Triple-S Management reports consolidated revenues of $599.8 million for Q2 2013

Triple-S Management Corporation (NYSE: GTS), the leading managed care company in Puerto Rico, today announced consolidated revenues of $599.8 million and consolidated operating income of $16.8 million for the three months ended June 30, 2013. Net income was $20.1 million, or $0.72 per diluted share, including, among other one-time items, a $7.7 million adjustment to the company's deferred tax assets upon the enactment of new tax legislation in Puerto Rico.

June Quarter Consolidated Highlights

  • Total consolidated operating revenues were $597.8 million;
  • Consolidated operating income was $16.8 million;
  • Consolidated loss ratio was 82.9%;
  • Medical loss ratio (MLR) was 85.8%;
  • Managed Care member month enrollment fell 1.6%;
  • Medicare member month enrollment decreased 6.7%.

Ramon Ruiz-Comas, President and CEO of Triple-S Management Corporation commented, "We are pleased that the strategies implemented last year to improve our financial performance are yielding results, as evidenced by our solid GAAP and pro forma earnings.  The Managed Care segment's MLR continues to trend lower, reflecting ongoing improvements in our MA business.

"In addition to our improved financial results, we made significant progress on several corporate initiatives, including a 12-month extension of our MiSalud contract in which we were awarded three more regions that should transition by October 1, 2013. We substantially unified the company's share structure through a secondary offering of 6.2 million Class B shares of common stock and the conversion of the vast majority of our Class A shares, which has increased trading liquidity. Our Board of Directors also recently authorized an open market share repurchase program of $11.5 million of GTS common stock effective August 1, 2013.

"Consistent with our strategic objective of geographic diversification, we recently signed an agreement to purchase Atlantic Southern Insurance Company, a small company which has life insurance operations in Puerto Rico and mainly health insurance operations in the British Virgin Islands, Anguilla and Costa Rica. Upon closing, this acquisition would expand our footprint into international markets," Ruiz-Comas added.

Selected Quarterly Details

  • Pro Forma Net Income Was $14.9 Million, or $0.53 Per Diluted Share.  Weighted average shares outstanding were 27.9 million. This compares with pro forma net income of $16.6 million, or $0.58 per diluted share, in the corresponding quarter of 2012, based on weighted average shares outstanding of 28.5 million.
  • Managed Care Membership. Our Managed Care membership decreased by 1.8% year over year, reflecting lower Commercial and Medicare enrollment. Medicare membership decreased 6.7% year over year, to 113,984. Fully-insured Commercial membership fell 4.6% and self-funded Commercial membership declined 4.0%.  Medicaid membership (all self-funded) increased 1.0%, to 898,180.
  • Consolidated Premiums Decreased 4.5%, to $556.0 Million. The decrease was principally due to lower Managed Care premiums resulting from lower Commercial and Medicare member month enrollment.
  • Managed Care MLR Decreased 290 Basis Points, to 85.8%. The MLR, adjusted to exclude prior period reserve developments and risk score adjustments, was 50 basis points higher, primarily reflecting higher utilization and cost trends in the Commercial business, offset by lower cost and utilization trends and improved drug costs in American Health, due to the new Pharmacy Benefit Manager ("PBM") contract and the positive impact of the 2013 product design. These increases in utilization and cost trends in the Commercial business were lower than expected, taking into consideration that the Easter holiday fell in March 2013 and therefore, we were expecting to see utilization rise in the second quarter.
  • Consolidated Loss Ratio Decreased 230 Basis Points, to 82.9%. The lower consolidated loss ratio mainly reflects the 290-basis-point improvement in the Managed Care MLR. The Property and Casualty and Life Insurance segments loss ratio increased by 1140 and 170 basis points, respectively.
  • Consolidated Operating Expense Ratio Rose 380 Basis Points, to 20.6%. The higher consolidated operating expense ratio was mostly due to special technology initiatives, costs related to the reorganization of the Medicare business, and other non-recurring expenses.
  • Consolidated Operating Income Declined 30.6%, to $16.8 Million. The decrease primarily reflects the effect of lower Managed Care segment premiums and increased operating expenses, partially offset by the lower Managed Care MLR.
  • Consolidated Operating Income Margin Was 2.8%. The 110-basis-point decrease in the consolidated operating margin is primarily the result of lower profitability in our Managed Care and Property and Casualty Insurance segments.
  • Consolidated Effective Tax Rate Was -22.7%. The effective tax rate decreased from 22.0% during the three months ended June 30, 2012 to -22.7% during the three months ended June 30, 2013. The reduction was due to a one-time benefit recorded to increase net deferred tax assets by $7.7 million upon an increase in the enacted tax rate from 30% to 39%, partially offset by an approximately $2.8 million increase in our current income tax expense, related to the retroactive application of the higher tax rates, which became effective January 1, 2013. The consolidated income tax expense decreased by $8.5 million during this quarter.
  • Shares of Common Stock Repurchased. During this quarter, Triple-S Management repurchased 1,000,000 shares of common stock as part of our secondary offering at an average cost per share of $18.25.

Six-Month Recap

For the six months ended June 30, 2013, consolidated operating revenues decreased 1.8%, to $1.2 billion, primarily reflecting lower member month enrollment in the Medicare and Commercial sectors of the Managed Care segment, and the receipt of lower Medicare risk score adjustments in 2013 when compared with the prior year. Consolidated claims incurred for the six-month period were $912.8 million, down 6.1% year over year. The six-month consolidated loss ratio decreased 350 basis points to 82.5% and the MLR fell 380 basis points, to 85.8%.  This decline was driven by lower utilization and cost trends in the Medicare business, primarily at American Health. Consolidated operating expenses for the six months ended June 30, 2013 were $235.1 million and the operating expense ratio was 20.2%. Pro forma net income for the six-month period was $30.5 million, or $1.08 per diluted share, based on weighted average shares outstanding of 28.1 million, compared with $22.7 million, or $0.80 per diluted share, based on weighted average shares outstanding of 28.5 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 and 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. The adjusted medical loss ratio for the Managed Care segment and for the Medicare business for the three months ended June 30, 2013, also include an out of period unfavorable adjustment of $2.1 million corresponding to the quarter ended March 31, 2013 that would have increased the claims incurred in that period.

2013 Guidance

Ruiz-Comas concluded, "Given that the second quarter results demonstrated sustained improvement in utilization and other trends across both the Commercial and MA businesses, we are raising our full-year earnings guidance to $1.95-$2.05 per share. This revised guidance also accounts for the extension of the MiSalud contract, under which we expect to incur approximately $2.0 million of expansion costs during the third quarter, overall improvement in the Managed Care MLR, continued benefits from our new PBM relationship and the product design change in the American Health branded MA business, the transaction costs related to the acquisition of Atlantic Southern Insurance Company, as well as fewer common shares outstanding following the May conversion and repurchase, offset by the financial impact of recent changes in Puerto Rico tax policy, both at the corporate and the sales and use levels."

Source:

Triple-S Management Corporation

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