UnitedHealth Group Incorporated (UNH)

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UnitedHealth Group Incorporated (UNH)

Q4 2012 Earnings Call

January 17, 2013 8:45 am ET


Stephen J. Hemsley - Chief Executive Officer, President and Executive Director

Jack Larsen

Daniel Schumacher

Gail Koziara Boudreaux - Executive Vice President and Chief Executive Officer of United Healthcare

Larry C. Renfro - Executive Vice President and Chief Executive officer of Optum

Jeff Alter - Chief Executive of UnitedHealthcare Employer & Individual Business

David S. Wichmann - Chief Financial Officer, President of Operations and Executive Vice President

John S. Penshorn - Senior Vice President

Dirk McMahon


Matthew Borsch - Goldman Sachs Group Inc., Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

David H. Windley - Jefferies & Company, Inc., Research Division



Good morning. I will be your conference facilitator today. Welcome to UnitedHealth Group Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Here is some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated January 17, 2013, which may be accessed from the Investors page of the company's website. [Operator Instructions]

I would now like to turn the conference over to President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley. Please go ahead.

Stephen J. Hemsley

Thank you. Good morning, and thank you for joining us. Today, we will review our strong 2012 growth and earnings performance, affirm our outlook for 2013 and discuss in broad terms how and why we see 2014 and beyond as a period of continued growth and opportunity.

Full year 2012 revenues grew 9% to $110.6 billion and net earnings were $5.28 per share. 2012 per share earnings increased 12% year-over-year, attributable to both broad-based growth and intense management of medical and operating costs.

Both UnitedHealthcare and Optum exceeded their fourth quarter revenue and earnings outlooks from our November investor conference. Cash flows from operations of $7.2 billion were again 1.3x net income. Fourth quarter cash flows were $1.7 billion or 1.4x net income for the quarter. And we ended the year with $1.1 billion in nonregulated cash. We raised our dividend by 30% earlier this year and repurchased more than $3 billion of our shares.

Before reviewing these results in more detail, I would like to discuss a couple of recent topics we believe have been prominent in the minds of investors. The first topic is exchanges. There is significant interest in the impact exchanges may have on the sector in total and on UnitedHealthcare specifically. We can share our thinking about exchanges only in broad terms at this point, recognizing, one, there's still many significant unknowns with respect to how exchanges will begin and actually work. And as you know, details in this sector count. So we are holding back on making specific decisions in many cases until greater clarity can be established. And secondly, the way we think about exchange markets and how we may position ourselves state-by-state with respect to exchanges, we see to be proprietary competitive insights.

So to begin, we are advocates of efforts to expand coverage to as many Americans as possible, but we would never have drawn the line at exchanges alone. If you want to expand coverage, then use every channel possible, make it easy, convenient, ubiquitous. We advocate that exchanges be a level playing field and fairly regulated. The more complex exchanges become, the greater the potential for unintended market distortions and therefore, the greater reluctance to use them.

Health care at its core is local. Theoretically, there will be as many as 100 very local market exchanges, 50 for individual coverage and 50 for small group, and that's just the beginning. You can expect each will operate somewhat differently. So there is a great deal to evaluate before pursuing any of these exchange markets, similarly to what we do today for Medicare and Medicaid.

The level of interest in exchanges will be driven by how we assess each local market, how the exchange and its rules are set up state-by-state and our market position relative to others in the market, as we see it today and as we evaluate it going forward. And that equation will evolve and change over time as exchanges mature. So going in positions on exchanges will be just that. We are not tied to them in one direction or another. Broadly, we would expect to participate in a number of exchanges. We're not going to offer a precise number but a broad range, perhaps from 10 to 25 or more with absolutely no firm commitment to that range.

We will only participate in exchanges that we assess to be fair, commercially sustainable and provide a reasonable return on the capital they will require. And like Medicaid, if we are in a situation or market dynamic that we do not see as sustainable, we will either not participate in the first instance or ultimately withdraw. Similarly, we will continually evaluate state-based exchanges that may not have been attractive when initially introduced. So as they mature and evolve, if we see them as both fair and sustainable, we would look to participate. And in a perfect world, we would participate in them all.

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