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WellPoint (WLP)

Q3 2012 Earnings Call

November 07, 2012 8:30 am ET


Douglas Simpson

John Cannon - Interim Chief Executive Officer and Interim President

Wayne S. Deveydt - Chief Financial Officer and Executive Vice President

Kenneth R. Goulet - Executive Vice President, Chief Executive Officer of Commercial & Individual Business and President of Commercial & Individual Business


Justin Lake - JP Morgan Chase & Co, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

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

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Melissa McGinnis - Morgan Stanley, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

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

Jason Gurda - Leerink Swann LLC, Research Division

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



Ladies and gentlemen, thank you for standing by. Welcome to the WellPoint Third Quarter 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.

Douglas Simpson

Good morning, everyone, and welcome to WellPoint's Third Quarter 2012 Earnings Call. This is Doug Simpson, Vice President of Investor Relations. Presenting this morning are: John Cannon, Interim President and CEO; and Wayne Deveydt, Executive Vice President and CFO. Also available for Q&A is Ken Goulet, President and CEO of our Commercial and Individual businesses. John will start this morning with an update on the CEO search process and pending Amerigroup transaction, discuss interim priorities and actions, and provide some perspective on our investment plans. Wayne will then review the quarterly financial highlights and our updated outlook. Q&A will follow Wayne's remarks.

Just to walk through the disclaimers quickly. During the call, we will reference certain non-GAAP measures. Reconciliation of these non-GAAP measures to the most directly comparable measures are available on our website,

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.

Also, just a reminder that our current 2012 GAAP EPS outlook does not include any impact from the pending Amerigroup acquisition other than costs primarily related to the prefinancing of the transaction. I will now turn the call over to John.

John Cannon

Thanks, Doug, and good morning, everyone. First, let me start off by saying how honored and privileged I am to serve as Interim President and CEO of this great company. I'm confident about the future and our ability to better leverage our assets against the opportunities we foresee in areas such as the dual eligibles, coming exchanges and the Medicare market. With better execution and incremental yet disciplined investment, I believe we can drive greater shareholder value over the long term.

As Doug mentioned, this morning, I'm going to focus my remarks on 3 areas: the status of the CEO search, I'll update you on the pending Amerigroup acquisition and I'll discuss the near-term focus areas for our company.

With respect to the CEO search, our board continues the process of an internal and external search that's being carried out by a search committee. In thinking about criteria, I would note that there are different combinations of skills and qualities that may be attractive in a CEO, but there's not one specific profile or combination of qualifications being considered, and for obvious reasons, it would be inappropriate for us to discuss potential candidates. In fact, the search will be conducted in strict confidence, but we do not expect to comment further on this topic until the search is concluded and the permanent CEO is announced, except to say that the search committee's outside advisers have indicated that something on the order of 3 to 6 months is a reasonable time frame for this kind of search, which could, therefore, extend into the first quarter of 2013

Nevertheless, let me stress that during the interim period, I'm very much focused on keeping us actively moving forward, and that includes addressing areas of clear opportunity to better position us for improved results under our permanent CEO. As long as I have the job, I intend to do the job, and I'll touch on some specifics in a moment.

With respect to the Amerigroup acquisition, we continue to expect the transaction to close by the end of this year, likely in December. As previously announced, Amerigroup reached agreement to sell its Virginia business to Inova, and that includes approximately 55,000 members. We continue to work with the Department of Justice on the Hart-Scott-Rodino approval. With respect to the state approvals, a number of those have been received, while several remain outstanding at this point. That said, the process with the state is proceeding well, and continues to move along in accordance with our expectations. As you know, Amerigroup shareholders overwhelmingly approved the transaction last month, and as you also know, we secured financing on favorable terms.

Integration planning has commenced. A steering committee meets every 2 weeks. That is jointly led by Gloria McCarthy of WellPoint and Dick Zoretic, Chief Operating Officer of Amerigroup. There are 30 functional teams meeting on a weekly basis, and all in, 300 people are involved in integration planning. We look forward to welcoming to WellPoint the very talented Amerigroup management team, who we felt [ph] what we believe, is a best-in-class company.

We've also made some key initial decisions around our organizational structure post-closing, which were designed to increase accountability and clarify decision rights. Some have questioned, why are we doing this now? I certainly understand that the permanent CEO will have his or her own ideas and focus areas, but during this interim period, we still need to make decisions to best position the company for the coming market opportunities. Consequently, we'll be organized around 4 core businesses following the close.

First, commercial individual, and that will include our exchange strategy, and that will be led by Ken Goulet. Our second segment will be specialty to be led by Lori Beer, who will also continue to oversee information technology and our federal government solutions business. Our third segment will be Medicare programs to be led by Leeba Lessin, who has been successfully overseeing the integration and expansion of our CareMore model, and has a proven track record of success in this business. And finally, Medicaid, to be led by the Amerigroup leadership team. As previously communicated, Jim Carlson, Dick Zoretic and Jim Truess have agreed to join WellPoint's senior management team, post-closing. We've also asked Leeba and the Amerigroup team to jointly recommend the best structure to execute our dual eligible strategy. We'll also be making some realignments in our clinical care management areas, customer service operations and other enterprise-wide shared services to ensure each business unit has the resources and decision-making authority to ensure success, while driving greater efficiencies as a combined company.

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