WellPoint Reports Third Quarter 2012 Results WellPoint Reports Third Quarter 2012 Results
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¦Net income was $2.15 per share, including net gains of $0.06 per share. Adjusted net income was $2.09 per share (refer to GAAP Reconciliation table).
¦Medical enrollment was approximately 33.5 million members as of September 30, 2012.
¦Full year 2012 net income is expected to be in the range of $7.37 to $7.47 per share, including net gains of $0.07 per share. The Company continues to expect adjusted net income in the range of $7.30 to $7.40 per share (refer to GAAP Reconciliation table).
¦Board of Directors declares fourth quarter 2012 dividend of $0.2875 per share.
INDIANAPOLIS--(BUSINESS WIRE)--Nov. 7, 2012-- WellPoint, Inc. (NYSE: WLP) today announced that third quarter 2012 net income was $691.2 million, or $2.15 per share. These results included $0.06 per share of net income resulting from net investment gains, partially offset by acquisition related costs. Net income in the third quarter of 2011 was $683.2 million, or $1.90 per share, and included net investment gains of $0.13 per share.
Excluding the items noted in each period, adjusted net income was $2.09 per share in the third quarter of 2012, an increase of 18.1 percent compared with adjusted net income of $1.77 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”).
“Our third quarter results compared favorably to our expectations and reflected more consistent execution across our businesses. We are preparing for a successful Amerigroup integration and have recently taken steps to better align business level leadership to execute on the growth opportunities before us,” said John Cannon, interim president and chief executive officer.
“The third quarter reflected a combination of improved core operating performance, administrative expense management, and favorability in the capital management of the company. Our earnings were supported by strong adjusted operating cash flow in the quarter and sequential increases in medical claims reserves and days in claims payable,” said Wayne DeVeydt, executive vice president and chief financial officer. “Operating trends in the quarter increase our confidence in our full year 2012 outlook of $7.30 to $7.40 in adjusted EPS.”
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment was approximately 33.5 million members at September 30, 2012, a decrease of 862,000 members, or 2.5 percent, from approximately 34.4 million at September 30, 2011. Membership in the Local Group and National businesses declined by 694,000 and 315,000, respectively, as the Company repositioned product offerings in the New York small group market and adjusted its administrative fee structure for certain National Accounts in 2012. Enrollment was also impacted by economy-related in-group membership attrition and competitive situations in certain Local Group markets.
The declines in Local Group and National were partially offset by membership growth in the Senior and State Sponsored businesses. Senior membership increased by 96,000, primarily due to the Company’s geographic expansion into new Medicare Advantage service areas for 2012. State Sponsored enrollment increased by 42,000, due to growth in existing programs.
Operating Revenue: Operating revenue exceeded $15.1 billion in the third quarter of 2012 and was essentially stable compared with the prior year quarter. Premium revenue declined by $144.5 million, or 1.0 percent, as the impact of lower fully insured Local Group membership was partially offset by growth in the Senior business and premium rate increases designed to cover cost trends. Other revenue increased by $130.6 million, primarily due to the Company’s acquisition of 1-800 CONTACTS, Inc. during the second quarter of 2012.
Benefit Expense Ratio: The benefit expense ratio was 85.4 percent in the third quarter of 2012, an increase of 30 basis points from 85.1 percent in the third quarter of 2011. Consistent with the Company’s expectation, the increase occurred in the Consumer reporting segment. Within that segment, the benefit expense ratio for Senior business increased due to lower risk score revenue in the current year quarter, and the ratio for State Sponsored business increased due to higher medical costs in California. The increase in the Consumer segment benefit expense ratio was partially offset by an improvement in the Commercial segment ratio.
Medical Cost Trend: For the full year of 2012, 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. Unit cost increases continue to be the primary driver of overall medical cost trend, while utilization moderated during the third quarter of 2012.
Days in Claims Payable: Days in Claims Payable (“DCP”) as of September 30, 2012, was 42.4 days, an increase of 1.6 days from 40.8 days at June 30, 2012. This was driven primarily by a sequential increase in medical claims reserves and claims payment seasonality, including the impact of fewer claims processing days in the third quarter.
SG&A Expense Ratio: The SG&A expense ratio was 13.7 percent in the third quarter of 2012, a decrease of 30 basis points from 14.0 percent in the third quarter of 2011. The decrease reflected savings from the Company’s ongoing efficiency initiatives and lower compensation expense in the current year quarter, partially offset by increased costs related to the integration and expansion of CareMore.
Effective Income Tax Rate: The Company’s effective income tax rate was 32.6 percent in the third quarter of 2012, compared with 34.6 percent in the third quarter of 2011. The decline resulted primarily from the favorable settlement of certain prior year tax audits during the third quarter of 2012.
Operating Cash Flow: For the first nine months of 2012, operating cash flow was approximately $2.0 billion, or 0.9 times net income. Third quarter 2012 operating cash flow totaled $240.2 million and was unfavorably impacted by the timing of the July monthly payment from the Centers for Medicare & Medicaid Services (“CMS”), which was received in the second quarter. Including this payment in the third quarter, adjusted operating cash flow would have been $951.9 million, or approximately 1.4 times net income (refer to GAAP Reconciliation table).
Operating cash flow totaled $3.3 billion during the first nine months of 2011 and included 10 monthly payments from CMS. Excluding the October 2011 CMS payment, adjusted operating cash flow was $2.7 billion for the first nine months of 2011 (refer to GAAP Reconciliation table).
Share Repurchase Program: During the third quarter of 2012, the Company repurchased 11.3 million shares of its common stock for $655.3 million. The Company repurchased an additional 10.4 million shares for $634.3 million during October, bringing its year-to-date repurchase total for the first 10 months of 2012 to 39.1 million shares for approximately $2.5 billion. As of October 31, 2012, the Company had approximately $1.9 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the third quarter of 2012, the Company paid a quarterly dividend of $0.2875 per share, representing a distribution of cash totaling $90.7 million. Cash dividend payments totaled $280.0 million for the first nine months of 2012. On November 6, 2012, the Board of Directors declared a quarterly dividend to shareholders for the fourth quarter of 2012 of $0.2875 per share. The fourth quarter dividend is payable on December 21, 2012, to shareholders of record at the close of business on December 7, 2012.
Investment Portfolio & Capital Position: During the third quarter of 2012, the Company recorded net investment gains of $50.8 million pre-tax, consisting of net realized gains from the sale of securities totaling $54.6 million, partially offset by other-than-temporary impairments totaling $3.8 million. In the third quarter of 2011, the Company recorded net investment gains of $72.0 million pre-tax, consisting of net realized gains from the sale of securities totaling $94.9 million, partially offset by other-than-temporary impairments totaling $22.9 million.
As of September 30, 2012, 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 $980.6 million and $341.0 million, respectively. As of September 30, 2012, cash and investments at the parent company totaled $4.9 billion, reflecting debt issuances during the third quarter in connection with the pending acquisition of Amerigroup Corporation.
REPORTABLE SEGMENTS
WellPoint, Inc. has the following reportable segments:
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