Triple-S Management Corporation Reports Second Quarter 2019 Results

SAN JUAN, Puerto Rico, Aug. 8, 2019 /PRNewswire/ -- Triple-S Management Corporation (NYSE: GTS), a leading managed care company in Puerto Rico, today announced its second quarter 2019 results.

Quarterly Consolidated and Other Highlights

• Net income of $30.9 million, or $1.35 per diluted share, versus net loss of $38.7 million, or $1.68 per share, in the prior-year period;
• Adjusted net income of $25.7 million, or $1.12 per diluted share, versus adjusted net loss of $37.3 million, or $1.62 per share;
• Operating revenues of $878.6 million, a 15.1% increase from the prior-year period, primarily reflecting higher Managed Care net premiums earned;
• Consolidated loss ratio improved 1,110 basis points to 82.2%, mostly driven by the unfavorable reserve development related to Hurricane Maria claims recognized by the Property and Casualty segment in the second quarter of 2018;
• Medical loss ratio ("MLR") improved 160 basis points to 84.5%;
• Consolidated operating income was $38.2 million, compared to consolidated operating loss of $63.6 million in the prior-year period.

"We recorded a strong second quarter, driven by an excellent performance from our core Managed Care segment, along with solid results from our Life and P&C segments, leading us to raise our outlook for full year 2019," said Roberto Garcia-Rodriguez, President and Chief Executive Officer.  "Our ongoing initiatives to enhance our product offering and brand are yielding positive results for Triple-S, reflected in strong year-over-year growth in Managed Care premiums and stable medical cost trends."

"In pursuit of our overall growth strategy, we remain focused on creating a unique member experience through a combination of innovative clinical programs, the evolution of our provider network, advanced analytics, competitive pricing and superior service," added Mr. Garcia-Rodriguez.  "In addition, effective yesterday we completed the conversion of our remaining outstanding Class A shares, simplifying our capital structure into a single class of common shares and increasing our public float, which should also enhance long-term value for our shareholders."  

Selected Consolidated Quarterly Details

• Consolidated net premiums earned were $859.5 million, up 15.9% from the prior-year period, primarily reflecting higher Medicare membership and premium rates within the Managed Care segment. The increase was partially offset by lower Medicaid membership resulting from the change in the program's model and a new entrant to the program in November 2018.
• Consolidated claims incurred were $706.3 million, up 2.1% year-over-year. Consolidated loss ratio of 82.2% improved 1,110 basis points from the prior-year period, mostly driven by lower Managed Care MLR on a year-over-year basis, as well as $76.4 million in unfavorable prior period reserve development related to Hurricane Maria recognized by the Property and Casualty segment in the second quarter of 2018.
• Consolidated operating expenses of $134.1 million decreased by $0.5 million, or 0.4%, from the prior-year period primarily resulting from $12.2 million in savings due to the suspension in 2019 of the HIP Fee, offset by higher personnel costs and commission expense. The Company's operating expense ratio improved 240 basis points year-over-year to 15.6% mostly driven by the increase in premiums during the second quarter of 2019.
• Consolidated income tax expense was $12.9 million, compared to an income tax benefit of $27.9 million in the prior-year period. Income tax expense in 2019 primarily reflects the increase in income before taxes in the Managed Care and Property and Casualty segments. The income tax benefit in the second quarter of 2018 mainly reflects the loss before taxes in that period in the Property and Casualty segment.

Selected Managed Care Segment Quarterly Details

• Managed Care premiums earned were $793.8 million, up 17.0% year over year.
• Medicare premiums earned of $366.0 million increased 30.8% from the prior-year period, largely due to an increase of approximately 51,000 member months and higher average premium rates, primarily reflecting a more competitive product offering and an increase in the average membership risk score.
• Medicaid premiums earned increased 11.4% from the prior-year period to $227.0 million, primarily reflecting higher average premium rates in 2019 offset in part by a decrease in enrollment of approximately 110,000 member months and the suspension of the HIP Fee pass-through in 2019. The decrease in membership was caused by the lower initial membership assigned to Triple-S by ASES when implementing the new contract effective November 1, 2018. The increase in average premium rates is due to the change in the Medicaid model, where Triple-S now insures members across Puerto Rico, which have higher average premium rates per member, compared to the previous contract where Triple-S covered only two regions with lower premium rates per member.
• Commercial premiums earned of $200.8 million increased 3.1% from the prior-year period, mainly reflecting higher enrollment during the quarter of approximately 15,000 member months and higher average premium rates, offset by the suspension of the HIP Fee pass-through in 2019.
• Reported MLR of 84.5% improved 160 basis points from the prior-year period, primarily reflecting favorable prior period reserve developments. Adjusting for prior period reserve developments and moving risk-score revenue to its corresponding period in both the 2019 and 2018 quarters, Managed Care MLR for the second quarter of 2019 would have been 85.3%, 130 basis points higher than the prior-year period. This largely reflects the improved benefits offered in the Medicare 2019 product offering, the elimination of the HIP Fee pass-through, and the higher target MLR of the current Medicaid contract.

2019 Outlook

The Company is raising its full year 2019 guidance for consolidated operating revenue, Managed Care premiums earned, and adjusted net income per diluted share, reducing its guidance for operating expense ratio and adjusting its effective tax rate guidance.  It is maintaining its full year 2019 guidance for its consolidated claims incurred ratio and Managed Care MLR.  More specifically:

• The Company raised consolidated operating revenue expectations for 2019 to be between $3.29 billion and $3.33 billion, which includes Managed Care premiums earned, net between $2.95 billion and $2.99 billion. The Company's previous outlook was for consolidated operating revenue between $3.11 billion and $3.15 billion, which included Managed Care premiums earned, net between $2.78 billion and $2.82 billion;
• The Company continues to expect the consolidated claims incurred ratio for 2019 to be between 81.3% and 83.3%, and Managed Care MLR to be between 84.0% and 86.0%;
• The Company is reducing consolidated operating ratio expectations for 2019 to be between 17.0% and 17.5%. The Company's previous outlook was for consolidated operating expense ratio to be between 17.6% and 18.6%;
• The Company is adjusting expectations for its effective tax rate to be between 29.0% and 33.0% due to an expected increase in Managed Care operating income, which has a higher tax rate relative to the other segments. The Company's previous outlook was for effective tax rate to be between 29.0% and 34.0%; and
• The Company raised adjusted net income per diluted share expectations for 2019 to be between $2.40 and $2.60, compared to its previous outlook for adjusted net income per diluted share between $1.90 and $2.10. Adjusted net income per diluted share guidance accounts for the recently issued share dividend and does not account for any potential share repurchase activity during 2019. Estimated weighted average diluted share count for full year 2019 is expected to be 23.44 million shares.

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 June 30, 2019. To participate, callers within the U.S. and Canada should dial 1-877-451-6152 and international callers should dial 1-201-389-0879 at least 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 August 22, 2019 by calling 1-844-512-2921 or 1-412-317-6671 and entering passcode 13692328. 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 60 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 [email protected].

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
• 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 Supplemental Information

Exhibit I

Exhibit II

Exhibit III

Exhibit IV

Segment Performance Supplemental Information

Exhibit V

Reconciliation of Non-GAAP Financial Measures

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 do 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.

SOURCE Triple-S Management Corporation