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WellPoint (WLP)

Q3 2010 Earnings Call

November 03, 2010 7:30 am ET


Michael Kleinman - Staff Vice President of Investor Relations

Brian Sassi - Executive Vice President, Chief Executive Officer of Consumer Business Unit and President of Consumer Business Unit

Ken Goulet - Chief Executive Officer of Commercial Business Unit and President of Commercial Business Unit

Angela Braly - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Wayne Deveydt - Chief Financial Officer, Head of Investor Relations and Executive Vice President


Joshua Raskin - Barclays Capital

Justin Lake - UBS Investment Bank

Carl McDonald - Citigroup Inc

Matthew Borsch - Goldman Sachs Group Inc.

Scott Fidel - Deutsche Bank AG

Charles Boorady - Crédit Suisse AG

John Rex - JP Morgan Chase & Co

Doug Simpson - Morgan Stanley



Ladies and gentlemen, thank you for standing by, and welcome to the WellPoint Conference Call. [Operator Instructions] I would now like to turn the conference over to the company's management.

Michael Kleinman

Good morning, and welcome to WellPoint's third quarter earnings conference call. I'm Michael Kleinman, Vice President of Investor Relations. With me this morning are Angela Braly, our Chair, President and Chief Executive Officer; and Wayne Deveydt, Executive Vice President and Chief Financial Officer. Angela will begin this morning's call with an overview of our third quarter results, actions and accomplishments. Wayne will then offer a detailed review of our third quarter financial performance capital management and current guidance which will be followed by a question-and-answer session.

Ken Goulet, Executive Vice President and President of our Commercial Business; and Brian Sassi, Executive Vice President and President of our Consumer Business, are available to participate in the Q&A session.

During this call, we will reference certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP is available on the Investor Information page of our company website at 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 our press release this morning and in our quarterly and annual filings with the SEC.

I will now turn the call over to Angela.

Angela Braly

Thank you, Michael, and good morning. Today, we are pleased to report strong results for the third quarter of 2010. Earnings per share totaled $1.84 on a GAAP basis which included net investment gains of approximately $0.10 per share. Earnings per share in the third quarter of 2009 totaled $1.53 and included $0.03 per share of its net investment gains and an impairment charge of $0.28 per share. Excluding the items noted in each period, our adjusted EPS was $1.74 for the third quarter of 2010 compared to adjusted EPS of $1.78 in the same period of last year. Our quarterly performance exceeded our forecast, primarily due to higher than anticipated favorable reserve development and disciplined administrative expense control. Based on our third quarter results, we've increased our full year 2010 GAAP EPS guidance to at least $6.60, which includes year-to-date net investment gains of approximately $0.18 per share and an impairment charge from the first quarter totaling $0.03 per share.

On an adjusted basis, or excluding the items noted, we've raised our full year EPS guidance by $0.20 to at least $6.45. Medical enrollment was stable in the third quarter, totaling 33.5 million members as of September 30, 2010. While we experienced minor interest attrition during this quarter, the level of attrition moderated. And we ended the quarter with approximately 200,000 more members than we expected. Both fully insured and self-funded enrollment results were better than our prior forecast. The unfavorable employment trends which have impacted our commercial business over the past two years appeared to be stabilizing, and we therefore raised our year-end 2010 medical enrollment outlook by 200,000 to 33.3 million members.

We continue to provide excellent value for our customers in this difficult economy as evidenced by the positive membership results we have achieved this year in our Blue branded businesses. As we've discussed previously, we made a strategic decision at the end of 2009 to exit the commercial marketplace in Texas and Illinois, which is driven a year-to-date reduction of 527,000 members in our non-Blue commercial and individual enrollment. This decline in non-Blue membership has net growth of 330,000 members, or 1%, that we've experienced in our Blue branded and government-funded.

Specifically, Blue branded commercial and individual membership has grown by 208,000 members, despite unemployment rate that remains near 10% across our 14 Blue states. Enrollment in the Federal Employees Program has increased by 62,000 and we've grown by 41,000 and 19,000 members, respectively in our senior and State Sponsored program through September 30, 2010. We expect the success in attracting customers in our core businesses will continue as we move forward and currently project that overall membership will increase slightly in 2011. While we do not expect meaningful increase in employment next year, which likely will continue to place pressure on for the moment, we are expecting additional market share gains in national accounts and modest growth in the State Sponsored and Senior Businesses.

We just completed another very strong year of sales in national accounts. Our broad and cost-effective provider network, which includes 80% of our nation's physician and more than 90% of our hospitals, continues to distinguish WellPoint in this marketplace. We supplement the strong provider network with leading disease and care management programs, innovative health and wellness initiatives, excellent customer service and competitively low administrative costs, resulting in the value proposition that we believe is second to none in the industry. We expect net additions of more than 300,000 National Account members effective January 1, 2011, which will make 2011 the 10th consecutive year that our national enrollment will have grown significantly.

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