Q4 2012 Earnings Call
January 23, 2013 8:30 am ET
John Cannon - Interim Chief Executive Officer and Interim President
Wayne S. Deveydt - Chief Financial Officer and Executive Vice President
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Richard C. Zoretic - Executive Vice President and President of Medicaid Programs
Leeba Lessin - Executive Vice President of Medicare Programs
Matthew Borsch - Goldman Sachs Group Inc., Research Division
Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division
Melissa McGinnis - Morgan Stanley, Research Division
Justin Lake - JP Morgan Chase & Co, Research Division
Justin Lake - UBS Investment Bank, Research Division
Christine Arnold - Cowen and Company, LLC, Research Division
Christian Rigg - Susquehanna Financial Group, LLLP, Research Division
Joshua R. Raskin - Barclays Capital, Research Division
Scott J. Fidel - Deutsche Bank AG, Research Division
Kevin M. Fischbeck - BofA Merrill Lynch, Research Division
David H. Windley - Jefferies & Company, Inc., Research Division
Ladies and gentlemen, thank you for standing by. Welcome to the WellPoint Inc. Fourth Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the company's management.
Good morning, everyone, and welcome to WellPoint's Fourth Quarter 2012 Earnings Call. This is Doug Simpson, Vice President of Investor Relations. Presenting today are John Cannon, Interim President and CEO; and Wayne Deveydt, Executive Vice President and CFO. Also available for Q&A are Ken Goulet, President and CEO of our Commercial, Individual and Exchange businesses; Leeba Lessin, Head of our Medicare programs; and Dick Zoretic, who is leading our Medicaid operations.
John will start with an update on the business and highlight progress against our goals which we laid out last September. He will then offer commentary around fourth quarter results and perspective on the year ahead, including investment and preparation for the coming implementation of health insurance exchanges. Wayne will then review the quarterly and full year financial highlights and offer our 2013 outlook. Q&A will follow Wayne's remarks.
During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at www.wellpoint.com.
We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of WellPoint. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in today's press release and in our quarterly and annual filings with the SEC.
Finally, as you are aware, we completed our acquisition of Amerigroup on December 24, 2012. As a result, closing and prefinancing costs related to the transaction, as well as the 8 days of Amerigroup's operating activity, are included in WellPoint's fourth quarter 2012 GAAP financial results. We have excluded these items from our adjusted EPS calculations. I will now turn the call over to John.
Thank you, Doug, and good morning, everyone. As Doug mentioned, this morning, I'm going to focus my remarks on 3 principal areas: First, I'll provide a progress report on our second half 2012 operational and financial goals; I'll also give you an update on the business changes underlying our improved performance; And finally, I'll comment on our 2013 outlook with some broader thoughts on our longer term positioning.
So let me start with an update on where we stand versus the objectives we laid out in September. Our goals in the second half of 2012 were to: first, close the Amerigroup transaction; second, improve execution against our operational and financial targets; and third, develop our 2013 plan and continue to move the company forward during this interim period.
We've met these objectives, but we know that we have more work to do over the next 12 to 18 months to prepare WellPoint to capitalize on future growth opportunities, particularly in government-sponsored business.
So to review our progress. We closed on the Amerigroup acquisition in the fourth quarter, which was earlier than we originally anticipated. With Amerigroup, we now serve more than 36 million medical members. We have a Medicaid presence in 20 states, which is the largest footprint in the industry, covering over 4.5 million members of various state-sponsored programs.
The Amerigroup acquisition fits well with our strategic plan to position ourselves for a significant shift towards government-sponsored business. Notably, we now have a Medicaid presence in 8 of our 14 Blue states. We look forward to working with policymakers at the state and federal level to help people access the health care system in the most effective and efficient means possible.
We will continue to work in a constructive and collaborative way with state and federal decision-makers to make these programs as successful as possible for the benefit of our existing and prospective customers.
We have delivered on our financial commitments. Our fourth quarter results were strong, with adjusted EPS of $1.03, coming in ahead of our expectations and driving full year adjusted EPS to $7.56 versus the $7.30 to $7.40 range we previously forecasted.
The year ended on a solid note, and we have been encouraged by both membership and margin trends over the last 6 months. Excluding Amerigroup, medical enrollment was essentially stable in the quarter and ended the year approximately 120,000 members above our expectations. We continue to price prudently to cover cost trends as evidenced by our results and metrics.
We've seen some modest improvement in certain competitive markets during recent months, and we'll continue to watch our local markets closely as we move into the 2014 renewal cycle.
We have made investments during the quarter while also maintaining discipline with respect to our administrative spending. This enabled us to exceed our goals for the quarter, even though we covered a number of severance and other expense items. Capital deployment remains strong in 2012, with a total return of nearly $2.9 billion between our share repurchase program and our dividend. We intend to remain disciplined with shareholder capital in 2013 and beyond.
From a business line standpoint, I would characterize 2012 as another solid year in the Commercial segment, where operating gain grew 3.5% and operating margin expanded 50 basis points. In Medicare and Medicaid, 2012 proved to be the challenging year we had anticipated. Going forward, we see substantial room for margin improvement and growth in both of these areas with new and very experienced operational leadership, which leads me to my next point.