Q4 2020 Triple-S Management Corp Earnings Call

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Good morning, welcome to the Triple S management fourth quarter 'twenty 'twenty earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions.

Of note. This event is being recorded I would now like to turn the conference over to Garrett Edson from ICR. Please go ahead.

Thank you and good morning, welcome to the Triple S Management fourth quarter 2020 earnings conference call with US today are your host Bobby Garcia, President and Chief Executive Officer of Triple S and Juan Jose Roman the executive Vice President and Chief Financial Officer. In addition, Madeline Hernandez, Chief operating officer, and President of managed care will be available during Q&A by now everyone should.

Of access to the earnings announcement, which was released prior to this call and which May also be found on the company's website of Triple S management Dot com before we begin formal remarks, we need to remind everyone that each quarter Triple S management executives will provide their current view of the company's future and thus they will be sharing forward looking information. These statements can be affected by risks and uncertainties involved in the business. Despite management's best efforts.

Actual results may differ materially from such forward looking statements and what you hear on today's call. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them for further information on factors that could impact the company and the statements and projections contained herein. Please refer to the Safe Harbor section of today's news release, and the company's filings with Securities and Exchange Commission each forward.

Looking statement of protection of financial information made during this call is based on information available to us as if the need of this call. We disclaim any obligation to update our forward looking statements unless required by law. In addition, this call is being webcast an archived version will be available. Shortly after the call ends on the Investor Relations portion of the company's website at Www Dot Triple S management Dotcom if you.

Not download a copy of the release you can contact us at 787 hundred 70 926 for eight eight and we will get one to you immediately and can add you to the distribution list of moving forward with that I'd now like to turn the call over to Bobby Garcia. Please go ahead.

Thanks, Garrett and good morning, everyone. We appreciate your time this morning, and hope you are well.

In the fourth quarter of 2020, we had solid line.

Top line growth and delivered on our prior our outlook for adjusted earnings per share.

Overall, we generated strong results for the year, we took initial steps to implement our value based integrated health care model and importantly, we were a major positive force for our members and our community is the grappled with the numerous challenges of the pandemic.

Our telehealth platforms prescription drug home delivery and partnerships with groups across the island to reach our most vulnerable members help meet the needs of our community. During this critical time.

I am very grateful to our team for their efforts commitment and the results they delivered during a truly unprecedented year for all.

For the quarter, we reported total operating revenues of $969 8 million a 17% increase from the same period last year. Thanks for another quarter of solid increases in Medicaid Medicare premiums and in particular, Medicaid membership and average premium rates.

We also recorded adjusted net income of $4 $2 million or <unk> 18 cents per diluted share compared with 25 cents per diluted share in the fourth quarter of 2019.

Overall utilization of our services increased during the quarter.

And while utilization patterns vary somewhat by type of service business by year end day had returned to pre pandemic levels in the aggregate as Juan Jose will describe later.

We expect overall utilization to remain at normal levels in 2021.

Let me now turn to our segment performance beginning with managed care.

Our Medicare advantage membership remained flat during open enrollment as the pandemic prompted the vast majority of members to remain with their current of carriers.

On the positive side as we talked about last quarter, we came to the market with a competitive and innovative offering in 2020.

Led by our co branded Blue Cross Blue Shield Mastercard debit card.

The card generated significant interest and with additional time of the market greater recognition and our ability to further enhance for Medicare advantage products. We're excited to see what we can achieve in a more normalized environment.

Our of Medicaid segment has continued its healthy top line growth driven by the 37000, New Medicaid members. We gained in the fourth quarter alone as one of our competitors less of the market and by the impact of the premium rate increases we mentioned in our last call.

We now have over 422000 members reinforcing our position as the leading Medicaid provider on the island.

Our other two segments life, and P&C continued to perform well with both businesses generating steady revenue and profitable performance.

As we've shared with you previously Triple S is committed to improving the health and well being of the people and communities of Puerto Rico.

One third of Puerto Rican residents rely on our company as their partner in health and we are dedicated to honoring their trust in us and deepening that relationship.

On our last call, we discussed our long term strategy to develop and sponsor an integrated delivery system as the logical next step in our mission of enabling long healthy lives.

We believe the providing seamless access to affordable and the holistic health care will best serve our members and improve their quality of care.

We also believe that doing so will sustainably grow our top and bottom lines, creating value for all our stakeholders.

Over the years, we've consistently noted the growth opportunities in Medicare advantage in Puerto Rico.

We believe we can become the preferred and the organization by becoming the preferred health care services company all of the island based on several factors.

These include.

The projected continued growth in the islands that Ma population.

The expected acceleration of the federal funding the Puerto Rico, the strength of the brand and our ability to further cultivate and deepen our relationships with our community.

And finally, the power of our integrated delivery strategy.

This year implementation of of our integrated model moves into high gear. So let me take a few minutes to provide a perspective on what you will begin to see from us as we fully embark on the strategy.

One of our major priorities is to achieve better care at lower cost for members with chronic and complex health needs.

You would expect this group represents a disproportionate share of our total claim costs.

So we are accelerating the scope and scale of our chronic condition management programs in partnership with health care providers.

Leveraging the NCQA patient centered Medicare home medical home model in health care delivery settings, and promoting clinical and financial integration of our primary and specialty care networks.

To successfully execute our strategic initiatives, we realigned our organization in January and as a result, we are in the process of integrating the company's medical and clinical management programs with our provider facing functions and health care delivery capabilities.

In subsequent quarters, we will provide more detail on our initiatives and overall progress.

Our focus on operational excellence over the past for years has enabled us to generate a low double digit compounded annual growth rate on both the top and bottom lines as.

As we build out our integrated delivery model further optimize our care management and member service and improve our operating cost structure. We believe we can achieve high single digit top line CAGR and continued low double digit bottom line CAGR over our new for years strategic horizon.

We look forward to providing you with the ongoing updates as we continue implementing the strategy.

Now turning back to 2021.

The company is initiating the following full year guidance, which is based on the current economic environment and continued impact of the COVID-19 pandemic and.

And incorporates our investments in and initial benefits from our strategic initiatives.

First we expect consolidated operating revenue to be between $3 $98 billion and $4.02 billion, which includes managed care premiums earned net between $3 58 billion and $3 $62 billion.

Our consolidated claims incurred ratio is expected to be between 83 and 84% while.

While the managed care MLR is expected to be between 86 and 87%.

The increase reflects expected higher utilization during 2021 the.

The elimination of the hip fee and increased membership in the Medicaid program, which has higher MLR than the commercial and Medicare businesses.

We expect our consolidated operating expense ratio to be between 15, 5% and $16 five per cent as we continue to invest in our integrated delivery model.

The effective tax rate is expected to be between 29% and 31 per cent.

Finally, our outlook for adjusted net income per diluted share is between $2 95 and $3 15.

Adjusted net income per diluted share does not account for any potential share repurchase activity during 2021.

So excludes realized and unrealized investment gains and losses as well as any private equity investment income.

The company's assuming a weighted average diluted share count for for full year 2021 of $23 6 million shares.

So summing up we are pleased that we successfully navigated through a very challenging 2020, and we are confident that we are pursuing the right long term strategy to ensure we best for board members improve their quality of care and position ourselves to sustainably grow our top and bottom lines.

By transitioning to a value based integrated care delivery system, we will create additional value for all of our stakeholders patients providers and shareholders.

With that I'll.

Now as one of the to address our financial results.

Thank you Willy and good morning to everyone on this call.

Our fourth quarter results were in line with the outlook, we provided on our third quarter call.

As expected our performance in deep water was affected by two major factors first we had the significant increase in membership in the Medicaid business and secondly, we continue to be affected by the changes in utilization patterns brought on by COVID-19.

By year end utilization of services has reached pre pandemic levels and in the fourth water. We began to see some of the for utilization in our claims experience, which along with the Kobe related costs resulted in a year over year increase.

Sure.

Yeah.

For Q4 plenty plenty, we reported adjusted net income per diluted share of 18 cents compared with 25 cents in the prior year of theaters.

Turning to the segment results.

In managed care premiums earned net increase of $131 5 million or 17, 7% over the same period last year the.

The increase was due to higher average premium rates across all businesses and higher Medicaid and Medicare fully insured member per month.

In the Medicaid business average.

Premium rates in 2016 per cent compared with the prior year as the result of two rate increases in 'twenty.

As expected mainly gate member months were up in the fourth quarter, increasing by almost 168000 or 16% of year over year.

As mentioned in previous quarters effective November one.

The government of sign the remaining members of the Medicaid carrier that was leaving the program.

The assignment.

Those data in an additional 80000 member months for us.

In the Medicare business higher premiums per member per month, mostly reflected an increase in our average risk of course, I mean, the CMS premiums benchmark. These.

This business also experienced higher membership during the fourth quarter, increasing by nearly 27000 member months.

In the commercial business.

Are you seeing the per member per month, the grade was mostly due to a reduction in the estimated MLR rebate accrual one we reported last quarter.

These rebate, which was originally recorded a series of China of premiums was revised during the quarter.

Utilization continued to trend toward normalized levels.

Remember in the months declined by nearly 10000, reflecting the economic impact of the pandemic.

Managed care claims increased 159 8 million of year over year and the MLR of 89, 4% was 570 basis points higher than last year.

Adjusted MLR for the quarter was 87, one person 140 basis points higher than the prior year period.

The writing the MLR was mostly due to increasing membership in the Medicaid business, which has a higher MLR the on the Medicare and commercial businesses.

COVID-19 related testing and treatment costs.

Favre of medical and the payment policies and the return of defer utilization.

Offsetting the increase for the two Medicaid premium rate increases mentioned above lower non college station and the heap feed reinstatement.

I see no utilization of services has most of the return to normal.

Although it does vary by type of service for example, pharmacy utilization experienced no reduction during the pandemic.

Medical service utilization east at pre pandemic levels in.

Inpatient E R urgent care, which has been the brands like the pandemic increase during the fourth quarter, but remain at slightly lower Dennis Dennis but didn't live eyeballs.

And we actually experienced an increase in some services like COVID-19 testing, which is understandable, but also in other services like dental vision and hearing.

Lastly, managed care operating expenses decreased $5 7 million from a year ago the.

The decrease was mostly due to a lower provision for bad debt and professional services, partially offset by the heat the reinstatement, which represented an addition of Doyle for <unk> 1 million of expense.

Turning now to our life and brokered the in cash with the segments.

Life premiums earned were up approximately 9% from the prior year period.

The increase was driven mostly by new sales and the cancer individual and group life products.

Our acquisition in 2022nd quarter.

Both of an insurance portfolio, we annual estimate the premiums of $5 million also contributed to the increase.

The segment's operating income was $7 6 million compared with $4 4 million in the prior year period, mostly reflecting higher premiums in the 'twenty 'twenty period.

In our broker fees and cash flow statement.

Casualty segment net premiums earned were up approximately 10% from the prior year period.

Most of the assay, we sold of higher sales during 'twenty Duane.

Operating income for the fourth quarter was $8 9 million compared with net operating loss of <unk> 5 million during the same quarter of last year.

The segments improve operating income was driven by better loss experience.

Lower operating expenses in the fourth quarter of two anyway.

The decrease in operating expenses, primarily reflects lower Commission net commission salaries and related benefits and a 1.7 million that is the bonus assessment.

Nice during the prior year period.

Reserve related to Hurricane Maria.

183 million as of December 31, do I need to do any no adjustments were made for the loss reserves as we believe we're adequately reserved against claims.

However, we strengthened the reserve for claims have Joe start legal and other expenses, resulting in a $9 million increase any garen loss adjustment expenses during the quarter.

This increase was offset by better claims experience in non catastrophe claims.

The reduction in reserve related to Hurricane Irma.

As of December 31, 'twenty plenty of only 355 or 2% of the total of 17783 money other related claims remain outstanding.

Returning to consolidate debt results.

Income tax expense this quarter was $6 3 million lower than the same period last year.

Mostly as a result of lower taxable income in the managed care segment.

As of December 31st 2020 of the company had cash and cash equivalents of $111 million and its investment portfolio stood at $1 9 billion.

Of which 72% was in investment grade fixed income securities.

The company also has seven of short term facilities of eight of them.

Consisting of a revolving credit facility and collateralized advances from the federal home loan Bank of New York.

These short term facility scream for us our liquidity.

In sum, we believe we remain well capitalized to support our business operations throughout the pandemic and the.

Okay.

We will now proceed toward Gillani sanction operator, please open the call for questions.

Yeah.

We will now begin the question of ample session. So ask the question you know co Star then one on you touched on the phone.

If youre using a speakerphone please pick up your handset before pressing the tea.

To withdraw your question. Please press Star then two.

At this time of a pause momentarily to assemble our roster.

Again to ask the question.

All of that one.

Okay. At this time, we have no more questions. So I would like to turn the conference back over to Bobby Garcia for closing remarks.

Thank you. Thank you one of them say for your comments and thanks once again of the entire Triple S team for the outstanding efforts during 2020 and for their continued hard work and dedication to patient centered health care delivery.

Yeah.

And for quality outcomes for all of our members.

Shit your timing of ongoing support and we hope your families remain safe and healthy.

We look forward to talking with you again in the spring during our fourth first quarter 2021 earnings call in the meantime, please reach out to US if you have more questions and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.