Universal American Corp. (UAM)

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Universal American Corporation (UAM)

Q4 2012 Earnings Call

February 20, 2013 08:30 am ET


Richard Barasch – Chief Executive Officer

Bob Waegelein – Co-President & Chief Financial Officer


Sarah James – Wedbush Securities

Michael Baker – Raymond James

Scott Fidel – Deutsche Bank

Scott Green – Bank of America Merrill Lynch

Carl McDonald – Citigroup Global Markets



Greetings, and welcome to the Universal American Corp. Q4 2012 Conference Call. (Operator instructions.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Barasch, Chairman and CEO for Universal American Corp. Thank you, Mr. Barasch, you may now begin.

Richard Barasch

Thank you and good morning, everyone. Thank you for joining us on our Q4 2012 conference call. I’m here with our CFO Bob Waegelein and I’d like to ask him to read our Safe Harbor language.

Bob Waegelein

Before we begin I would like to remind you that we have posted a presentation for this call in the Investor Relations section of our website at www.universalamerican.com.

I would also like to remind all participants that our call this morning may contain forward-looking statements within the meaning of the federal securities laws. These statements which reflect management’s current expectations, projections, and beliefs are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of these risks and uncertainties we recommend that you review the company’s “Risk Factors” and other disclosures set forth in our SEC filings. We undertake no obligation to update or revise any forward-looking statements to reflect events, developments, or circumstances after the date hereof.

During the call we will also be referring to certain non-GAAP financial measures. Please refer to the reconciliation tables listed in the press release for a discussion of these non-GAAP financial measures.

Richard Barasch

Thanks, Bob, I’ll be back to you in a few moments. Well, I had to rewrite my script over the weekend. A lot has changed since last Friday, and my guess is that most of the listeners on this call are not particularly interested in hearing my pontificate yet again about the changes in the healthcare landscape. So Bob and I will get through the basics and then turn to our plans for going forward, especially in the context of the 45-day notice.

I’m pretty sure that I will not be able to satisfy all of your questions but I will try to put it into context for our company. As you know, Universal American has been actively involved in Medicare for quite a while and we have been quite adept over time at keeping pace with what the legislative and regulatory environment permits and adapting our business accordingly. We expect this coming period to be no different. We feel very good about our decision to pursue ACOs as a complement to the Medicare Advantage program and we are now even exploring whether we should revive the Medicare Supplement business that we put into runoff a year or so ago.

We also feel good about our decision to get into Medicaid. Until last year we were only able to approach the Medicare opportunity but we are now actively pursuing the growing Medicaid market and in particular dual-eligibles and people who need long-term care and other assistance. The APS acquisition has proven to be more challenging than we had anticipated but we continue to believe that we will make some noise in Medicaid, certainly by 2014.

I’ll come back to our current business and new initiatives in a moment, but first let me turn it back to Bob who will describe our results for the quarter and for the full year 2012.

Bob Waegelein

Thank you, Richard. I would like to remind you that we’ve posted additional information regarding our operating results in the financial supplement that can be found on our website in the “Financial Reports” tab of our Investors section.

So looking at Slide 4 you will see for Q4 we reported after-tax net income of $15 million or $0.17 per share. Excluding investment gains, ACO startup costs, our investment in Stars and other special items our adjusted income was $14.1 million or $0.16 per share. Let’s turn to Slide 5 where a review of our full-year results will be more informative.

Our Medicare Advantage business had a solid year with gross profits before expenses of $338 million on $1.6 billion premium. After taking into account positive prior-year adjustments our restated MA medical benefits ratio for 2012 was 81.9% consistent with our expectations. As we look back at how 2011 has developed and the full-year results of 2012 we maintain our confidence in the actuarial and experience basis for our 2013 bids.

We have taken actions in our MA business to bring our expenses in line with the size of our business. Excluding expenses for Stars improvement, the expense ratio of 14.6% for 2012 is down from 15.4% in 2011. During Q4 we decided to increase spending in sales and marketing and medical management to improve our market position for the annual election period which caused our expense ratio to be higher than expected. We continue to evaluate opportunities to reduce the expense ratio further in the future, a task that remains a high priority.

The traditional business continued to perform well in 2012, earning $18.1 million with overall improved benefit and expense ratios from 2011 primarily in our Medicare Supplement business. Finally, our corporate segment also reported improvement from 2011 as a result of planned expense reductions offset by debt service costs relating to our acquisition. 2011 also contained certain nonrecurring restructuring expenses that totaled $41 million. As reflected in our earnings release we’re reporting the startup costs for ACOs in the corporate segment. On a year-to-date basis these costs amounted to $14.3 million after-tax which is reflected below the operating profit amount on Slide 5.

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