferred securities 75.0 75.0
------------ ------------
Total Capital $ 514.8 $ 419.1
============ ============
DEBT TO TOTAL CAPITAL RATIO (4) 20.1% 9.1%
============ ============
As noted above, Universal American uses total stockholders' equity (excluding
FAS 115), as a basis for evaluating the ratio of debt to total capital. We
believe that fluctuations in stockholders' equity that arise from changes in
unrealized appreciation or depreciation on investments, as well as changes in
the other components of accumulated other comprehensive income, do not relate to
the core performance of Universal American's business operations.
ANNUALIZED RETURN ON EQUITY
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2004
Net Income $ 13.0 $ 26.9
============ ============
Total stockholders' equity:
Beginning of period $ 370.3 $ 345.7
End of period 356.6 356.6
------------- ------------
Average stockholders' equity $ 363.5 $ 351.1
============ ============
ANNUALIZED RETURN ON EQUITY 14.3% 15.3%
============ ============
Total stockholders' equity (excluding FAS 115):
Beginning of period $ 321.0 $ 305.9
End of period 336.1 336.1
------------- ------------
Average stockholders' equity (excluding FAS 115) $ 328.6 $ 321.0
============ ============
ANNUALIZED RETURN ON EQUITY (EXCLUDING FAS 115) 15.9% 16.8%
============ ============
As noted above, Universal American uses total stockholders' equity (excluding
FAS 115), as a basis for evaluating return on equity. We believe that
fluctuations in stockholders' equity that arise from changes in unrealized
appreciation or depreciation on investments, as well as changes in the other
components of accumulated other comprehensive income, do not relate to the core
performance of Universal American's business operations.
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Universal American Financial Corp. Page 11
August 2, 2004
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
IN MILLIONS
(UNAUDITED)
ADMINISTRATIVE SERVICES EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ("EBITDA")
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
Administrative Services segment income $ 6.5 $ 5.2
Depreciation, amortization and interest 1.1 1.0
------------- -------------
EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION $ 7.6 $ 6.2
============= =============
In addition to segment income, we also evaluate the results of our
Administrative Services segment based on EBITDA. EBITDA is a common alternative
measure of performance used by investors, financial analysts and rating
agencies. It is also a measure that is included in the fixed charge ratio
required by the covenants for our outstanding bank debt. Accordingly, these
groups use EBITDA, along with other measures, to estimate the value of a company
and evaluate Universal American's ability to meet its debt service requirements.
While we consider EBITDA to be an important measure of comparative operating
performance, it should not be construed as an alternative to segment income or
cash flows from operating activities (as determined in accordance with generally
accepted accounting principles).
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CONTACT: - OR- INVESTOR RELATIONS COUNSEL:
Robert A. Waegelein The Equity Group Inc.
Executive Vice President & www.theequitygroup.com
Chief Financial Officer (914) 934-8820 Linda Latman (212) 836-9609
Sarah Torres (212) 836-9611
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