EXHIBIT 99.1
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P R E S S R E L E A S E
[GRAPHIC OMITTED]
[LOGO UNIVERSAL AMERICAN FINANCIAL CORP]
FOR IMMEDIATE RELEASE
UNIVERSAL AMERICAN FINANCIAL CORP. REPORTS
RECORD FOURTH QUARTER RESULTS
- --------------------------------------------------------------------------------
Rye Brook, NY - February 16, 2005 - Universal American Financial Corp. (NASDAQ
National Market: UHCO) ("Universal American") today announced record results for
the quarter ended December 31, 2004.
FOURTH QUARTER 2004 COMPARED TO FOURTH QUARTER 2003
Universal American reported net income of $17.4 million for the fourth
quarter of 2004, a 33% increase over the $13.1 million reported last year. We
earned $.30 per diluted share, an increase of 30% over the $.23 reported for the
fourth quarter of 2003. Results for the fourth quarter of 2004 include the
results of operations of Heritage Health Systems, Inc. ("Heritage") which was
acquired on May 28, 2004.
Net income for the fourth quarter of 2004 included after-tax realized
investment gains of $0.9 million, or $.01 per diluted share. Net income for the
fourth quarter of 2003 included after-tax realized investment gains of $0.1
million, less than $.01 per diluted share.
Total revenues for the fourth quarter of 2004 increased 41% to $206.6
million. Direct and assumed premiums for the fourth quarter of 2004 increased
27% to $243.2 million and net premiums for the fourth quarter increased 45% to
$184.4 million, compared to the fourth quarter of 2003.
Return on equity (excluding the effect of FAS 115) for the fourth
quarter 2004 was 18.9% which includes 96 basis points resulting from realized
capital gains. (See Non-GAAP Financial Measures contained in the Supplemental
Financial Information at the end of this press release).
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Universal American Financial Corp. Page 2
February 16, 2005
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Our reported net income for the year ended December 31, 2004 was $63.9
million, a 48% increase over the $43.1 million reported last year. We earned
$1.13 per diluted share, an increase of 44% over the $.78 per diluted share
reported for 2003. Results for 2004 include the results of operations of
Heritage since its acquisition on May 28, 2004.
Net income for the year ended December 31, 2004 included after-tax
realized investment gains of $6.9 million, or $.12 per diluted share. Net income
for the year ended December 31, 2003 included after-tax realized investment
gains of $1.3 million, or $.02 per diluted share, and an after-tax charge of
$1.2 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 in March 2003.
Total revenues for the year ended December 31, 2004 increased 41% to
$735.3 million. Direct and assumed premiums for 2004 increased 23% to $894.6
million and net premiums increased 44% to $645.2 million, compared to 2003.
Return on equity (excluding FAS 115) for the year ended December 31,
2004 was 18.7%, which includes 202 basis points resulting from realized capital
gains (see Non-GAAP Financial Measures contained in the Supplemental Financial
Information at the end of this press release).
BALANCE SHEET DATA
Total assets increased to $2.0 billion as of December 31, 2004,
compared to $1.8 billion at December 31, 2003.
Stockholders' equity as of December 31, 2004 was $419.4 million, or
$7.60 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
$378.4 million and fully diluted book value per common share was $6.71, a 21%
increase since December 31, 2003 (see Non-GAAP Financial Measures contained in
the Supplemental Financial Information at the end of this press release). Over
the last five years, fully diluted book value per share, excluding the effect of
FAS 115, has grown at a compounded rate of 17.0%.
Universal American Financial Corp. Page 3
February 16, 2005
MANAGEMENT COMMENTS
Richard Barasch, chairman and CEO of Universal American, commented,
"The fourth quarter of 2004 was another strong quarter for our company, capping
a terrific year. A significant driver of our increased profitability in 2004 was
the addition of Heritage Health Systems in May; however, we also experienced
core growth of 21% in revenues and 20% in profits from our existing businesses
as compared to last year.
"We are especially pleased with our improved strategic position in the
senior health insurance market. For more than 10 years, Universal American built
an enviable franchise in the sale of Medicare supplement products. With the
addition of Heritage, we are now building a Medicare Advantage business as well.
As this market for individual senior health insurance grows, our company is
well-positioned to offer the full range of needed products.
"We are particularly intrigued by the opportunity to offer an insured
prescription drug plan pursuant to the Medicare Modernization Act of 2003. We
plan to file a letter this week with the Center for Medicare and Medicaid
Services indicating our intention to offer such a plan in several regions.
CAREER AGENCY
"The Career Agency division continued its excellent performance, with
solid contributions coming from the growth of our senior market health business
in the U.S. and the improved profitability of our specialty health business in
the U.S. Revenues increased 7% to $78.9 million and profits increased 11% to
$15.5 million compared to the fourth quarter of 2003. For the full year,
revenues increased by 20% and income increased by 24%, as compared to 2003.
"The Senior Solutions program is a key part of our efforts to increase
senior market sales. We continue to emphasize recruiting and new office
expansion, and we have begun to see the results in new sales. Sales of senior
market products by the Career agents improved 30% over last year. In addition,
these agents have been successful in selling the Heritage managed care products
in the Houston area, and they added 1,000 new members to the health plan in
2004. In 2004, we opened 22 Senior Solutions Sales Centers for Pennsylvania Life
and Pyramid in new locations. We now have a total of 84 offices designated as
Senior Solutions Sales Centers and we anticipate further improvement in senior
market sales from this expansion.
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Universal American Financial Corp. Page 4
February 16, 2005
"We also had strong performance from our specialty health insurance
business. Even though our sales in this part of the Career segment have been
slower than last year, better loss ratios and an increase in the value of the
Canadian dollar have helped our results.
SENIOR MARKET BROKERAGE
"Our results in the Senior Market segment were negatively impacted by
higher morbidity than anticipated and lower investment yields. Revenues rose by
15% to $80.8 million, as compared to the fourth quarter of 2003, resulting from
a combination of new sales, rate increases and increased retention of new
business. However, our Medicare supplement loss ratio for the segment increased
520 basis points to 66.6% from 61.4% as compared to the fourth quarter last
year, leading to a 13% decrease in segment income for the quarter.
"For the full year, the loss ratio on our Medicare supplement business
increased by 80 basis points to 69.1% from 68.3% in 2003 and segment income was
1% lower than last year. We have already begun to apply for and implement rate
increases that should allow us to reverse this trend.
MEDICARE ADVANTAGE
"Driven by the acquisition of Heritage, our Medicare Advantage segment
generated EBITDA of $5.1 million and pre-tax income of $4.4 million for the
fourth quarter of 2004 on revenues of $42.0 million (see Non-GAAP Financial
Measures contained in the Supplemental Financial Information at the end of this
press release). In the eight months since the closing, Heritage has added 3,336
new members in its core markets in southeast Texas, bringing the enrollment up
to more than 19,411 as of January 1, 2005, and has achieved an annualized growth
rate of 31%. We expect our growth to continue as a result of expansion to
additional counties, as well as from the incremental sales activity generated by
our Senior Solutions Sales Centers in that region.
"In addition, we began to market a Medicare Advantage private
fee-for-service plan in upstate New York and Pennsylvania, and we are pleased
with the initial market acceptance of this product. In the first six months of
operation, we have enrolled approximately 1,698 members in this program,
resulting in $11.6 million of annualized revenue.
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Universal American Financial Corp. Page 5
February 16, 2005
"At the beginning of 2004, we had no Medicare Advantage membership.
Now, we have more than 21,000 members generating more than $180 million of
annualized revenue, which we believe will continue to grow.
ADMINISTRATIVE SERVICES
"CHCS Services, one of the country's leading senior health insurance
third-party administrators, continued its important contribution to the
profitability and cash flow of our company. Revenues for the fourth quarter of
2004 increased by 20% to $14.7 million, as compared to the fourth quarter of
2003, and pre-tax income increased 20% to $3.5 million. Earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the fourth quarter
of 2004 increased 18% to $4.1 million, compared to the fourth quarter of 2003
(see Non-GAAP Financial Measures contained in the Supplemental Financial
Information at the end of this press release).
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
fourth quarter, our bonds were worth $61 million more than our cost. We have
realized $10.6 million in capital gains during the year ended December 31, 2004,
including $1.4 million during the fourth quarter. As rates dropped at various
points during the year, we took advantage of market conditions to realize
capital gains to make efficient use of our tax capital loss carryforwards.
RESEGMENTATION
"Beginning with our Form 10K for 2004, we will change the way we report
our results by segment. Previously, we reported our segments based on
distribution channel. Going forward, we will report based on product. We will be
replacing our current Senior Market Brokerage and Career Agency segments with
Senior Market Health Insurance, Life and Annuity and Specialty/Self-employed
segments. The Medicare Advantage and Administrative Services segments will be
unchanged. We believe that this new segmentation will provide even greater
clarity to the results of the company. We will be publishing historical
quarterly results based on the new segmentation on our website concurrent with
the filing of our Form 10K.
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Universal American Financial Corp. Page 6
February 16, 2005
CONFERENCE CALL
Universal American will host a conference call at 10 am Eastern Time on
Thursday, February 17, 2005 to discuss the fourth quarter results and other
corporate developments. Interested parties may participate in the call by
dialing 706-679-0770. 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.
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. is a specialty health and life
insurance holding company. Through our family of companies, we offer a broad
array of health insurance and managed care products and services, primarily to
the growing senior population. Universal American is included in the NASDAQ
Financial-100 Index, the Russell 2000 Index and the Russell 3000 Index. For more
information on Universal American, please visit our website at WWW.UAFC.COM.
Except for the historical information contained above, this document
and oral statements made from time to time by our representatives may contain
some forward looking statements, including statements related to 2005 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
February 16, 2005
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
In millions, except per share amounts
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
CONSOLIDATED OPERATING RESULTS 2004 2003 2004 2003
- ------------------------------ --------- --------- --------- ---------
Direct and assumed premiums $ 243.2 $ 192.0 $ 894.6 $ 727.5
========= ========= ========= =========
Net premiums and policyholder fees $ 184.4 $ 127.6 $ 645.2 $ 447.0
Net investment income 16.6 16.2 65.2 61.1
Other income 4.2 2.9 14.3 12.6
Realized gains 1.4 0.2 10.6 2.1
--------- --------- --------- ---------
Total Operating revenue 206.6 146.9 735.3 522.8
--------- --------- --------- ---------
Policyholder benefits 127.0 85.4 443.0 306.6
Interest credited to policyholders 5.4 3.8 18.6 14.9
Change in deferred acquisition costs (18.0) (16.7) (65.5) (51.1)
Amortization of present value of future profits 1.6 0.8 5.2 3.0
Commissions and general expenses, net of
allowances 64.6 53.1 237.5 181.1
Amortization of deferred loan fees relating to
refinancing of credit facility -- -- -- 1.8
--------- --------- --------- ---------
Total benefits and expenses 180.6 126.4 638.8 456.3
--------- --------- --------- ---------
Income before income taxes 26.0 20.5 96.5 66.5
Income taxes, excluding capital gains (8.1) (7.3) (28.9) (23.3)
Income taxes on capital gains (2) (0.5) (0.1) (3.7) (0.7)
Income tax benefit on early extinguishment of debt (2) -- -- -- 0.6
--------- --------- --------- ---------
Total income taxes (1) (8.6) (7.4) (32.6) (23.4)
--------- --------- --------- ---------
Net income $ 17.4 $ 13.1 $ 63.9 $ 43.1
========= ========= ========= =========
Per Share Data (Diluted):
Net income $ 0.30 $ 0.23 $ 1.13 $ 0.78
========= ========= ========= =========
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Universal American Financial Corp. Page 8
February 16, 2005
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
In millions, except per share amounts
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
INCOME BEFORE TAXES BY SEGMENT 2004 2003 2004 2003
- ------------------------------ ------- ------- ------- -------
Career Agency $ 15.5 $ 14.0 $ 57.6 $ 46.4
Senior Market Brokerage 5.0 5.8 17.5 17.7
Medicare Advantage(5) 4.3 -- 10.1 --
Administrative Services 3.5 2.9 13.1 11.0
Corporate (3.7) (2.4) (12.4) (10.7)
Realized gains 1.4 0.2 10.6 2.1
------- ------- ------- -------
Income before income taxes $ 26.0 $ 20.5 $ 96.5 $ 66.5
======= ======= ======= =======
Balance Sheet Data December 31, 2004 December 31, 2003
- ---------------------------------------------------------- ----------------- -----------------
Total Cash and Investments $ 1,378.3 $ 1,286.5
Total Assets $ 2,017.1 $ 1,780.9
Total Policyholder Related Liabilities $ 1,343.0 $ 1,251.1
Total Outstanding Bank Debt $ 101.1 $ 38.2
Other Long Term Debt $ 75.0 $ 75.0
Total Stockholders' Equity $ 419.4 $ 345.7
Book Value per Common Share $ 7.60 $ 6.41
Diluted Weighted Average Shares Outstanding-Year to Date 56.6 55.0
Non-GAAP Financial Measures *
Total Stockholders' Equity (excluding FAS 115) * $ 378.4 $ 305.9
Diluted Book Value per Common Share (excluding FAS 115) *(3) $ 6.71 $ 5.54
Debt to Total Capital Ratio * (4) 18.2% 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 overall effective tax rate for the quarter ended December 31, 2004 was
33.2% and was 36.1% for the same quarter of 2003. The overall effective tax
rate for the year ended December 31, 2004 was 33.8% and was 35.2% for the
same period of 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 common share (excluding FAS 115) 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 segment, 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
February 16, 2005
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
reconciliation to GAAP measures, are presented below.
TOTAL STOCKHOLDERS' EQUITY (EXCLUDING FAS 115)
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Total stockholders' equity $ 419.4 $ 345.7
Less: Accumulated other comprehensive income (41.0) (39.8)
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Total Stockholders' Equity (excluding FAS 115) $ 378.4 $ 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)
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Total stockholders' equity $ 419.4 $ 345.7
Proceeds from assumed exercises of vested options 15.9 15.2
------------ ------------
435.3 360.9
============ ============
Diluted common shares outstanding 58.8 57.9
============ ============
Diluted Book Value per Common Share $ 7.41 $ 6.23
============ ============
Total stockholders' equity (excluding FAS 115) 378.4 305.9
Proceeds from assumed exercises of vested options 15.9 15.2
------------ ------------
394.3 321.1
============ ============
Diluted common shares outstanding 58.8 57.9
============ ============
Diluted Book Value per Common Share (excluding FAS
115) $ 6.71 $ 5.54
============ ============
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
February 16, 2005
UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP FINANCIAL MEASURES
In millions
(Unaudited)
DEBT TO TOTAL CAPITAL RATIO
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Total stockholders' equity $ 419.4 345.7
Total outstanding bank debt 101.1 38.2
Total outstanding trust preferred securities 75.0 75.0
------------ ------------
Total Capital $ 595.5 $ 458.9
------------ ------------
Debt to Total Capital Ratio 17.0% 8.3%
------------ ------------
Total stockholders' equity (excluding FAS 115) $ 378.4 $ 305.9
Total outstanding bank debt 101.1 38.2
Total outstanding trust preferred securities 75.0 75.0
------------ ------------
Total Capital $ 554.5 $ 419.1
------------ ------------
Debt to Total Capital Ratio 18.2% 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.
RETURN ON EQUITY
THREE MONTHS YEAR ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Net Income $ 17.4 $ 63.9
============ ============
Total stockholders' equity:
Beginning of period $ 395.7 $ 345.7
End of period 419.4 419.4
------------ ------------
Average stockholders' equity $ 407.6 $ 382.3
============ ============
Return on Equity 17.1% 16.7%
============ ============
Total stockholders' equity (excluding FAS 115):
Beginning of period $ 357.3 $ 305.9
End of period 378.4 378.4
------------ ------------
Average stockholders' equity (excluding FAS 115) $ 367.9 $ 342.2
============ ============
Return on Equity (excluding FAS 115) 18.9% 18.7%
============ ============
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
February 16, 2005
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")
THREE MONTHS YEAR ENDED
ENDED DECEMBER DECEMBER
31, 2004 31, 2004
Administrative Services pre-tax income $ 3.5 $ 13.1
Depreciation, amortization and interest 0.6 2.2
-------------- ----------
Earnings before interest, taxes,
depreciation and amortization $ 4.1 $ 15.3
============== ==========
In addition to pre-tax 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 pre-tax income or
cash flows from operating activities (as determined in accordance with generally
accepted accounting principles).
Medicare Advantage Earnings before Interest, Taxes, Depreciation and
Amortization ("EBITDA")
THREE MONTHS YEAR ENDED
ENDED DECEMBER DECEMBER
31, 2004 31, 2004
Medicare Advantage pre-tax income $ 4.4 $ 10.1
Depreciation, amortization and interest 0.7 2.1
-------------- -----------
Earnings before interest, taxes,
depreciation and amortization $ 5.1 $ 12.2
============== ===========
* Heritage was acquired on May 28, 2004. Its results prior to acquisition are
not included in our consolidated results.
In addition to pre-tax income, we also evaluate the results of our Medicare
Advantage 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 pre-tax income or cash flows
from operating activities (as determined in accordance with generally accepted
accounting principles).
#### #### ####
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