Universal American Corporation (UAM)
Q2 2013 Earnings Call
August 2, 2013 08:30 AM ET
Tony Wolk - General Counsel
Bob Waegelein - President and CFO
Richard Barasch - CEO
Matthew Borsch - Goldman Sachs
Sarah James - Wedbush Securities
Kevin Fishbeck - Bank of America Merrill Lynch
Carl McDonald - Citigroup
Scott Fidel – Deutsche Bank
Tom Carroll - Stifel
Previous Statements by UAM
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It is now my pleasure to introduce your host, Richard Barasch, Chairman and CEO of Universal American. Mr. Barasch, you may begin.
Hi everyone. Sorry for the short delay. Good morning everyone. Thanks for joining us on our second quarter 2013 conference call. I’m here with our CFO, Bob Waegelein and our General Counsel, Tony Wolk. I would like to ask Tony now to read our Safe Harbor language.
Before we begin, I would like to remind you that we have posted a presentation for this call in the Investors section of our website 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?
Thanks Tony. There is a lot to discuss this morning, so I am going to dispense with usual discussion of the environment, so we can get right down to business. Bob will begin by discussing our financial results. Bob?
I would like to remind you that we 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 let's turn to slide five. As you will see for the second quarter we reported an after tax loss of 91.8 million or $1.05 per share, which included several non-operating or one-time items. First as Richard will discuss in more detail shortly, we worked out 90.6 million of the good will after tax relating to APS. This impairment charge was non-cash item and does not impact any of the covenants in our credit facility.
In addition we continued to invest in our ACO business incurring $6.4 million of after tax expenses and realized $6.6 million in after tax realized gains in our investment portfolio. Excluding these items we posted an adjusted after tax loss from our operations of 1.4 million or $0.02 per share.
Clearly the driver of this result is weakness in certain non-core parts of our Medicare Advantage segment, resulting from higher loss ratios in the second quarter. After eliminating $6.5 million of out of period items our adjusted loss ratio for the quarter was 86.5%, which includes approximately 100 basis points for the effective sequestration.
I think a look at our six months results on slide six will be more informative to reviewing our overall results. For the six months the Medicare Advantage business operated profitably earning $38.7 million and $825 million of premium. The reported loss ratio for the six months is 84.1% and was aided by $11.6 million of favorable items relating to 2012.
Excluding these items, our restated Medicare Advantage MBR was 85.7% in the aggregate, higher than we anticipated even after considering the impact from sequestration since April 1st. The primary reason for this was an uptick in inpatient and emerging care, utilization during the second quarter primarily in the non-core HMO lines.
However on slide seven you will note the disparity between our core and non-core MA businesses. And inside the core number our HMOs are performing well and more in line with our expectations, though the northeast did experience some of the same issues that we saw in the other non HMO segments.
Not surprisingly, the weakest results were in our non-core network enrolled private fee-for-service businesses. We remain mindful and active in bringing our Medicare Advantage expected in line with the size of our business. This has result in our expense ratio of 12.4% for the first six months but we still have more to go. The traditional business continue to perform well in its run off; earning $7.4 million on revenue of $120 million for the six months ended June 30.
Our corporate segment includes the operating results of APS and the cost of operating our parent company. Excluding the good will impairment charge, the operating results for APS for the six months of 2013 were breakeven net income and $142 million in revenue.
Finally our investment activities continued to perform well generating $8.2 million after tax gains and we incurred $18.3 million or $11.5 million after tax and expenses related for ACO business for the six months of 2013.