Oxford Health 2Q
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Oxford Health 2Q
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(FOOL CONFERENCE CALL
SYNOPSIS)* by Greg Markus (MF Boring)
Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OXHP)") else Response.Write("(NASDAQ: OXHP)") end if %> ANN ARBOR, Mi., August 6, 1996/FOOLWIRE/ -- This morning, Oxford Health Plans reported 2Q:96 EPS of $0.28, a penny above analysts' consensus estimate and at the top end of the range of projections as reported in First Call. That represents a 75% increase in EPS over the year-ago quarter's $0.16. Total revenues for the quarter were $725.3 million, also a 75% gain over a year ago.
Oxford's enrollment increased by more than 120,000 during the quarter, to total approximately 1,321,100 members at June 30, 1996. Approximately 85,000 net new members have enrolled since then, bringing total membership to over 1,406,000 as of August 1, 1996. In a conference call this morning, the company said they are projecting total membership to reach 1.500 to 1.525 million by the end of 1996. Oxford's medical-loss ratio for second quarter of 1996 was 80.3%, slightly better than expectations. The company is expecting that ratio to be slightly lower in 3Q and 4Q and expects a figure around 80.1% for the full year. Administrative expenses were 15.9% of operating revenue for the second quarter of 1996, compared with 18.2% for the second quarter of 1995 and 18.7% for the full year of 1995. With gains in productivity expected to come from the company's investments in state-of-the-art computerized information systems, Oxford is targeting SG&A expenses to continue dropping as a percentage of revenue at least through 1997.
For the second quarter, operating earnings as a percentage of total revenues increased to 5.6% as compared with last year's 5.2%. Net margins increased to 3.15% versus the year-ago 2.79%.
As Chairman and CEO Stephen Wiggins noted in the conference call, this expansion in Oxford's margins occurred during a period in which competitors had been cutting their premiums to try to attract new customers -- and have been running into severe profitability problems as a consequence.
In contrast to competitors' strategies, OXHP concluded, correctly, that medical costs were rising and that premiums needed to rise accordingly. Competitors gambled that price alone would attract new customers, while Oxford maintained that its premium branded product at a somewhat higher price point would continue to attract strong membership growth -- which it certainly has.
As competitors cut their premiums earlier in the year, Oxford's rates were 10-15% above the competition. With competitors' recent increases (and Oxford's need to increase its prices comparatively less), the difference has been reduced to approximately 5.5%. This augurs well for further membership growth for Oxford, and the company is "very, very positive" about this trend.
Oxford's membership has grown 31% in the past six months. According to Wiggins, the company expects "very exciting top line growth" to continue, along with stable-to-growing profit margins.
The company intends to de-emphasize certain less profitable market niches (such as Medicaid coverage in New York), while expanding into new markets (such as Florida, where it has recently been licensed and will enter the market through its St. Augustine Health Plans, in the Tampa/Orlando area).
Wiggins noted that "a lot of" Oxford's officers had been buying the company's stock in the low $30s during the recent slump in Oxford's share price, which occurred as one competitor after another warned of their problems maintaining profit growth.
Wiggins admitted that Oxford had experienced a few hiccups in trying to cope with their "phenomenal growth" this year but that they continue to monitor service and costs and consider themselves to be "the premier service company." Oxford is particularly focusing on information technologies to help them control costs and provide outstanding service. The company believes it now has in place the most advanced computer information system in the industry.
In reply to a question, Wiggins said that the company continues to look for acquisitions, particularly in the medical management business, but finds most potential targets to be too expensive at present. "We'll only make an acquisition if it is accretive," said Wiggins.
As for the recently announced merger of Aetna and US Healthcare, Oxford sees that as "great news" for Oxford. Some former Aetna customers may come over to Oxford if the new combined company comes to look more like USHC (which is positioned somewhat below Aetna and Oxford in the brand space) and less like the "old" Aetna.
In terms of guidance, the company estimates 1996 revenues to come in around $3.0 to $3.1 billion. They forecast EPS to be in the range of $0.30 to $0.32 for the current quarter and $1.21 to $1.22 for the full year.
As for the balance sheet, OXHP continues to have zero long term debt. Current assets of $852 million are comfortably above current liabilities of $493 million, even with the company having added significantly to cash reserves for anticipated medical expenses. (Reserves stood at $427.5 million at the end of 2Q, as compared with $300.5 million at the beginning of the year.)
One last, personal, note. This conference call was my first opportunity to listen to CEO Wiggins speak. I've been fortunate to spend time around some very smart folks in my lifetime, and as a result, I'm not easily impressed. I was *very* impressed by Wiggins. If Bill and Hillary (or Bob and Elizabeth?) ever feel the urge to take another bite at national healthcare policy, they could do a lot worse than ask Stephen Wiggins for a briefing. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |