WellPoint Reports Fourth Quarter and Full Year 2012 Results and Provides 2013 Outlook
- Fourth quarter 2012 net income was $1.51 per share, including $0.48 per share of net income from certain items. Adjusted net income was $1.03 per share (refer to GAAP reconciliation table).
- Full year 2012 net income was $8.18 per share, including $0.62 per share of net income from certain items. Adjusted net income was $7.56 per share (refer to GAAP reconciliation table).
- Medical enrollment exceeded 36 million members as of December 31, 2012.
- Full year 2013 operating revenue is expected to be in the range of $71.5 to $73.0 billion.
- Full year 2013 net income is expected to be at least $7.60 per share, including integration costs related to the Amerigroup acquisition.
INDIANAPOLIS--(BUSINESS WIRE)-- WellPoint, Inc. (NYS: WLP) today announced that fourth quarter 2012 net income was $464.2 million, or $1.51 per share. These results included $0.48 per share of net income resulting primarily from a favorable income tax settlement and net investment gains, partially offset by acquisition related costs. Net income in the fourth quarter of 2011 was $335.3 million, or $0.96 per share, and included net investment losses of $0.03 per share.
Excluding the items noted in each period, adjusted net income was $1.03 per share in the fourth quarter of 2012, an increase of 4.0 percent compared with adjusted net income of $0.99 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").
Full year 2012 net income totaled approximately $2.7 billion, or $8.18 per share, including $0.62 per share of net income related to certain items. Full year 2011 net income was approximately $2.6 billion, or $7.25 per share, including net investment gains of $0.25 per share. Excluding the items noted in each period, adjusted net income was $7.56 per share for the full year of 2012, an increase of 8.0 percent compared with adjusted net income of $7.00 per share in 2011 (refer to GAAP reconciliation table).
"Our fourth quarter results were stronger than originally expected, reflecting improved operating performance, solid expense management and improving execution in our core operations," said John Cannon, interim president and chief executive officer. "We are encouraged by this strong performance, and believe it positions us well for a solid 2013. We are optimistic about our company's long-term positioning and believe the alignment of our core businesses, leadership and 2013 investments prepare us well for the emerging opportunities in health care."
"Our fourth quarter results reflected lower than anticipated Commercial medical costs and stability in our membership base. Our results were supported by the strength of our operating cash flow and year-end balance sheet metrics," said Wayne DeVeydt, executive vice president and chief financial officer. "We are encouraged by the performance of our associates and the business in the last six months, but we also want to retain an appropriately prudent stance in our outlook, in light of what we expect to be a fluid and dynamic market over the next 18 to 24 months. This is reflected in our initial expectation for 2013 EPS of at least $7.60."
Membership: Medical enrollment totaled 36.1 million members at December 31, 2012, an increase of approximately 1.9 million members, or 5.5 percent, from 34.3 million at December 31, 2011. The acquisition of Amerigroup added nearly 2.7 million State Sponsored members during the fourth quarter of 2012. Membership also grew by 74,000 in the Senior business, primarily due to the Company's geographic expansion into new Medicare Advantage service areas during 2012.
The increases in State Sponsored and Senior membership were partially offset by declines in the Local Group and National businesses of 578,000 and 321,000 members, respectively. These declines reflected the Company's small group product repositioning in New York and changes to its administrative fee structure for certain National Accounts. Enrollment was also impacted by economy-related in-group membership attrition and competitive situations in certain Local Group markets.
Operating Revenue:Operating revenue totaled approximately $15.3 billion in the fourth quarter of 2012, an increase of $95.8 million, or 0.6 percent, compared with the prior year quarter. This increase included revenue of approximately $316.8 million related to the Amerigroup and 1-800 CONTACTS acquisitions, collectively. Operating revenue declined organically by $221.0 million, or 1.5 percent, due primarily to lower fully insured Local Group membership volume.
Benefit Expense Ratio: The benefit expense ratio was 87.3 percent in the fourth quarter of 2012, a decrease of 30 basis points from 87.6 percent in the fourth quarter of 2011. The decline reflected an improvement in the Commercial segment benefit expense ratio, partially offset by increases in the Senior and State Sponsored businesses. The consolidated benefit expense ratio was below the Company's expectation for the quarter, due primarily to favorable Commercial medical cost experience.
Medical Cost Trend: For the full year 2012, underlying Local Group medical cost trend was near the low end of the 7.0 percent, plus or minus 50 basis points, range. Unit cost increases continue to be the primary driver of medical trend, while utilization moderated over the second half of 2012. The Company anticipates that underlying Local Group medical cost trend will increase during 2013 and be within the range of 7.0 percent, plus or minus 50 basis points, for the full year.
Days in Claims Payable: Including Amerigroup, Days in Claims Payable ("DCP") was 45.9 days as of December 31, 2012. This result was significantly impacted by the timing of the Amerigroup acquisition closing. The Company's fourth quarter 2012 benefit expense included only eight days of Amerigroup operating activity, while the year-end medical claims payable balance fully reflected the acquired business.
Excluding Amerigroup, DCP was 40.8 days as of December 31, 2012, a decrease of 1.6 days from 42.4 days as of September 30, 2012. This was driven primarily by favorable reserve development and business seasonality, including changes in the timing of claims payments. DCP was 0.2 days higher than the 40.6 days reported as of December 31, 2011.
SG&A Expense Ratio: The SG&A expense ratio was 15.8 percent in the fourth quarter of 2012, an increase of 110 basis points from 14.7 percent in the fourth quarter of 2011. The increase was driven primarily by closing costs related to the Amerigroup acquisition and other severance and impairment expense items recognized during the fourth quarter of 2012.
Effective Income Tax Rate: The Company's fourth quarter 2012 effective income tax rate was abnormally low as a result of the favorable settlement of certain tax issues with the IRS. This included amounts related to not-for-profit conversion and corporate reorganizations in prior years, as well as amounts associated with issues related to certain of WellPoint's acquired companies.
Operating Cash Flow: Fourth quarter 2012 operating cash flow totaled $759.8 million, or 1.6 times net income. Full year 2012 operating cash flow exceeded $2.7 billion and was 1.0 times net income.
Share Repurchase Program: During the fourth quarter of 2012, the Company repurchased 11.0 million shares of its common stock for $668.0 million. For the full year of 2012, the Company repurchased 39.7 million shares for $2.5 billion. As of December 31, 2012, the Company had approximately $1.8 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2012, the Company paid a quarterly dividend of $0.2875 per share, representing a distribution of cash totaling $87.1 million. Cash dividend payments totaled $367.1 million for the full year of 2012.
Investment Portfolio & Capital Position: During the fourth quarter of 2012, the Company recorded net investment gains of $85.7 million pre-tax, consisting of net realized gains from the sale of securities totaling $102.9 million, partially offset by other-than-temporary impairments totaling $17.2 million. In the fourth quarter of 2011, the Company recorded net investment losses of $18.0 million pre-tax, consisting of other than temporary impairments totaling $59.6 million, partially offset by net realized gains from the sale of securities totaling $41.6 million.
As of December 31, 2012, the Company's net unrealized gain position in the investment portfolio was $1.2 billion, consisting of net unrealized gains on fixed maturity and equity securities totaling $885.2 million and $345.8 million, respectively. As of December 31, 2012, cash and investments at the parent company totaled $2.0 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); Consumer Business, which includes the Individual, Senior and State Sponsored lines of business (including Amerigroup for the last eight days of 2012); and Other, which includes Comprehensive Health Solutions, FEP business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.
|Reportable Segment Highlights|
|(In millions)||Three Months Ended December 31||Year Ended December 31|
|Total Operating Revenue||15,271.3||15,175.5||0.6||%||60,728.5||59,865.2||1.4||%|
|Operating Gain / (Loss)|
|Total Operating Gain||431.1||512.5||
|Commercial Business||7.4||%||5.9||%||150 bp||9.5||%||9.0||%||50 bp|
|Consumer Business||-3.5||%||-0.1||%||(340) bp||2.3||%||3.5||%||(120) bp|
|Total Operating Margin||2.8||%||3.4||%||(60) bp||6.0||%||6.3||%||(30) bp|
|"NM" = not meaningful|
Commercial Business: Operating gain in the Commercial segment was $618.1 million in the fourth quarter of 2012, an increase of $111.4 million, or 22.0 percent, from $506.7 million in the fourth quarter of 2011. The increase was driven by an improvement in the benefit expense ratio for Local Group business, partially offset by the reduction in fully insured Local Group membership and increased SG&A expense.
Consumer Business: The Company experienced an operating loss of $173.3 million in the Consumer segment during the fourth quarter of 2012, compared with an operating loss of $4.6 million in the fourth quarter of 2011. The majority of the decline in Consumer segment results was driven by the recognition of closing costs related to the Amerigroup acquisition as well as other severance and impairment expense items. The Company also experienced a decline in the underlying results of its Senior and State Sponsored programs versus the prior year quarter, as expected, and has taken steps to improve the future performance of these businesses.
Other: The Company reported an operating loss of $13.7 million in the Other segment during the fourth quarter of 2012, compared with an operating gain of $10.4 million in the fourth quarter of 2011. This reflected higher unallocated corporate expenses in the current year quarter, including severance related items.
Full Year 2013:
- Net income is expected to be at least $7.60 per share, including integration costs related to the Amerigroup acquisition.
- Year-end medical enrollment is expected to be in the range of 35.3 to 35.5 million.
- Operating revenue is expected to be in the range of $71.5 to $73.0 billion.
- The benefit expense ratio is expected to be in the range of 86 percent, plus or minus 50 basis points.
- The SG&A expense ratio is expected to be in the range of 13.5 percent, plus or minus 50 basis points.
- Operating cash flowis expected to be at least $2.6 billion.
- The Company will provide additional commentary regarding its 2013 outlook during today's conference call.
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.
4. WellPoint, Inc. acquired Amerigroup Corporation on December 24, 2012. As a result, closing and pre-financing costs related to the transaction, as well as the eight days of Amerigroup's operating activity, have been included in WellPoint's GAAP financial results for the fourth quarter and full year 2012. These items have been excluded from WellPoint's adjusted net income per share calculations (refer to GAAP reconciliation table).
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time ("EST") to discuss the company's fourth quarter and full year 2012 earnings results and 2013 outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:
|888-423-3268 (Domestic)||800-475-6701 (Domestic Replay)|
|651-291-5254 (International)||320-365-3844 (International Replay)|
An access code is not required for today's conference call. The access code for the replay is 231606. The replay will be available from 11 a.m. EST today until the end of the day on February 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 more than 36 million people in our affiliated health plans, and nearly 67 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; 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). WellPoint also serves customers throughout the country as UniCare and in certain markets through our Amerigroup and CareMore subsidiaries. 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.
|(Unaudited and in Thousands)|
|December 31,||December 31,||September 30,||December 31,||September 30,|
|Total Medical Membership||36,130||34,251||33,493||5.5||%||7.9||%|
|Total Medical Membership||36,130||34,251||33,493||5.5||%||7.9||%|
|Total Medical Membership||36,130||34,251||33,493||5.5||%||7.9||%|
|Other Membership & Customers|
|Behavioral Health Membership||24,156||25,135||24,386||(3.9||%)||(0.9||%)|
|Life and Disability Membership||4,838||5,012||4,895||(3.5||%)||(1.2||%)|
|Managed Dental Membership||4,103||4,162||4,103||(1.4||%)||0.0||%|
|Medicare Advantage Part D Membership||622||575||621||8.2||%||0.2||%|
|Medicare Part D Stand-Alone Membership||574||667||579||(13.9||%)||(0.9||%)|
|Retail Vision Customers||3,130||-||3,112||NM(1)||0.6||%|
|"NM" = not meaningful|