WellPoint (WLP)

Q1 2011 Earnings Call

April 27, 2011 8:30 am ET


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

Michael Kleinman - Vice President of Investor Relations

Ken Goulet - Executive Vice President, 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

Matthew Borsch - Goldman Sachs Group Inc.

Scott Fidel - Deutsche Bank AG

Charles Boorady - Crédit Suisse AG

David Windley - Jefferies & Company, Inc.

John Rex - JP Morgan Chase & Co

Thomas Carroll

Kevin Fischbeck - BofA Merrill Lynch

Christine Arnold - Cowen and Company, LLC

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Doug Simpson - Morgan Stanley



Ladies and gentlemen, thank you for standing by. Welcome to the WellPoint 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. Please go ahead.

Michael Kleinman

Good morning, and welcome to WellPoint's first 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 first quarter results, actions and accomplishments. Wayne will then offer a detailed review of our 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 of Strategy and Marketing 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 our company 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 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're pleased to report strong results for the first quarter of 2011. Earnings per share totaled $2.44 on a GAAP basis and included net investment gains of $0.09 per share. Earnings per share in the first quarter of 2010 totaled $1.96 per share, including net investment gains of $0.04 per share, partially offset by an intangible asset impairment charge of $0.03 per share. Excluding the items noted in each period, our adjusted EPS was $2.35 for the first quarter of 2011, representing growth of 21% over adjusted EPS of $1.95 in the same period of last year.

At our February Investor Conference, we told you that 2011 would be a rebasing year from which we expected to grow. We now believe that our full year 2011 results will be better than we originally anticipated. Our first quarter results exceeded our forecast primarily due to lower-than-expected medical cost in the Commercial business. We also achieved a higher level of membership growth than we had anticipated during the quarter. Based on these positive results, today, we're increasing our year end 2011 membership expectation by 500,000 members to 33.9 million, and also raising our full year earnings guidance to at least $6.70 per share, including $0.10 per share of net investment gain.

Our medical enrollment grew organically by 875,000 members or almost 3% in the first quarter and totaled approximately 34.2 million as of March 31, 2011. We estimate that approximately 1/3 of this increase is related to the change, independent benefit coverage to age 26. Our enrollment growth was led by the National business, where we added 727,000 members, including 486,000 National Control Account members and 241,000 BlueCard health members.

We're pleased with our disciplined growth in the National business, which continues to be driven by our compelling value proposition of broad cost-effective provider network, coupled with excellent customer service. We expect to maintain our leadership position in National Accounts going forward.

While it's too early to provide definitive commentary about membership for 2012, the season is beginning to develop with some significant opportunity, particularly as our customers offer fewer carriers to their employees. Total cost remains the number 1 driver with considerable discussions around employee productivity and wellness program.

Local Group enrollment increased slightly in the first quarter as growth of 89,000 members in our Blue-branded market was substantially offset by a decline of 84,000 members in our non-Blue service areas. Our Local Group membership has now been stable to slightly increasing for 3 consecutive quarters, following a lengthy period of enrollment losses due to the recession. While the unemployment rate remains high, we have revised upward our expectation for Local Group membership for the balance of 2011.

Enrollment in our Senior business was also better than we expected in the first quarter, increasing by 73,000 members, predominantly in our Medicare Advantage plan. Our recently launched online stores to the senior market proved very popular during this year's annual enrollment period.

Over 20% of Medicare applications came into our plans through electronic sources, and we delivered more than 225,000 quotes online for our Medicare Advantage, Medicare Supplement and Medicare Part D product offerings. We also introduced our new Anthem Extras Packages for the senior market during the first quarter. These packages provide several choices of dental and vision benefits for seniors and are designed to complement Medicare supplement products or regular Medicare. The Anthem Extras Packages are now available in eight states, and further expansion is planned. We've achieved solid membership growth in the senior market this year and are positioning this business for continued expansion in the future.

Our State Sponsored business added 52,000 members in the first quarter as the new contracts in the state of Indiana became effective on January 1, 2011, and we achieved growth in existing programs in South Carolina and Virginia. We expect additional growth in this segment during the second half of the year as California will begin moving its seniors and persons with disabilities population into managed care, beginning June 1, 2011.

Our goal is to be a valued partner for states seeking cost-efficient solutions to maintain Medicaid program and ensure high quality care for its beneficiaries. We're currently evaluating a number of new potential business opportunities that could drive incremental membership and revenue growth in years ahead. We remain diligent in managing our ongoing business and optimistic about the growth opportunity in State Sponsored programs. We're considering the future needs and opportunities of these programs, as well as the potential for changes in reimbursement levels and program requirements in our evaluation.

We also experienced growth of 59,000 members in the Federal Employee Program or FEP during the first quarter of 2011, while our individual enrollment declined by 41,000 members with the majority of the decline in California. Operating revenue totaled approximately $14.7 billion in the quarter, a decrease of 1% from the first quarter of 2010. This was due primarily to the conversion of 2 large groups to self-funding arrangement during 2010 and the decline in fully insured commercial membership we experienced last year due to the economy, partially offset by premium increases designed to cover cost trends and the increases in Senior, FEP and State Sponsored membership. Overall, the marketplace remains generally rational.

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