UnitedHealth Group Incorporated (UNH)

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Unitedhealth Group (UNH)

Q4 2010 Earnings Call

January 20, 2011 8:45 am ET

Executives

Jack Larsen - CFO, Public and Senior Sector Group

Dan Schumacher - CFO, UnitedHealthcare

Tom Paul - COO

Gail Boudreaux - Executive Vice President and President of UnitedHealthcare

Stephen Hemsley - Chief Executive Officer, President and Executive Director

Analysts

Ana Gupte - Bernstein Research

Christian Rigg - Susquehanna Financial Group, LLLP

Joshua Raskin - Barclays Capital

Joseph France - Gleacher & Company, Inc.

Peter Costa - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

Kimberly Purvis

Charles Boorady - Crédit Suisse AG

Scott Fidel - Deutsche Bank AG

Matthew Borsch - Goldman Sachs Group Inc.

David Windley - Jefferies & Company, Inc.

Carl McDonald - CIBC World Markets

John Rex - JP Morgan Chase & Co

Christine Arnold - Cowen and Company, LLC

Kevin Fischbeck - BofA Merrill Lynch

Thomas Carroll

Doug Simpson - Morgan Stanley

Presentation

Operator

Good morning. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Unitedhealth Group Fourth Quarter and Full Year 2010 Earnings Conference Call. [Operator Instructions] This call and its contents are the property of UnitedHealth Group. Any use, copying or distribution without written permission from UnitedHealth Group is strictly prohibited. Here are some important introductory information. This call will reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amounts is available on the financial reports and SEC filings section of the company's Investors page at www.unitedhealthgroup.com. This call contains forward looking statements under U.S. Federal Securities Laws. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risk and uncertainties can be found in the reports that we file with the Securities and Exchange Commission from time to time, including the cautionary statements included in our current and periodic filings. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated January 20, 2011, which may be accessed from the Investors page of the company's website at www.unitedhealthgroup.com.

I would now like to turn the conference over to the President and Chief Executive Officer of Unitedhealth Group, Stephen Hemsley.

Stephen Hemsley

Good morning, and thank you for joining us. Today, we will review our 2010 performance and fourth quarter results, and update you on actions we expect will help drive continued success for Unitedhealth Group in 2011 and beyond.

Fourth quarter 2010 continued to build on the execution fundamentals that are enabling us to better address the needs of the markets we serve. Those fundamentals of responsiveness and service, practical consumer-focused innovation and cost management to protect the affordability of healthcare helped us improve our business performance in three areas in 2010.

First, revenue growth was driven by a broad-based membership growth and higher retention across our Health Benefits businesses, combined with significant, larger customer and revenue opportunities within our Health Services businesses. Fourth quarter revenues of $24 billion brought full year revenues to $94.2 billion, an increase of 8% over 2009. Four of our businesses produced double-digit percentage year-over-year revenue growth, both in the fourth quarter and for the full year.

Second, effective cost management disciplines improved across all areas of 2010, with the Health Benefit businesses benefiting from a general moderation in healthcare consumption as well. The fourth quarter operating margin of 7.5% brought the full year margin to a solid 8.4%.

And third, we took steps to further strengthen our capital disciplines. We reduced our debt levels to the current 30% of total capitalization, giving us substantial future flexibility. We significantly increased dividend levels for the first time with a commitment to build from this starting point. We again reduced the outstanding share count by 5% year-over-year, and we expect to continue our share repurchase program in 2011 as well.

And throughout 2010, we were opportunistic in acquiring properties that strengthen the market positions of our businesses. We did this while deploying the capital required internally to keep our businesses in leadership positions in the development and use of technology and in advancing more modern and integrated business approaches.

We reported fourth quarter earnings of $0.94 per share, which included roughly $0.125 in after-tax charges. We had improving metrics across the board and operating cash flows of $1.4 billion. Full year 2010 results included earnings of $4.10 per share, a 26.5% improvement year-over-year, with cash flows from operations of $6.3 billion. Cash flows were more than 1.3x full year net earnings.

As we said, these results were driven by strong and consistent execution on the fundamentals of medical cost management, product development and innovation and responsive customer service. And they were supported by specific actions to strengthen market image and reputation. Our Health in Numbers reputation campaign is delivering results even in its introductory stage. The simplified UnitedHealthcare branding is making it easier to do business with us across all of Health Benefits markets.

Through our Health Services businesses, consumers are learning that our vast healthcare data and resources support them in a highly personalized way, as they pursue better health and more effective use of the healthcare system. And we're making significant advances in working across the healthcare delivery ecosystem to help connect, inform, modernize and advance consistent quality of sustainable affordable care.

Over the past two years, we have recommitted to innovation by focusing on new ideas that are practical and valued by customers. A sample of our efforts in 2010 includes the health impact suite from Ingenix, which manages patient and population level analysis and identifies people at risk for potentially serious chronic disease such as diabetes or heart disease years before onset. This suite is becoming a leading information technology serving both payers and accountable care organizations. The Diabetes Prevention and Control Alliance has been purchased by national account customers and a leading regional health plan. Together with UnitedHealthcare members in a number of our local markets, nearly two million Americans have access to what we believe is a groundbreaking approach in preventing and controlling diabetes. The Ingenix physician model office provides a blueprint to accelerate the adoption of health IT, making it faster, easier and minimally disruptive for physicians to implement. And the UnitedHealthcare oncology payment pilot now reimburses oncologists based on an entire cancer treatment program.

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