Triple-S Management announces $50M stock repurchase program, reports consolidated revenues of $567.2M

Triple-S Management Corporation (NYSE: GTS), one of the leading managed care companies in Puerto Rico, today announced consolidated revenues of $567.2 million and consolidated operating income of $8.9 million for the three months ended September 30, 2014. Net income was $4.7 million, or $0.17 per diluted share, compared with last year's third quarter of $18.6 million or $0.68 per diluted share. Pro-forma net income was $8.5 million, or 31 cents per diluted share, compared with $5.9 million or $0.22 per diluted share, an increase of over 40% year over year.

The company's Board of Directors has authorized a $50.0 million common stock repurchase program, which the company intends to begin in the coming days. The program will be conducted, using available cash, through open-market purchases of Class B shares only, in accordance with Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934, as amended. The timing and extent of any purchases under the program will depend on market conditions, the trading price of our shares, and other considerations, and the program may be suspended, modified, or terminated at any time.

Quarterly Consolidated Highlights

• Total consolidated operating revenues were $563.8 million;
• Consolidated operating income was $8.9 million;
• Consolidated loss ratio was 83.3%;
• Medical loss ratio (MLR) was 87.2%;
• Managed Care member month enrollment increased 27.5% year over year.

Ramon Ruiz-Comas, President and CEO of Triple-S Management Corporation, said, "We are pleased with our consolidated third-quarter results, achieving a reduction in the MLR in the Commercial sector, a continued sequential decrease in our administrative expenses and improved margins in the Life Insurance and Property and Casualty segments. The Managed Care segment was adversely affected by higher pharmacy costs and the Medicare sector experienced reduced premiums stemming from lower risk scores. We also saw our CMS Star ratings rise to 3.0 across all plans that will be offered in 2015. Notably we have a very competitive product offering as we enter the all-important open-enrollment season. "

Ruiz-Comas continued, "We have been selected to provide healthcare services for the Metro North and West regions of the Government's health insurance program (Medicaid), known as Plan de Salud del Gobierno (PSG). The contract, which will be administered on an at-risk basis, runs for a 27-month term, commencing April 1, 2015. This program, formerly referred to as MiSalud, serves more than 1.4 million members in eight regions across Puerto Rico, with 428,000 members in these two regions. We are extremely pleased to have once again been chosen by the Puerto Rican government to participate in this vitally important health care program, leveraging our nearly two decades of familiarity with this patient population. Our experience shows that we can deliver high-quality, cost-effective care through our well-established provider network."

Ruiz-Comas concluded, "With a definitive understanding of the capital requirements necessary to administer the new PSG contract, we believe that the time is right to undertake the largest buyback program in the company's history. While we will remain prudent and disciplined with our capital deployment plans going forward, we will not hesitate to take advantage of opportunities that are accretive to future earnings."

Selected Quarterly Details

• Pro Forma Net Income Was $8.5 Million, or $0.31 Per Diluted Share. Weighted average shares outstanding were 27.1 million. This compares with pro forma net income of $5.9 million, or $0.22 per diluted share, in the corresponding quarter of 2013, based on weighted average shares outstanding of 27.4 million.
• Managed Care Membership. Our Managed Care membership increased by 27.2% year over year, reflecting the addition of the three new Medicaid ASO regions effective October 1, 2013. Medicaid membership (all self-funded) rose 58.0%, to 1,416,390. Medicare membership was up 4.9% year over year, to 120,367, driven primarily by the acquisition of a PDP portfolio. Fully-insured and self-insured Commercial membership declined by 11.0% and 8.5%, respectively.
• Consolidated Premiums Fell 4.9%, to $520.8 Million. The decrease in consolidated premiums was principally due to lower Managed Care and Property & Casualty premiums, partially offset by higher premiums in the Life Insurance segment. The lower Managed Care premiums primarily reflect the decrease in fully-insured Commercial member month enrollment.
• Administrative Service Fees Were Up 35.3%, to $30.3 Million. The higher service fee income reflects the addition of the three new Medicaid ASO regions offset, in part, by the lower per-member, per-month fees agreed upon in the contract that became effective July 1, 2013 and the reduction in self-funded Commercial membership described above.
• Managed Care MLR Rose 50 Basis Points, to 87.2%. The MLR increase largely reflects higher cost and utilization trends in the Medicare Advantage sector partially offset by favorable prior period reserve developments along with improvements in the U.S. Virgin Island business in the Commercial sector.
• Consolidated Loss Ratio Was Flat at 83.3%. The consolidated loss ratio reflects improved loss ratios in the Life Insurance and Property and Casualty segments by 180 and 220 basis points, respectively, offset by the increased Managed Care MLR.
• Consolidated Operating Expense Ratio Rose 160 Basis Points, to 22.0%. The higher consolidated operating expense ratio was largely due to the increase in expenses related to the addition of the three new Medicaid ASO regions effective October 1, 2013 and the health insurer fee that became effective on January 1, 2014, coupled with the change in mix and reduction in the revenue base, partially offset by the impact of cost containment initiatives.
• Consolidated Operating Income Fell 13.6%, to $8.9 Million. The decline in operating income primarily reflects lower profitability in the Managed Care segment primarily resulting from lower premiums and increased operating expenses. The lower Managed Care profitability was partially offset by improved operating income in the Life and Property and Casualty Insurance segments.
• $6.3 Million Non-Recurring Charge. The period's results also include a one-time, non-recurring charge of $6.3 million related to the enactment of a higher capital gains tax rate on the Corporation's unrealized securities gain, effective July 1, 2014.

Nine-Month Recap

For the nine months ended September 30, 2014, consolidated operating revenues decreased 2.0%, to $1.73 billion, primarily reflecting lower Managed Care premiums. Consolidated claims incurred for the nine-month period were $1.31 billion, down 4.2% year over year. The nine-month consolidated loss ratio decreased 120 basis points to 81.6% and the MLR fell 70 basis points, to 85.4%. This decline was driven by favorable prior-period reserve developments, primarily in the Commercial segment. Consolidated operating expenses for the nine months ended September 30, 2014 were $370.0 million and the operating expense ratio was 21.8%. Pro forma net income for the nine-month period was $39.5 million, or $1.45 per diluted share, based on weighted average shares outstanding of 27.3 million, compared with $36.4 million, or $1.31 per diluted share, based on weighted average shares outstanding of 27.9 million at the same time last year.

Segment Performance

Triple-S Management operates in three segments: 1) Managed Care, 2) Life Insurance, and 3) Property & Casualty Insurance. Management evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees and net investment income. Operating costs include claims incurred and operating expenses. The Company calculates operating income or loss as operating revenues minus operating expenses. Operating margin is defined as operating income or loss divided by operating revenues. The adjusted medical loss ratio accounts for subsequent adjustments to estimates, such as MA premium adjustments and prior period reserve developments, and presents them in the corresponding period.

Conference Call and Webcast

Management will host a conference call and webcast on November 4, 2014 at 8:30 a.m., Eastern Time to discuss its financial results for the three months ended September 30, 2014.