Health Net Posts Q3 Loss, Cuts 2014 EPS View; Enters Into Deal With Cognizant

(RTTNews) - Health Net Inc. (HNT) announced a 2014 third quarter GAAP net loss of $8.9 million, or a loss of $0.11 per share, compared to GAAP net income of $66.8 million, or $0.83 per share, for the third quarter of 2013.

The GAAP net loss resulted from approximately $106 million of expenses incurred in the third quarter of 2014 related to the company's new master services agreement with Cognizant. The $106 million is comprised of an approximately $85 million, non-cash, impairment of the company's information technology assets that will be sold to Cognizant upon completion of the transaction and approximately $21 million in other transaction-related and other expenses.

Health Net's total revenues increased 36.6 percent in the third quarter of 2014 to $3.8 billion from $2.8 billion in the third quarter of 2013.

Analysts polled by Thomson Reuters expected the company to report earnings of $0.73 per share and revenues of $3.71 billion for the quarter. Analysts' estimates typically exclude special items.

The company revised GAAP earnings per share to at least $1.95 from at least $3.00 for the full year 2014, due to the impact of incurred and expected costs related to the Cognizant transaction. Analysts expect annual earnings of $2.30 per share.

The company raised the Western Region and Government Contracts earnings per share to at least $2.25 from at least $2.22 for the full year 2014.

In a separate press release, Health Net said that it has entered into a master services agreement with Cognizant Healthcare Services, LLC, an indirect, wholly owned subsidiary of Cognizant Technology Solutions Corporation (CTSH).

Health Net previously announced on August 6, 2014, that it had signed a Letter of Intent with Cognizant as part of Health Net's commitment to address its scale issue and reduce administrative costs.

As per the terms of the seven-year master services agreement, Cognizant will provide consulting, technology and administrative services to Health Net in the certain areas: claims management, membership and benefits configuration, customer contact center services, information technology, quality assurance, appeals and grievance services, and medical management support.

As part of the agreement, Cognizant will be responsible for meeting specific targets for improving the quality, effectiveness and efficiency of many of Health Net's operating metrics. Such metrics include claims processing and routing times, customer contact center response times, and contact center customer satisfaction targets.

Under the agreement, the services Cognizant will provide must meet all regulatory compliance requirements, which will be monitored through Health Net's dedicated governance and oversight structure.

In addition, Health Net and Cognizant have entered into an asset purchase agreement for the sale of certain Health Net software assets and related intellectual property to Cognizant, including Health Net's technology platform. Cognizant expects to use and develop this technology platform to provide enhancements to Health Net's operations.

The master services agreement is currently expected to generate approximately $150 million to $200 million in annual general and administrative and depreciation expense savings by 2017.

The transaction, including the related asset purchase, is expected to close in the first half of 2015, subject to receipt of required regulatory approvals.