Triple-S Management Corporation Reports Third Quarter 2014 Results; Announces $50 Million Class B Share Repurchase Program

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Nov 04, 2014, 06:30 ET

SAN JUAN, Puerto Rico, Nov. 4, 2014 /PRNewswire/ -- 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.

			Pro Forma Net Income
(Unaudited)			Three months ended September 30,		Nine months ended September 30,
(dollar amounts in millions)			2014	2013	2014	2013
Net income			$ 4.7	$18.6	$39.1	$56.0
Less pro forma adjustments:
	Net realized investment gains, net of tax		2.5	(0.1)	5.9	2.9
	Special Distribution received Puerto Rico Joint Underwriting Association		-	12.8	-	12.8
	Guaranty Fund assessment		-	-	-	(1.0)
	Additional year-to-date current income tax expense after change in enacted tax rate		-	-	-	(2.8)
	Deferred tax benefit related to change in enacted tax rate		-	-	-	7.7
	Change in enacted tax rate-capital gains		(6.3)	-	(6.3)	-
		Pro forma net income	$ 8.5	$ 5.9	$39.5	$36.4
		Diluted pro forma net income per share	$0.31	$0.22	$1.45	$1.31

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.

(Unaudited)					Three months ended September 30,			Nine months ended September 30,
(dollar amounts in millions)					2014	2013	Percentage Change	2014	2013	Percentage Change
Premiums earned, net:
	Managed Care:
		Commercial			$ 215.6	$ 233.6	(7.7%)	$ 668.3	$ 705.9	(5.3%)
		Medicare			247.6	257.8	(4.0%)	764.5	778.7	(1.8%)
			Total Managed Care		463.2	491.4	(5.7%)	1,432.8	1,484.6	(3.5%)
	Life Insurance				35.8	32.4	10.5%	105.7	96.3	9.8%
	Property and Casualty				22.3	24.7	(9.7%)	69.5	74.9	(7.2%)
	Other				(0.5)	(0.6)	16.7%	(1.6)	(1.9)	(15.8%)
				Consolidated premiums earned, net	$ 520.8	$ 547.9	(4.9%)	$ 1,606.4	$ 1,653.9	(2.9%)
Operating revenues:
	Managed Care				$ 497.9	$ 518.8	(4.0%)	$ 1,536.6	$ 1,577.7	(2.6%)
	Life Insurance				41.8	37.7	10.9%	123.3	112.6	9.5%
	Property and Casualty				24.5	26.7	(8.2%)	75.8	81.0	(6.4%)
	Other				(0.4)	(0.3)	(33.3%)	(1.2)	(0.9)	33.3%
				Consolidated operating revenues	$ 563.8	$ 582.9	(3.3%)	$ 1,734.5	$ 1,770.4	(2.0%)
Operating income:
	Managed Care				$ 0.9	$ 7.3	(87.7%)	$ 32.9	$ 41.2	(20.1%)
	Life Insurance				5.7	3.8	50.0%	16.1	11.5	40.0%
	Property and Casualty				2.3	0.4	475.0%	7.5	1.0	650.0%
	Other				-	(1.2)	100.0%	(3.6)	(3.8)	(5.3%)
				Consolidated operating income	$ 8.9	$ 10.3	(13.6%)	$ 52.9	$ 49.9	6.0%
Operating margin:
	Managed Care				0.2%	1.4%	-120 bp	2.1%	2.6%	-50 bp
	Life Insurance				13.6%	10.1%	350 bp	13.1%	10.2%	290 bp
	Property and Casualty				9.4%	1.5%	790 bp	9.9%	1.2%	870 bp
	Consolidated				1.6%	1.8%	-20 bp	3.0%	2.8%	20 bp
Depreciation and amortization expense					$ 5.4	$ 5.6	(3.6%)	$ 16.0	$ 17.8	(10.1%)

Managed Care Additional Data					Three months ended September 30,		Nine months ended September 30,
(Unaudited)					2014	2013	2014	2013
Member months enrollment:
	Commercial:
		Fully-insured			1,223,825	1,372,671	3,816,561	4,155,820
		Self-insured			591,835	641,177	1,828,121	1,964,761
			Total Commercial		1,815,660	2,013,848	5,644,682	6,120,581
	Medicare:
		Medicare Advantage			320,102	319,434	957,618	957,848
		Stand-alone PDP			40,739	24,492	123,484	72,930
			Total Medicare		360,841	343,926	1,081,102	1,030,778
	Medicaid -Self-insured				4,231,233	2,668,236	12,626,015	7,989,168
				Total member months	6,407,734	5,026,010	19,351,799	15,140,527
Claim liabilities (in millions)							$ 258.9	$ 283.6	*
Days claim payable							58	60	*
Premium PMPM:
	Managed Care				$ 292.30	$ 286.26	$ 292.55	$ 286.24
		Commercial			176.17	170.18	175.11	169.86
		Medicare			686.17	749.58	707.15	755.45
Medical loss ratio					87.2%	86.7%	85.4%	86.1%
	Commercial				84.6%	90.5%	85.6%	88.8%
	Medicare Advantage				89.4%	83.0%	85.0%	83.4%
	Stand-alone PDP				89.7%	94.9%	97.4%	88.4%
Adjusted medical loss ratio					88.3%	86.1%	87.2%	85.1%
	Commercial				88.4%	89.1%	89.5%	87.6%
	Medicare Advantage				88.9%	83.1%	86.1%	82.8%
	Stand-alone PDP				91.2%	91.4%	97.7%	86.7%
Operating expense ratio:
	Consolidated				22.0%	20.4%	21.8%	20.3%
	Managed Care				18.8%	16.6%	18.4%	16.5%
* Information provided as of December 31, 2013.

Managed Care Membership by Segment					As of September 30,
					2014	2013
Members:
	Commercial:
		Fully-insured			405,584	455,540
		Self-insured			194,703	212,747
			Total Commercial		600,287	668,287
	Medicare:
		Medicare Advantage			106,828	106,596
		Stand-alone PDP			13,539	8,187
			Total Medicare		120,367	114,783
	Medicaid -Self-insured				1,416,390	896,452
				Total members	2,137,044	1,679,522

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. To participate, callers within the U.S. and Canada should dial 1-855-327-6837, and international callers should dial 1-631-982-4565 about five minutes before the presentation.

To listen to the webcast, participants should visit the "Investor Relations" section of the Company's Web site at www.triplesmanagement.com several minutes before the event is broadcast and follow the instructions provided to ensure they have the necessary audio application downloaded and installed. This program is provided at no charge to the user. An archived version of the call, also located on the "Investor Relations" section of Triple-S Management's Web site, will be available about two hours after the call ends and for at least the following two weeks. This news release, along with other information relating to the call, will be available on the "Investor Relations" section of the Web site.

About Triple-S Management Corporation

Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association. It is one of the leading players in the managed care industry in Puerto Rico. Triple-S Management also has the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico, the U.S. Virgin Islands, and Costa Rica. With more than 50 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care Triple-S Management Corporation and related products in the Commercial and Medicare Advantage markets under the Blue Cross Blue Shield marks. In addition to its managed care business, Triple-S Management provides non-Blue Cross Blue Shield branded life and property and casualty insurance in Puerto Rico.

For more information about Triple-S Management, visit www.triplesmanagement.com or contact [email protected].

Forward-Looking Statements

This document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances. Sentences that include "believe", "expect", "plan", "intend", "estimate", "anticipate", "project", "may", "will", "shall", "should" and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.

All forward-looking statements in this news release reflect management's current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the U.S. Securities and Exchange Commission (SEC).

In addition, the Company operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight. The following factors, if markedly different from the Company's planning assumptions (either individually or in combination), could cause Triple-S Management's results to differ materially from those expressed in any forward-looking statements shared here:

Trends in health care costs and utilization rates
Ability to secure sufficient premium rate increases
Competitor pricing below market trends of increasing costs
Re-estimates of policy and contract liabilities
Changes in government laws and regulations of managed care, life insurance or property and casualty insurance
Significant acquisitions or divestitures by major competitors
Introduction and use of new prescription drugs and technologies
A downgrade in the Company's financial strength ratings
A downgrade in the Government of Puerto Rico's debt
Litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies
Ability to contract with providers consistent with past practice
Ability to successfully implement the Company's disease management, utilization management and Star ratings programs
Ability to maintain Federal Employees, Medicare and Medicaid contracts
Volatility in the securities markets and investment losses and defaults
General economic downturns, major disasters, and epidemics

This list is not exhaustive. Management believes the forward-looking statements in this release are reasonable. However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on the Company's results of operations or financial condition. In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations. In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of the United States) the Company does not intend to update or revise any of them in light of new information or future events.

Readers are advised to carefully review and consider the various disclosures in the Company's SEC reports.

-FINANCIAL TABLES ATTACHED-

Condensed Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

			Unaudited September 30, 2014		December 31, 2013
Assets

Investments			$	1,336,286	$	1,308,651
Cash and cash equivalents				141,040		74,356
Premium and other receivables, net				273,371		274,939
Deferred policy acquisition costs and value of business acquired				180,561		177,289
Property and equipment, net				81,934		89,086
Other assets				103,072		123,303

		Total assets	$	2,116,264	$	2,047,624


Liabilities and Stockholders' Equity

Policy liabilities and accruals			$	922,328	$	928,069
Accounts payable and accrued liabilities				250,065		245,050
Long-term borrowings				87,816		89,302

		Total liabilities		1,260,209		1,262,421

Stockholders' equity:
	Common stock			27,264		27,469
	Other stockholders' equity			829,086		757,912

		Total Triple-S Management Corporation stockholders' equity		856,350		785,381

Non-controlling interest in consolidated subsidiary				(295)		(178)

Total stockholders' equity				856,055		785,203

Total liabilities and stockholders' equity			$	2,116,264	$	2,047,624

Condensed Consolidated Statements of Earnings
(Dollar amounts in thousands, except per share data)

			For the Three Months Ended				For the Nine Months Ended
			September 30,				September 30,
			Unaudited 2014		Unaudited 2013		Unaudited 2014		Unaudited 2013
Revenues:
	Premiums earned, net		$	520,766	$	547,874	$	1,606,353	$	1,653,870
	Administrative service fees			30,253		22,450		89,509		78,103
	Net investment income			11,816		11,363		35,314		34,749
	Other operating revenues			939		1,239		3,283		3,638

		Total operating revenues		563,774		582,926		1,734,459		1,770,360

	Net realized investment gains (losses):
		Total other-than-temporary impairment losses on securities		-		-		(462)		-
		Net realized gains, excluding other-than-temporary impairment losses on securities
				3,108		(144)		7,624		3,405

		Total net realized investment gains (losses)		3,108		(144)		7,162		3,405

	Other income, net			367		13,931		1,188		14,778

		Total revenues		567,249		596,713		1,742,809		1,788,543


Benefits and expenses:
	Claims incurred			433,853		456,432		1,311,601		1,369,250
	Operating expenses			121,036		116,156		369,992		351,246

		Total operating costs		554,889		572,588		1,681,593		1,720,496

	Interest expense			2,273		2,379		6,974		7,189

		Total benefits and expenses		557,162		574,967		1,688,567		1,727,685

		Income before taxes		10,087		21,746		54,242		60,858

Income tax expense				5,432		3,142		15,205		4,993

Net income				4,655		18,604		39,037		55,865

	Less: Net loss attributable to the non-controlling interest			68		37		117		156

Net income attributable to TSM			$	4,723	$	18,641	$	39,154	$	56,021

Earnings per share attributable to TSM:

Basic net income per share			$	0.17	$	0.68	$	1.44	$	2.01
Diluted earnings per share			$	0.17	$	0.68	$	1.44	$	2.01

Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands, except per share data)


					For the Nine Months Ended
					September 30,
					Unaudited 2014		Unaudited 2013

Net cash provided by operating activities					$	60,805	$	102,075

Cash flows from investing activities:
	Proceeds from investments sold or matured:
		Securities available for sale:
			Fixed maturities sold			150,049		81,330
			Fixed maturities matured/called			27,892		85,496
			Equity securities sold			70,803		93,504
		Securities held to maturity:
			Fixed maturities matured/called			2,929		1,127
		Other investments				8,925		-
	Acquisition of investments:
		Securities available for sale:
			Fixed maturities			(211,129)		(205,373)
			Equity securities			(23,731)		(132,109)
		Securities held to maturity:
			Fixed maturities			(865)		(1,011)
		Other investments				(583)		(823)
	Net outflows from policy loans					(352)		(209)
	Net capital expenditures					(3,801)		(8,934)

				Net cash provided by (used in) investing activities		20,137		(87,002)

Cash flows from financing activities:
	Change in outstanding checks in excess of bank balances					(6,754)		22,809
	Net change in short-term borrowings					-		(16,590)
	Repayments of long-term borrowings					(1,486)		(11,475)
	Repurchase and retirement of common stock					(5,995)		(18,250)
	Proceeds from policyholder deposits					6,413		8,112
	Surrenders of policyholder deposits					(6,436)		(7,479)

				Net cash used in financing activities		(14,258)		(22,873)

				Net increase (decrease) in cash and cash equivalents		66,684		(7,800)

Cash and cash equivalents, beginning of period						74,356		89,564

Cash and cash equivalents, end of period					$	141,040	$	81,764