WellPoint Reports First Quarter 2010 Results
WellPoint, Inc. (NYSE: WLP) today announced that first quarter 2010 net income was $876.8 million, or $1.96 per share, including net investment gains of $18.6 million after-tax, or $0.04 per share, partially offset by an intangible asset impairment charge totaling $13.7 million after-tax, or $0.03 per share. Net income in the first quarter of 2009 was $580.4 million, or $1.16 per share, and included net investment losses of $228.4 million after-tax, or $0.46 per share.
Excluding the intangible asset impairment charge and the net investment gains and losses in each period, first quarter 2010 adjusted net income was $871.9 million, an increase of 7.8 percent from adjusted net income of $808.8 million in the first quarter of 2009. On a per share basis, adjusted net income was $1.95 in the first quarter of 2010, compared with $1.62 in the prior year quarter (see GAAP Reconciliation table for a reconciliation to the most directly comparable measures calculated in accordance with U.S. generally accepted accounting principles, or "GAAP").
"We are pleased with our membership growth in the first quarter, which was higher than we anticipated. We have grown significantly in the National Accounts market this year, reflecting that large customers continue to be attracted to WellPoint's broad and cost-effective provider networks, leading products and initiatives, and reliable customer service," said Angela F. Braly, chair, president and chief executive officer.
"We are preparing for marketplace changes by taking strategic actions to drive even stronger future membership growth, enhance our services and create a lower cost structure. We are focused on optimizing medical costs and improving operational efficiencies while delivering innovative programs and products for our members," added Braly.
"Our adjusted earnings increased by 7.8 percent in the quarter, due in part to a less severe flu season than we expected," said Wayne S. DeVeydt, executive vice president and chief financial officer. "We remain confident in our full year outlook and continue to utilize our capital to invest in our businesses and enhance returns for our shareholders."
Membership: Medical enrollment was 33.8 million members at March 31, 2010, a decrease of 724,000 members, or 2.1 percent, from approximately 34.6 million at March 31, 2009. Most of the decline occurred in the non-Blue business, which experienced a reduction of 548,000 members and included the transfer of the Company's UniCare individual and group business in Texas and Illinois to another Blue Cross & Blue Shield carrier at the beginning of 2010.
Medical membership increased by 165,000, or 0.5 percent, during the first quarter of 2010. This was driven by market share gains of 536,000 in National Accounts and BlueCard business, an increase of 56,000 in the Federal Employees Program ("FEP") and growth of 37,000 members in the Senior business. The growth was partially offset by a decline of 360,000 in non-Blue enrollment due to the transfer of business in Texas and Illinois, and continued economically-related attrition in the Blue-branded Local Group and Individual businesses.
Operating Revenue: Operating revenue totaled approximately $14.9 billion in the first quarter of 2010, a decrease of $430.0 million, or 2.8 percent, from $15.3 billion in the first quarter of 2009. Premium revenue declined by 2.1 percent primarily due to the decline in fully insured membership, which was largely attributable to the rise in unemployment during 2009. Other revenue also declined due to the Company's sale of the NextRx pharmacy benefit management subsidiaries ("NextRx") in the fourth quarter of 2009.
Benefit Expense Ratio: The benefit expense ratio was 81.8 percent in the first quarter of 2010, a decrease of 70 basis points from 82.5 percent in the first quarter of 2009. The decline was driven by the Local Group and State Sponsored businesses, and reflected a less severe flu season than the Company anticipated. The Company expects the benefit expense ratio to rise over the balance of 2010, due primarily to the seasonality of its Local Group and Individual product designs as more members fulfill deductibles towards the end of the calendar year. The Company also expects the benefit expense ratio for its Individual business to increase as a result of the delayed premium rate increases in California.
Premium and Cost Trends: Trends represent Local Group fully insured business.
For the full year of 2010, underlying medical cost trend is projected to be in the range of 8.0 percent, plus or minus 50 basis points, in-line with the Company's prior expectation. Unit cost increases continue to be the primary driver of overall medical cost trend.
The Company continues to price its business so that expected premium yield exceeds total cost trend, where total cost trend includes medical costs and selling, general and administrative ("SG&A") expense.
Days in Claims Payable: Days in Claims Payable ("DCP") as of March 31, 2010, was 43.4 days, an increase of 1.6 days from 41.8 days at December 31, 2009. The increase was driven primarily by the timing of pharmacy claims payments and a seasonal increase in claims payment cycle times. Medical claims reserves established at December 31, 2009, are developing favorably and are in-line with the Company's expectation. Please see Days in Claims Payable - Reclassified table for prior period DCP metrics reclassified to conform to current period presentation.
SG&A Expense Ratio: The SG&A expense ratio was 14.8 percent in the first quarter of 2010, an increase of 20 basis points from 14.6 percent in the first quarter of 2009. The increase was due primarily to higher outside services costs and lower operating revenue, partially offset by lower selling costs and other operating expenses. Total SG&A expense in the first quarter of 2010 was 1.3 percent lower than in the first quarter of 2009 due in part to the Company's strategic initiatives to reduce costs.
Impairment of Other Intangible Assets: During the first quarter of 2010, the Company decided to transfer certain membership using the UniCare provider network to a different provider network. Accordingly, the Company recorded a pre-tax impairment charge of $21.1 million for certain intangible assets associated with UniCare provider network contracts.
Operating Cash Flow: As expected, for the first quarter of 2010, the Company had a net cash outflow from operations of $322.9 million due to $1.2 billion of tax payments during the quarter related to the 2009 sale of NextRx. First quarter 2010 operating cash flow was also unfavorably impacted by claims run-out from the membership transfers in Texas and Illinois and a reduction in Medicare Part D Low-Income-Subsidy ("LIS") enrollment. Operating cash flow totaled $1.2 billion in the first quarter of 2009.
Share Repurchase Program: Year-to-date through April 15, 2010, the Company repurchased 25.2 million shares of its common stock for approximately $1.6 billion, at an average price of $62.30 per share. As of April 15, 2010, the Company's remaining Board-approved share repurchase authorization totaled approximately $2.3 billion. The Company will continue to evaluate future share repurchase activity subject to market and industry conditions.
Investment Portfolio & Capital Position: During the first quarter of 2010, the Company recorded net investment gains of $28.7 million pre-tax, consisting of net realized gains from the sales of securities totaling $48.4 million, partially offset by other-than-temporary impairments totaling $19.7 million. In the first quarter of 2009, the Company experienced net investment losses of $352.5 million pre-tax, resulting primarily from other-than-temporary impairment charges. As of March 31, 2010, the Company's net unrealized gain position was $838.8 million, consisting of net unrealized gains on fixed maturity and equity securities totaling $576.6 million and $262.2 million, respectively.
As of March 31, 2010, statutory capital levels in the Company's insurance subsidiaries exceeded state regulatory levels by approximately $6.6 billion and Blue Cross and Blue Shield Association requirements by approximately $3.7 billion. Cash and investments at the parent company totaled $3.2 billion.
WellPoint, Inc. has the following reportable segments: Commercial Business, which includes the Local Group, National, UniCare, and Specialty Products lines of business; Consumer Business, which includes the Individual, Senior, and State Sponsored lines of business; and Other, which includes Comprehensive Health Solutions (including NextRx in the first quarter of 2009), FEP business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.
Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.
Commercial Business: Operating gain for the Commercial Business segment was $978.4 million in the first quarter of 2010, an increase of 8.4 percent from $902.7 million in the first quarter of 2009. The increase in operating gain was driven by operating improvements in Local Group and reflected a less severe flu season than the Company expected in 2010. The Company expects the Commercial segment operating margin to decline over the balance of 2010 primarily due to the seasonality of its product designs.
Consumer Business: Operating gain for the Consumer Business segment was $326.0 million in the first quarter of 2010, an increase of 49.1 percent compared with $218.7 million in the first quarter of 2009. Results for the Company's State Sponsored business improved due to operational changes, increased reimbursement levels for certain programs and a less severe flu season. The Company's stand-alone Medicare Part D results also improved from the prior year quarter, which offset margin contraction in the Medicare Advantage program.
Other: The Other segment reported an operating loss of $17.7 million in the first quarter of 2010, compared with an operating gain of $111.6 million the first quarter of 2009. The decline in operating gain resulted predominantly from the sale of NextRx in the fourth quarter of 2009.
Full Year 2010:
Basis of 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 its first quarter earnings 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 123543. The replay will be available from 1:45 p.m. EDT today until the end of the day on May 12, 2010. The call will also be available through a live webcast at www.wellpoint.com under "Investor Info." A webcast replay will be available following the call.
About WellPoint, Inc.
WellPoint works to simplify the connection between Health, Care and Value. We help to improve the health of our communities, deliver better care to members, and provide greater value to our customers and shareholders. WellPoint is the nation's largest health benefits company, with approximately 34 million members in its affiliated health plans. 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 does business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield (in the New York service areas). WellPoint also serves customers throughout the country as UniCare. Additional information about WellPoint is available at www.wellpoint.com.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WellPoint and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA), including statements in this press release, in presentations, in filings with the Securities and Exchange Commission, or SEC, in reports to shareholders and in meetings with analysts and investors. The projections referenced in this press release are forward-looking and they are intended to be covered by the safe harbor for "forward-looking statements" provided by PSLRA. Words such as "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)", "intend", "estimate", "project" and similar expressions are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in our public filings with the SEC; increased government participation in, or regulation or taxation of health benefits and managed care operations, including, but not limited to, the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010; trends in health care costs and utilization rates; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon, funding risks with respect to revenue received from participation therein and CMS sanctions; a downgrade in our financial strength ratings; litigation and investigations targeted at health benefits companies and our ability to resolve litigation and investigations within estimates; our ability to meet expectations regarding repurchases of shares of our common stock; decreased revenues, increased operating costs and potential customer and supplier losses and business disruptions that may be greater than expected following the close of the Express Scripts transaction; events that result in negative publicity for us or the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect our license with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member sensitive or confidential information; changes in the economic and market conditions, as well as regulations that may negatively affect our investment portfolios and liquidity; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and our governing documents may prevent or discourage takeovers and business combinations; future bio-terrorist activity or other potential public health epidemics; and general economic downturns. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures in our SEC reports.
-- Net income was $1.96 per share, including net investment gains of $0.04 per share, partially offset by an intangible asset impairment charge of $0.03 per share -- Medical enrollment grew by 165,000 members in the quarter and exceeded 33.8 million as of March 31, 2010 -- Full year 2010 net income is expected to be at least $6.00 per share
SOURCE WellPoint, Inc.
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