WellPoint Reports Second Quarter 2013 Results

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WellPoint Reports Second Quarter 2013 Results

  • Net income was $2.64 per share, including income of $0.04 per share from certain items. Adjusted net income was $2.60 per share (refer to GAAP reconciliation table).
  • Medical enrollment totaled approximately 35.7 million members as of June 30, 2013.
  • Full year 2013 net income is now expected to be at least $8.00 per share, on both a GAAP and Adjusted basis (refer to GAAP reconciliation table).
  • Board of Directors declares third quarter 2013 dividend of $0.375 per share.

INDIANAPOLIS--(BUSINESS WIRE)-- WellPoint, Inc. (NYS: WLP) today announced that second quarter 2013 net income was $800.1 million, or $2.64 per share. These results included net investment gains of approximately $0.09 per share, partially offset by costs of $0.05 per share related to the early termination notice of Amerigroup's pharmacy benefits management ("PBM") contract. Net income in the second quarter of 2012 was $643.6 million, or $1.94 per share, and included net costs of approximately $0.10 per share for litigation and acquisition-related expenses, partially offset by net investment gains.


Excluding the items noted in each period, adjusted net income was $2.60 per share in the second quarter of 2013, an increase of 27.5 percent compared with adjusted net income of $2.04 per share in the prior year quarter (refer to GAAP reconciliation table for a reconciliation to the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles, or "GAAP").

"We are pleased with our second quarter results and encouraged by the positive momentum we have across the organization. Our Commercial businesses continue to perform well and we have achieved improvements in our Medicaid operations, largely reflecting benefits from the Amerigroup transaction," said Joseph Swedish, chief executive officer. "Looking ahead, we continue to actively prepare for the coming marketplace changes, and believe we are well-positioned for the significant growth opportunities on the horizon. We're also seeing improving trends in the Local Group and National Account ASO markets, and expect membership growth from those areas next year."

"Our quarterly results were ahead of our forecast and supported by higher than expected operating cash flow, a strong balance sheet and stability in the operating environment. We have modestly raised our full year EPS and operating cash flow outlooks, reflecting our strong year-to-date performance. However, we are still being prudent given our continued expectation for a fluid environment and investment spending over the second half of the year as we prepare for 2014," said Wayne DeVeydt, executive vice president and chief financial officer.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled approximately 35.7 million members at June 30, 2013, an increase of approximately 2.1 million members, or 6.3 percent, from 33.5 million at June 30, 2012. Medicaid membership increased by approximately 2.6 million members due to the acquisition of Amerigroup in the fourth quarter of 2012. The increase in Medicaid enrollment was partially offset by declines of 415,000 and 49,000 members in the Commercial and Medicare businesses, respectively.

Medical enrollment decreased by 143,000 members, or 0.4 percent, sequentially during the second quarter of 2013, primarily due to attrition in the Commercial businesses.

Operating Revenue: Operating revenue totaled $17.6 billion in the second quarter of 2013, an increase of $2.4 billion, or 16.0 percent, compared with approximately $15.2 billion in the prior year quarter. The increase was driven by the inclusion of Amerigroup business in the second quarter of 2013. The increase from Amerigroup was partially offset by lower Medicare revenue due to the decline in membership. Operating revenue in the Commercial businesses declined slightly compared with the prior year quarter, as the impact of lower fully insured membership was mostly offset by rate increases designed to cover cost trends.

Benefit Expense Ratio:The benefit expense ratio was 83.9 percent in the second quarter of 2013, a decrease of 150 basis points from 85.4 percent in the second quarter of 2012. The decrease occurred primarily in the Commercial businesses and the California Medicaid operations. The Company experienced lower than anticipated medical cost trends in its Commercial businesses during the second quarter of 2013. As expected, the Company also recognized higher reimbursement for its Medi-Cal programs. These improvements were partially offset by the inclusion of Amerigroup business in the current year quarter, as this business carries a higher average benefit expense ratio than the consolidated Company average.

Medical claims reserves established at December 31, 2012, developed in-line with the Company's expectation during the first six months of 2013.

Medical Cost Trend:The Company now expects that underlying Local Group medical cost trend will be in the range of 6.5 percent, plus or minus 50 basis points, for the full year 2013. Unit cost increases continue to be the primary driver of medical trend, while utilization has been lower than anticipated through the first six months of 2013.

Days in Claims Payable:Days in Claims Payable ("DCP") was 40.5 days as of June 30, 2013, a decrease of 0.2 days from 40.7 days as of March 31, 2013.

SG&A Expense Ratio: The SG&A expense ratio was 14.0 percent in the second quarter of 2013, an increase of 30 basis points from 13.7 percent in the second quarter of 2012. The increase reflected higher investment spending during the current year quarter in preparation for coming growth opportunities and increased incentive compensation expense. These impacts were partially offset by the inclusion of Amerigroup business in the current period, as this business carries a lower average SG&A expense ratio than the consolidated Company average.

The Company's second quarter 2013 SG&A expense also included a one-time upfront expense of $25.0 million associated with the early termination notice of Amerigroup's PBM contract. Pending regulatory approval, the Company expects to begin transitioning these services to its existing pharmacy benefits manager in the middle of 2014, which is earlier than originally planned. This decision is expected to result in lower pharmacy costs for the Company over the duration of its PBM contract.

Operating Cash Flow: Second quarter 2013 operating cash flow exceeded the Company's expectation and totaled $425.2 million, or 0.5 times net income. The second quarter is a seasonally low quarter for the Company's operating cash flow due to the timing of income tax payments. The Company made two federal income tax payments totaling approximately $725 million in the second quarter of 2013.

Operating cash flow totaled approximately $1.4 billion, or 0.8 times net income, during the first six months of 2013, and the Company has increased its full year 2013 operating cash flow expectation to approximately $2.8 billion.

Share Repurchase Program: During the second quarter of 2013, the Company repurchased 3.7 million shares of its common stock for $275.3 million, or a weighted average price of $74.53 per share. During the first six months of 2013, the Company repurchased 9.1 million shares of its stock, or 3.0 percent of the shares outstanding as of December 31, 2012, for $615.5 million. As of June 30, 2013, the Company had $1.2 billion of Board-approved share repurchase authorization remaining.

Cash Dividend: During the second quarter of 2013, the Company paid a quarterly dividend of $0.375 per share, representing a distribution of cash totaling $112.7 million. On July 23, 2013, the Board of Directors declared a quarterly dividend to shareholders for the third quarter of 2013 of $0.375 per share. The third quarter dividend is payable on September 25, 2013, to shareholders of record at the close of business on September 10, 2013.

Investment Portfolio & Capital Position: During the second quarter of 2013, the Company recorded net investment gains of $45.2 million pre-tax, consisting of net realized gains from the sale of securities totaling $54.2 million, partially offset by other-than-temporary losses on investments totaling $9.0 million. In the second quarter of 2012, the Company recorded net investment gains of $64.6 million pre-tax, consisting of net realized gains from the sale of securities totaling $70.5 million, partially offset by other-than-temporary impairments totaling $5.9 million.

As of June 30, 2013, the Company's net unrealized gain position in the investment portfolio was $702.3 million, consisting of net unrealized gains on equity and fixed maturity securities totaling $479.8 million and $222.5 million, respectively. As of June 30, 2013, cash and investments at the parent company totaled approximately $1.8 billion.

REPORTABLE SEGMENTS

During the second quarter of 2013, the Company realigned its organizational structure to enhance execution and accountability as it positions for future growth. Based on this realignment, the Company now has the following reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid and Medicare businesses, National Government Services, and the Federal Employee Program, or "FEP"), and Other (comprised of unallocated corporate expenses and certain other businesses that do not meet the quantitative thresholds for separate reportable segment disclosure). Prior period segment information has been reclassified to conform to the current period presentation.

        
WellPoint, Inc.
Reportable Segment Highlights
(Unaudited)
 
(In millions)Three Months Ended June 30Six Months Ended June 30
20132012Change20132012Change
Operating Revenue
Commercial & Specialty Business$9,757.1$9,782.0(0.3%)$19,569.6$19,640.5(0.4%)
Government Business7,834.95,381.845.6%15,562.410,665.145.9%
Other 5.2  9.5 (45.3%) 11.5  17.9 (35.8%)
Total Operating Revenue17,597.215,173.316.0%35,143.530,323.515.9%
 
Operating Gain / (Loss)
Commercial & Specialty Business$939.4$869.08.1%$2,181.7$2,010.98.5%
Government Business298.4132.7124.9%431.1212.8102.6%
Other (6.1) (10.0)39.0% (13.5) (19.4)30.4%
Total Operating Gain1,231.7991.724.2%2,599.32,204.317.9%
 
Operating Margin
Commercial & Specialty Business9.6%8.9%70 bp11.1%10.2%90 bp
Government Business3.8%2.5%130 bp2.8%2.0%80 bp
Total Operating Margin7.0%6.5%50 bp7.4%7.3%10 bp

Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $939.4 million in the second quarter of 2013, an increase of $70.4 million, or 8.1 percent, from $869.0 million in the second quarter of 2012. The increase was driven primarily by lower than anticipated medical cost trends and disciplined underlying expense control in the current year quarter. These increases in operating gain were partially offset by higher investment spending in preparation for health insurance exchanges and increased compensation expense.

Government Business: Operating gain in the Government segment was $298.4 million in the second quarter of 2013, an increase of $165.7 million, or 124.9 percent, from $132.7 million in the second quarter of 2012. The increase reflected the inclusion of Amerigroup business in the current year quarter, favorable prior year reserve development and increased revenue in the Company's California Medicaid operations.

Other: The Company reported an operating loss of $6.1 million in the Other segment for the second quarter of 2013, compared with an operating loss of $10.0 million in the prior year quarter. The change reflected lower unallocated corporate expenses in the current period.

OUTLOOK

Full Year 2013:

  • Net income is now expected to be at least $8.00 per share, including net investment gains of $0.05 per share from the first six months of 2013, offset by costs of $0.05 per share related to the early termination notice of Amerigroup's PBM contract (refer to GAAP reconciliation table).
  • Year-end medical enrollment is expected to be in the range of 35.3 to 35.5 million.
  • Operating revenue is now expected to be in the range of $70.0 to $72.0 billion.
  • The benefit expense ratio now is expected to be in the range of 85.5 percent, plus or minus 50 basis points.
  • The SG&A expense ratio is now expected to be in the range of 13.5 to 14.0 percent.
  • Operating cash flowis now expected to be approximately $2.8 billion.

Basis of Presentation

  1. Operating revenue and operating gain are the key measures used by management to evaluate performance in each reporting segment. Operating gain is defined as operating revenue less benefit expense, selling expense, general and administrative expense, and cost of products. Operating gain is used to analyze profit or loss on a segment basis. Consolidated operating gain is a non-GAAP measure.
  2. Operating margin is defined as operating gain divided by operating revenue. Consolidated operating margin is a non-GAAP measure.
  3. Certain prior period amounts have been reclassified to conform to current period presentation.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time ("EDT") to discuss the company's second quarter results and updated outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:

  800-230-1059 (Domestic) 800-475-6701 (Domestic Replay)
612-234-9960 (International)320-365-3844 (International Replay)

An access code is not required for today's conference call. The access code for the replay is 272703. The replay will be available from 11 a.m. EDT today until the end of the day on August 6, 2013. The call will also be available through a live webcast at www.wellpoint.com. A webcast replay will be available following the call.

About WellPoint, Inc.

At WellPoint, we believe there is an important connection between our members' health and well-being, and the value we bring our customers and shareholders. So each day we work to improve the health of our members and their communities. And, we can make a real difference since we have nearly 36 million people in our affiliated health plans, and nearly 68 million people served through our subsidiaries. As an independent licensee of the Blue Cross and Blue Shield Association, WellPoint serves members as the Blue Cross licensee for California; and as the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as the Blue Cross Blue Shield licensee in 10 New York City metropolitan and surrounding counties and as the Blue Cross or Blue Cross Blue Shield licensee in selected upstate counties only), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.), and Wisconsin. In a majority of these service areas, WellPoint's plans do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, Blue Cross and Blue Shield of Georgia and Empire Blue Cross Blue Shield, or Empire Blue Cross (in the New York service areas). We also serve customers in several additional states through our Amerigroup subsidiary and in certain markets through our CareMore subsidiary. Our 1-800 CONTACTS, Inc. subsidiary offers customers online sales of contact lenses, eyeglasses and other ocular products. Additional information about WellPoint is available at www.wellpoint.com.

WellPoint, Inc.
Membership Summary
(Unaudited and in Thousands)
      
Change from
June 30,December 31,June 30,December 31,June 30,

Medical Membership

20132012201220122012
Customer Type
Local Group14,45414,63414,612(1.2%)(1.1%)
 
National Accounts6,8866,9997,098(1.6%)(3.0%)
BlueCard5,0575,0165,0610.8%(0.1%)
Total National11,94312,01512,159(0.6%)(1.8%)
 
Individual1,8151,8551,856(2.2%)(2.2%)
Medicaid4,4514,5201,888(1.5%)135.8%
Medicare1,4671,5861,516(7.5%)(3.2%)
FEP1,5361,5201,5161.1%1.3%
Total Medical Membership35,66636,13033,547(1.3%)6.3%
 
Funding Arrangement
Self-Funded20,12320,17620,177(0.3%)(0.3%)
Fully-Insured15,54315,95413,370(2.6%)16.3%
Total Medical Membership35,66636,13033,547(1.3%)6.3%
 
Reportable Segment
Commercial & Specialty Business28,21228,50428,627(1.0%)(1.4%)
Government Business7,4547,6264,920(2.3%)51.5%
Total Medical Membership35,66636,13033,547(1.3%)6.3%
 

Other Membership & Customers

Behavioral Health Membership24,25324,15624,6350.4%(1.6%)
Life and Disability Membership4,7364,8384,865(2.1%)(2.7%)
Dental Membership4,9174,8634,9001.1%0.3%
Managed Dental Membership4,8984,1034,11919.4%18.9%
Vision Membership4,6544,5194,3333.0%7.4%
Medicare Advantage Part D Membership614734666(16.3%)(7.8%)
Medicare Part D Stand-Alone Membership480574583(16.4%)(17.7%)
Retail Vision Customers3,1203,1303,090(0.3%)1.0%
WellPoint, Inc.
Consolidated Statements of Income
(Unaudited)
    
Three Months Ended
(In millions, except per share data)June 30
20132012Change
Revenues
Premiums$16,493.0$14,161.016.5%
Administrative fees988.5977.51.1%
Other revenue 115.7  34.8 232.5%
Total operating revenue Read Full Story

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