WellPoint Reports Profit BoostPosted: Updated:
Indianapolis-based WellPoint Inc. (NYSE: WLP) is reporting second quarter net income of $800 million, compared to $644 million during the same period a year ago. The results beat expectations and the company has raised its full-year outlook. Jul. 24, 2013
INDIANAPOLIS, Ind. - WellPoint, Inc. (NYSE: 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.
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