Press Release

Triple-S Management Corporation Reports First Quarter 2018 Results

Company Release - 5/8/2018 6:00 AM ET

SAN JUAN, Puerto Rico, May 8, 2018 /PRNewswire/ -- Triple-S Management Corporation (NYSE:GTS), a leading managed care company in Puerto Rico, today announced its first quarter 2018 results. 

Quarterly Consolidated and Other Highlights

  • Net income of $3.9 million, or $0.17 per diluted share, versus net loss of $4.3 million, or $0.18 per diluted share, in the prior-year period;
  • Adjusted net income of $14.1 million, or $0.60 per diluted share, versus adjusted net loss of
  • $4.8 million, or $0.20 per diluted share, a year ago, reflecting the ongoing improvements in the Company's Managed Care operations;
  • Operating revenues of $770.2 million, a 7.0% increase from the prior-year period, reflecting higher premiums in the Managed Care segment;
  • Consolidated operating income of $18.1 million compared to an operating loss of $12.2 million in the prior-year period;
  • Consolidated loss ratio improved to 82.3% and medical loss ratio ("MLR") to 85.0%, driven primarily by Managed Care premium trends that are higher than claim trends;
  • The Company's Board authorized a $25.0 million expansion of its existing $30.0 million Class B share repurchase program in February. Under the repurchase program, during the first quarter of 2018, 563,559 shares were repurchased at an aggregate cost of $14.3 million. During the second quarter of 2018, as of May 4, an additional 80,404 shares were repurchased at an aggregate cost of $2.1 million. As of May 4, 2018, $18.5 million of availability remains in the program.

"We are pleased with our first quarter performance, as our financial results begin to manifest the impact of our operational improvements and clinical initiatives," said Roberto Garcia-Rodriguez, President and Chief Executive Officer.  "We continue to invest considerably in our Managed Care operations to ensure we are providing top-shelf service to our customers, making our products more attractive and thus enabling Triple-S to generate sustainable long-term growth."

"As Puerto Rico begins to rebuild after Hurricane María, we remain keenly focused on a three-pronged approach to growing the company," continued Mr. Garcia-Rodriguez. "First, we aim to win and retain Medicare Advantage business with a more competitive and consistent product offering.  Secondly, we will further modernize our infrastructure and technology to improve our service, reduce our expenses and ultimately expand our margins.  And finally, we will expand our ambulatory clinic network to provide us an additional and vital platform to improve access, cost, quality and outcomes throughout our Managed Care businesses.  By focusing on these key initiatives, we remain confident that we are positioning ourselves to create long-term value for our shareholders."

Selected Consolidated Quarterly Details

  • Consolidated premiums earned were $752.0 million, up 7.1% from the prior-year period, primarily reflecting higher premiums across all businesses within the Managed Care segment. In the Medicare business, premiums increased due to the Company's four-star rated Medicare Advantage HMO contract, resulting in a 5% bonus applied to the benchmark used in premium calculation, as well as higher sharing on rebates. These increases were partially offset by lower Commercial and Medicare membership.
  • Consolidated claims incurred were $619.0 million, down 0.3% year-over-year, mostly driven by lower enrollment in the Managed Care segment's Medicare and Commercial businesses, and partially offset by the impact of additional benefits in the Company's Medicare Advantage product. Consolidated loss ratio of 82.3% improved 610 basis points from the prior-year period.
  • Consolidated operating expenses of $133.1 million increased 20.0% from the prior-year period, while the Company's operating expense ratio increased 190 basis points year over year to 17.6%. The increase in operating expenses primarily reflected the reinstatement of the Health Insurance Providers Fee (HIP fee) of $11.7 million, as well as higher professional services and personnel costs related to the Company's ongoing Managed Care initiatives.
  • Consolidated income tax expense was $0.4 million, compared to a benefit of $6.7 million in the prior-year period, primarily reflecting a significant increase in taxable income in the Managed Care segment, which also has a higher effective tax rate than the Company's other segments.
  • Net income for the period reflects the implementation of new accounting guidance that requires changes in unrealized gains or losses of equity securities to be recorded through operations. This amount was excluded from adjusted net income.

Selected Managed Care Segment Quarterly Details

  • Managed Care premiums earned were $686.9 million, up 7.2% year over year.
    • Commercial premiums earned of $198.7 million declined 3.1% from the prior-year period, mainly due to an approximate decline of 52,000 in fully-insured member month enrollment and partially offset by $3.9 million related to the reinstatement of the HIP fee pass-through in 2018.
    • Medicare premiums earned of $287.9 million increased 11.7% from the prior-year period, largely reflecting an increase in the 2018 Medicare reimbursement rates for the first time since 2012, an increase in premium rates related to the upgraded four-star rating of the Company's 2018 HMO product, and to higher average risk score. These increases were partially offset by a decrease in member month enrollment of approximately 25,000.
    • Medicaid premiums earned improved 12.7% from the prior-year period to $200.3 million, primarily reflecting higher premium rates that became effective July 1, 2017, $3.8 million in premiums earned related to the Company's achieving the contract's quality incentive metrics, and $3.7 million associated to the reinstatement of the HIP fee pass-through in 2018.
  • Reported MLR of 85.0% and recasted MLR of 86.2% represent a year-over-year improvement of 670 and 400 basis points, respectively, mostly reflecting claim trends lower than premium trends across all of the Company's Managed Care businesses. Recasted MLR excludes the impact of prior-period reserve developments, and moves the Medicare risk score revenue and other adjustments to their corresponding periods.
  • Managed Care operating expenses were $101.8 million, up $20.5 million, or 25.2%, year over year, primarily reflecting the reinstatement of the HIP fee, and an increase in professional services and personnel costs related to the Company's ongoing clinical and operational initiatives.

2018 Outlook

Despite the ongoing market uncertainty regarding utilization patterns, outward migration and the impact of post-hurricane reconstruction efforts, the Company is maintaining its full year 2018 directional guidance regarding its Commercial and Medicare businesses, as well as its Life Insurance segment and consolidated operating expenses.  Directional guidance regarding its Property and Casualty segment was raised for the full year 2018.  More specifically:


  • In the Commercial business, the Company continues to expect full-year at-risk member month enrollment between 3.7 million and 3.8 million, and full-year MLR between 80.5% and 82.5%.
  • In the Medicare Advantage business, the Company anticipates full year member month enrollment to be between 1.35 million and 1.45 million, while the expected MLR range for 2018 remains between 85% and 87%.
  • The Company continues to expect Life insurance premiums earned for 2018 between $160 million and $164 million.
  • The Company has raised expectations for its Property and Casualty premiums earned for 2018 to between $82 million and $86 million. The Company's previous outlook for Property and Casualty 2018 premiums earned was between $76 million and $80 million.
  • The Company continues to expect consolidated operating expenses for full year 2018 between $530 million and $545 million.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss its financial results for the three months ended March 31, 2018. To participate, callers within the U.S. and Canada should dial 1-855-327-6837 and international callers should dial 1-631-891-4304 about five minutes before the call.

To listen to the webcast, participants should visit the "Investor Relations" section of the Company's website 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 website, 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 website.

In addition, a replay will be available through May 22, 2018 by calling 1-844-512-2921 or 1-412-317-6671 and entering passcode 10004746. A replay will also be available at www.triplesmanagement.com for 30 days. 

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 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 55 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care and related products in the Commercial, Medicare Advantage, and Medicaid markets under the Blue Cross Blue Shield marks. It also 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 investorrelations@ssspr.com.

Non-GAAP Financial Measures

This earnings release presents information about the Company's adjusted net income, which is a non-GAAP financial metric provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America (GAAP). A reconciliation of adjusted net income to net income, the most comparable GAAP financial measure, is provided in the accompanying tables found at the end of this release.

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.

Earnings Release Schedules and Supplementary Information

Condensed Consolidated Balance Sheets

Exhibit I

Condensed Consolidated Statements of Earnings

Exhibit II

Condensed Consolidated Statements of Cash Flows

Exhibit III

Segment Performance Supplemental Information

Exhibit IV

Reconciliation of Non-GAAP Financial Measures

Exhibit V

                                       


Exhibit I

 

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

Unaudited
































March 31,
2018


December 31,
2017

Assets



















Investments


$

1,651,860


$

1,605,477

Cash and cash equivalents



212,610



198,941

Premium and other receivables, net



775,258



899,327

Deferred policy acquisition costs and value of business acquired


202,581



200,788

Property and equipment, net



76,825



74,716

Other assets



181,857



137,516













Total assets


$

3,100,991


$

3,116,765























Liabilities and Stockholders' Equity



















Policy liabilities and accruals


$

1,786,713


$

1,761,553

Accounts payable and accrued liabilities



387,454



410,457

Long-term borrowings



31,275



32,073













Total liabilities



2,205,442



2,204,083











Stockholders' equity:








Common stock



23,283



23,578


Other stockholders' equity



872,948



889,786













Total Triple-S Management Corporation stockholders' equity


896,231



913,364













Non-controlling interest in consolidated subsidiary



(682)



(682)













Total stockholders' equity



895,549



912,682













Total liabilities and stockholders' equity


$

3,100,991


$

3,116,765























 

Exhibit II

 




Condensed Consolidated Statements of Earnings




(dollar amounts in thousands, except per share data)




Unaudited

























For the Three Months Ended











March 31,









2018

2017

Revenues:










Premiums earned, net


$

752,034

$

702,273


Administrative service fees



3,348


4,379


Net investment income



13,755


12,016


Other operating revenues



1,071


965














Total operating revenues



770,208


719,633













Net realized investment gains on sale of securities



2,942


336













Net unrealized investment losses on equity investments



(16,199)


-














Other income, net



1,163


2,525














Total revenues



758,114



722,494
























Benefits and expenses:







Claims incurred




618,989


620,863


Operating expenses



133,134



110,946














Total operating costs



752,123


731,809














Interest expense



1,690



1,686














Total benefits and expenses



753,813



733,495














Income (loss) before taxes



4,301



(11,001)












Income tax expense (benefit)



387



(6,658)












Net income (loss)




3,914


(4,343)













Less: Net loss attributable to the non-controlling interest



-



1












Net income (loss) attributable to Triple-S Management Corporation

$

3,914


$

(4,342)













Earnings per share attributable to Triple-S Management Corporation:


















Basic net income (loss) per share


$

0.17

$

(0.18)


Diluted net income (loss) per share


$

0.17

$

(0.18)














Weighted average of common shares



23,277,633


24,143,261


Diluted weighted average of common shares



23,394,997


24,143,261

 

Exhibit III

 


Condensed Consolidated Statements of Cash Flows




(dollar amounts in thousands)




Unaudited


























 

 

For the Year Ended












March 31,









2018


2017













Net cash provided by operating activities



$

130,473


$

130,965











Cash flows from investing activities:








Proceeds from investments sold or matured:









Securities available for sale:










Fixed maturities sold



443,419


26,023





Fixed maturities matured/called



5,368


5,001




Securities held to maturity - fixed maturities matured/called



1,048


703




Equity securities sold



113,863


10,272




Other invested assets sold



845


-



Acquisition of investments:









Securities available for sale - fixed maturities



(575,694)


(33,738)




Securities held to maturity - fixed maturities



(1,212)


(382)




Equity securities



(49,591)


(5,482)




Other invested assets 



(9,683)


-



Increase in other investments




(4,136)


(2,044)


Net change in policy loans




(185)


18


Net capital expenditures




(4,861)


(3,295)














Net cash used in investing activities





(80,819)


(2,924)












Cash flows from financing activities:








Change in outstanding checks in excess of bank balances




(19,992)


(11,401)


Repayments of long-term borrowings




(810)


(24,676)


Proceeds from revolving line of credit




-


24,266


Repurchase and retirement of common stock




(14,259)


-


Proceeds from policyholder deposits




6,237


4,116


Surrender of policyholder deposits




(7,161)


(4,890)














Net cash used in financing activities





(35,985)


(12,585)















Net increase in cash and cash equivalents





13,669


115,456














Cash and cash equivalents, beginning of period




198,941


103,428











Cash and cash equivalents, end of period



$

212,610


$

218,884











 

Exhibit IV

 

Segment Performance Supplemental Information

   








(Unaudited)


Three months ended March 31,


(dollar amounts in millions)

2018

2017

Percentage
Change


Premiums earned, net:






Managed Care:







Commercial

$     198.7

$     205.1

(3.1%)




Medicare

287.9

257.7

11.7%




Medicaid

200.3

177.7

12.7%





Total Managed Care

686.9

640.5

7.2%



Life Insurance

41.5

40.5

2.5%



Property and Casualty

24.2

21.7

11.5%



Other



(0.6)

(0.4)

(50.0%)






Consolidated premiums earned, net

$     752.0

$     702.3

7.1%


Operating revenues (loss): 1






Managed Care

$     696.1

$     650.0

7.1%



Life Insurance

47.5

46.6

1.9%



Property and Casualty

26.6

23.6

12.7%



Other



-

(0.6)

100.0%






Consolidated operating revenues

$     770.2

$     719.6

7.0%


Operating income (loss): 2






Managed Care

$       10.6

$      (18.6)

157.0%



Life Insurance

3.6

3.9

(7.7%)



Property and Casualty

3.1

2.1

47.6%



Other



0.8

0.4

100.0%






Consolidated operating income (loss)

$       18.1

$      (12.2)

248.4%


Operating margin: 3






Managed Care

1.5%

(2.9%)

440 bp



Life Insurance

7.6%

8.4%

-80 bp



Property and Casualty

11.7%

8.9%

280 bp



Consolidated

2.4%

(1.7%)

410 bp


Depreciation and amortization expense

$         3.4

$         3.0

13.3%


1 Operating revenues include premiums earned, net, administrative service fees and net investment income.


2 Operating income or loss include operating revenues minus operating costs. Operating costs include claims incurred and operating expenses.


3 Operating margin is defined as operating income or loss divided by operating revenues.



    








Managed Care Additional Data

Three months ended
March 31,

(Unaudited)


2018

2017

Member months enrollment:



Commercial:




Fully-insured


961,290

1,013,205


Self-insured


449,778

507,167


Total Commercial



1,411,068

1,520,372


Medicare Advantage




338,340

363,727


Medicaid


1,171,345

1,173,273


Total member months



2,920,753

3,057,372




Claim liabilities (in millions)

$        402.4

$       393.5

Days claim payable

62

60




Premium PMPM:



Managed Care

$       277.99

$      251.16


Commercial


206.70

202.43


Medicare Advantage


850.92

708.50


Medicaid


171.00

151.46




Medical loss ratio:

85.0%

91.7%


Commercial

81.3%

83.5%


Medicare Advantage

84.6%

94.0%


Medicaid 


89.2%

97.8%




Adjusted medical loss ratio: 1

86.2%

90.2%


Commercial

82.6%

82.9%


Medicare Advantage

86.1%

94.1%


Medicaid 


90.0%

93.0%




Operating expense ratio:




Consolidated

17.6%

15.7%


Managed Care

14.7%

12.6%

1 The adjusted medical loss ratio accounts for subsequent adjustments to estimates, such as prior-period reserve developments and Medicare premium adjustments, and presents them in the corresponding period.


 

Managed Care Membership by Segment

As of March 31,



2018

2017

Members:





Commercial:




     Fully-insured



319,208

336,845


     Self-insured



148,688

169,003


Total Commercial



467,896

505,848


Medicare Advantage


112,080

121,352


Medicaid

394,454

389,130


Total members


974,430

1,016,330

 


 


Exhibit V

Reconciliation of Non-GAAP Financial Measures

  





Adjusted Net Income (Loss)

(Unaudited)


Three months ended
March 31,




(dollar amounts in millions)

2018

2017


Net income (loss)

$          3.9

$         (4.3)


Less adjustments:





Net realized investment gains, net of tax

2.4

0.3



Unrealized losses on equity investments

(13.1)

-



Private equity investment income, net of tax

0.5

0.2




Adjusted net income (loss)

$         14.1

$         (4.8)




Diluted adjusted net income (loss) per share

$         0.60

$        (0.20)


Adjusted net income is a non-GAAP financial metric and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management believes that the use of this adjusted net income and adjusted net income per share provides investors and management useful information about the earnings impact of realized and unrealized investment gains or losses, as well as other non-recurring items impacting the Company's results of operations. This non-GAAP metric does not consider all of the items associated with the Company's operations as determined in accordance with GAAP. As a result, one should not consider these measures in isolation.

FOR FURTHER INFORMATION: 




AT THE COMPANY:                       

INVESTOR RELATIONS:         

Juan José Román-Jiménez              

Mr. Garrett Edson          

EVP and Chief Financial Officer        

ICR                 

(787) 749-4949                                   

(787) 792-6488            

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SOURCE Triple-S Management Corporation