WellPoint Reports First Quarter 2013 Results
WellPoint, Inc. (NYSE: WLP) today announced that first quarter 2013 net income was $885.2 million, or $2.89 per share, including net investment losses of $0.05 per share. Net income in the first quarter of 2012 was $856.5 million, or $2.53 per share, and included $0.19 per share of net income related to certain items.
Excluding the items noted in each period, adjusted net income was $2.94 per share in the first quarter of 2013, an increase of 25.6 percent compared with adjusted net income of $2.34 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”).
“I am encouraged by the operating trends we experienced in the first quarter and the momentum we have as an enterprise. I am optimistic about the prospects for WellPoint and the opportunity we have to deliver value for our customers, members, associates and shareholders,” said Joseph Swedish, chief executive officer. “As I look ahead at the coming marketplace changes, there will be challenges and opportunities, and I believe we will be successful in helping to enhance health care quality and affordability across our markets and expand our role as a trusted partner advancing solutions to this country’s health care challenges.”
“Our quarterly results were ahead of our plan both at the operating gain level and below the line, and were supported by strong quality metrics,” said Wayne DeVeydt, executive vice president and chief financial officer. “We have modestly raised our full year EPS outlook as a reflection of our performance, but are still being prudent as many of the uncertainties inherent in our original guidance still exist.”
Medical enrollment exceeded 35.8 million members at March 31, 2013, an increase of 2.1 million members, or 6.3 percent, from approximately 33.7 million at March 31, 2012. State Sponsored membership increased by approximately 2.7 million members due to the acquisition of Amerigroup in the fourth quarter of 2012. This was partially offset by a decline of 429,000 members in the Commercial segment, the majority of which occurred during 2012.
Medical enrollment declined by 321,000 members, or 0.9 percent, in the first quarter of 2013. Senior membership decreased by 130,000 members due to product portfolio changes in the Medicare Advantage market. Enrollment also declined modestly in the fully insured Local Group, State Sponsored and Individual businesses. Self-funded membership was stable in the quarter and favorable to the Company’s expectation as of March 31, 2013.
Operating revenue totaled $17.5 billion in the first quarter of 2013, an increase of $2.4 billion, or 15.8 percent, compared with approximately $15.2 billion in the prior year quarter. The increase was driven by the inclusion of Amerigroup business in the first quarter of 2013. The increase from Amerigroup was partially offset by the reduction in fully insured Local Group and Senior membership.
The benefit expense ratio was 83.7 percent in the first quarter of 2013, an increase of 40 basis points from 83.3 percent in the first quarter of 2012. The increase was due to 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. The increase from Amerigroup was partially offset by an improvement in the Local Group benefit expense ratio, reflecting lower than expected medical costs in the current year quarter.
The Company continues to expect that underlying Local Group medical cost trend will be in the range of 7.0 percent, plus or minus 50 basis points, for the full year 2013. Unit cost increases continue to be the primary driver of medical trend.
Days in Claims Payable (“DCP”) was 40.7 days as of March 31, 2013, a decline of 5.2 days from 45.9 days reported as of December 31, 2012. This comparison was impacted significantly by the timing of the Amerigroup acquisition closing, as the Company’s fourth quarter 2012 benefit expense included only eight days of Amerigroup operating activity, while the year-end 2012 medical claims payable balance fully reflected the acquired business.
If Amerigroup’s operating activity had been included for the entire fourth quarter of 2012, DCP would have been 39.5 days as of December 31, 2012. Relative to this base, DCP increased by 1.2 days in the first quarter of 2013, due primarily to a seasonal decline in claims payment cycle times.
The SG&A expense ratio was 13.5 percent in the first quarter of 2013, a decrease of 80 basis points from 14.3 percent in the first quarter of 2012. The decline was driven by the inclusion of Amerigroup business in the current year quarter, as this business carries a lower average SG&A expense ratio than the consolidated Company average. The Company’s SG&A expense ratio was essentially flat without Amerigroup.
The Company’s effective income tax rate was 31.2 percent in the first quarter of 2013, a decline of 340 basis points from 34.6 percent in the prior year quarter, primarily due to the inclusion of Amerigroup in the Company’s state tax apportionment factors calculation and favorable tax planning strategies, which produced a lower effective state tax rate.
First quarter 2013 operating cash flow totaled $956.9 million, or approximately 1.1 times net income.
During the first quarter of 2013, the Company repurchased approximately 5.5 million shares of its common stock, or 1.8 percent of the shares outstanding as of December 31, 2012, for $340.2 million, or a weighted average price of $62.41 per share. As of March 31, 2013, the Company had approximately $1.5 billion of Board-approved share repurchase authorization remaining.
During the first quarter of 2013, the Company paid a quarterly dividend of $0.375 per share, representing a distribution of cash totaling $113.4 million.
During the first quarter of 2013, the Company recorded net investment losses of $21.1 million pre-tax, consisting of other-than-temporary losses on investments totaling $37.9 million, partially offset by net realized gains from the sale of securities totaling $16.8 million. In the first quarter of 2012, the Company recorded net investment gains of $96.0 million pre-tax, consisting of net realized gains from the sale of securities totaling $106.9 million, partially offset by other-than-temporary impairments totaling $10.9 million.
As of March 31, 2013, the Company’s net unrealized gain position in the investment portfolio was approximately $1.3 billion, consisting of net unrealized gains on fixed maturity and equity securities totaling $816.6 million and $454.6 million, respectively. As of March 31, 2013, cash and investments at the parent company totaled $1.4 billion.
WellPoint, Inc. has the following reportable segments: Commercial Business, which includes the Local Group, National, UniCare and Specialty Products lines of business (including 1-800 CONTACTS in the first quarter of 2013); Consumer Business, which includes the Individual, Senior and State Sponsored lines of business (including Amerigroup in the first quarter of 2013); and Other, which includes Comprehensive Health Solutions, Federal Employee Program (“FEP”) business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.
Operating gain in the Commercial segment was $1.1 billion in the first quarter of 2013, an increase of $115.7 million, or 11.7 percent, from $991.8 million in the first quarter of 2012. The increase was driven primarily by lower than anticipated medical costs in the Local Group business during the current year quarter.
Operating gain in the Consumer segment was $247.5 million in the first quarter of 2013, an increase of $29.8 million, or 13.7 percent, from $217.7 million in the first quarter of 2012. The increase reflected the inclusion of Amerigroup business in the current year quarter, partially offset by lower operating margins in the Individual business and the impact of the Company’s expansion of its CareMore Medicare Advantage model.
Operating gain in the Other segment was $12.6 million in the first quarter of 2013, an increase of $9.5 million from $3.1 million in the first quarter of 2012. The increase was driven primarily by lower corporate and other general and administrative costs.
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.
Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time (“EDT”) to discuss the company’s first 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:
An access code is not required for today’s conference call. The access code for the replay is 272699. The replay will be available from 11 a.m. EDT today until the end of the day on May 6, 2013. The call will also be available through a live webcast at . A webcast replay will be available following the call.
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 .