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Press release from Business Wire

WellCare Reports Third Quarter 2011 Results

Wednesday, November 02, 2011

WellCare Reports Third Quarter 2011 Results06:30 EDT Wednesday, November 02, 2011 TAMPA, Fla. (Business Wire) -- WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the third quarter ended September 30, 2011. As determined under generally accepted accounting principles (“GAAP”), net income for the third quarter of 2011 was $88.3 million, or $2.03 per diluted share, compared with $42.9 million, or $1.00 per diluted share, for the third quarter of 2010. Adjusted net income for the third quarter of 2011 was $93.2 million, or $2.15 per diluted share, compared with $37.9 million, or $0.89 per diluted share for the third quarter of 2010. “Our top initiatives continue to deliver strong results in improving health care quality and access, our administrative and medical cost structures, and in delivering prudent, profitable growth,” said Alec Cunningham, WellCare's chief executive officer. “As a result, we are optimistic about our opportunities for further operating and strategic progress in 2012.” WellCare's recent accomplishments are highlighted by the November 1 launch of the Kentucky Medicaid program upon completion of a rapid implementation timeline. The program will focus on improving health care outcomes and care coordination, promoting wellness and healthier lifestyles, and lowering the overall cost of care. Separately, the Company began providing prescription drug benefits under the New York and Ohio Medicaid programs effective October 1. Other recent accomplishments include the accreditations of WellCare's Georgia and Missouri health plans by the National Committee for Quality Assurance. In addition, during the third quarter the Company completed an upgrade of its core operating system, which will enable further progress in improving service, productivity, and compliance. Highlights of Operations for the Third Quarter Adjusted net income for the third quarter of 2011 increased compared with the third quarter of 2010, primarily due to higher premium revenue, offset in part by increased selling, general, and administrative (“SG&A”) expense and increases in the Medicare Advantage and PDP segments' medical benefits ratios (“MBRs”). In addition, favorable development of prior years' medical benefits payable contributed to third quarter results. Membership as of September 30, 2011, increased 10% year-over-year to 2.4 million, compared with 2.2 million members as of September 30, 2010. PDP segment membership increased 211,000 year-over-year, or 28%. Medicare Advantage membership increased year-over-year by 14,000 members, or 12%. Medicaid segment membership decreased by 15,000 year-over-year to 1.3 million members as of September 30, 2011. Premium revenue for the third quarter of 2011 increased 11% year-over-year to $1.5 billion. The increase mainly was due to growth in PDP segment premium revenue, which increased 33% year-over-year. In addition, third quarter 2011 Medicare Advantage segment revenue increased 14%, and Medicaid segment premium revenue increased 5%, both relative to the third quarter of 2010. Medical benefits expense for the third quarter of 2011 was $1.2 billion, an increase of 4% from the third quarter of 2010. The MBR was 78.6% in the third quarter of 2011, compared with 83.9% in the third quarter of 2010. The decrease in the Company's MBR resulted from a decrease in the Medicaid segment MBR, offset in part by increases in the Medicare Advantage and PDP segments' MBRs. Favorable development of prior years' medical benefits payable, predominately in the Medicaid segment, contributed to the decreases in the Company and Medicaid segment MBRs. SG&A expense as determined under GAAP was $178 million in the third quarter of 2011, compared with $143 million for the same period in 2010. Adjusted SG&A was $171 million in the third quarter of 2011, an increase from $150 million in the same period last year. The year-over-year increase in adjusted SG&A expense was driven primarily by the implementation of the Kentucky Medicaid program, the earlier start in 2011 of the Medicare annual election period and the associated marketing costs, as well as membership growth. These increases were offset in part by improvements in operating efficiency. The adjusted administrative expense ratio was 11.2% in the third quarter of 2011, compared with 11.0% in same period in 2010. Cash Flow and Financial Condition Highlights Net cash provided by operating activities as determined under GAAP was $319 million in the nine months ended September 30, 2011, compared with net cash used in operating activities of $72 million for the same period of 2010. Net cash provided by operating activities, modified for the timing of receipts from, and payments to, WellCare's government customers, was $177 million for the first nine months of 2011, compared with the net use of cash of $28 million over the same nine month period in 2010. In September, the Company issued tradable unsecured subordinated notes having an aggregate face value of $112.5 million, with a fixed coupon of 6% and a maturity date of December 31, 2016. These notes were issued in connection with the final resolution of the securities class action settlement. Issuance of the notes had no meaningful impact on operating or financing cash flows in the third quarter. As of September 30, 2011, unregulated cash and investments were approximately $324 million. Unregulated cash and investments were approximately $188 million as of June 30, 2011, and $201 million as of September 30, 2010. The increase in unregulated cash and investments resulted principally from the net proceeds of the $150 million dollar term loan that the Company borrowed on August 1. Days in claims payable were 58 days as of September 30, 2011, compared with 56 days as of June 30, 2011, and 56 days as of September 30, 2010. Financial Outlook WellCare is updating its financial outlook for the year ended December 31, 2011. The following elements of WellCare's financial outlook have changed: Adjusted net income per diluted share now is expected to be between approximately $5.55 and $5.65, an increase from the previous guidance for adjusted net income per diluted share of between approximately $4.60 and $4.80. The increase reflects better than anticipated third quarter operating results, the favorable development of prior years' medical benefits payable recorded in the third quarter, as well as an improved operating outlook for the fourth quarter. Premium revenue is expected to be between approximately $6.0 and $6.05 billion. The previous guidance was for premium revenue to be between $6.0 and $6.1 billion. The change results primarily from the Kentucky Medicaid program launch being delayed to November 1. The launch originally was scheduled for October 1. The adjusted administrative expense ratio is expected to be approximately 11.1%. The previous guidance was for the ratio to be between 10.7% and 10.9%. The change principally is due to the previously described delayed launch of the Kentucky Medicaid program. The following elements of WellCare's financial outlook are unchanged: The 2011 Medicaid segment MBR is anticipated to be below the 2010 MBR. The 2011 Medicare Advantage and PDP segments' MBRs each are anticipated to increase relative to the respective 2010 segment MBRs. All elements of the Company's outlook exclude the impact of Medicaid premium taxes. Webcast A discussion of WellCare's third quarter 2011 results will be webcast live on Wednesday, November 2, 2011, beginning at 8:30 a.m. Eastern Time. A replay will be available beginning approximately one hour following the conclusion of the live broadcast and will be available for 30 days. The webcast is available via the Company's web site at www.wellcare.com and at www.earnings.com. About WellCare Health Plans, Inc. WellCare Health Plans, Inc. provides managed care services targeted to government-sponsored health care programs, focusing on Medicaid and Medicare. Headquartered in Tampa, Florida, WellCare offers a variety of health plans for families, children, and the aged, blind, and disabled, as well as prescription drug plans. The Company served approximately 2.4 million members nationwide as of September 30, 2011. For more information about WellCare, please visit the Company's website at www.wellcare.com. Basis of Presentation In addition to results determined under GAAP, net income and certain other operating results described in this news release are reported after adjustment for certain SG&A and interest expenses related to previously disclosed government investigations and related litigation and associated resolution costs that management believes are not indicative of long-term business operations. Please refer to the schedules in this news release that provide supplemental information reconciling results determined under GAAP to adjusted results. Cautionary Statement Regarding Forward-Looking Statements This news release contains “forward-looking” statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions are forward-looking statements. The Company's financial outlook contains forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause WellCare's actual future results to differ materially from those projected or contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, WellCare's progress on top priorities such as improving health care quality and access, ensuring a competitive cost position, and delivering prudent, profitable growth. Additional information concerning these and other important risks and uncertainties can be found under the captions “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, and other subsequent filings by WellCare with the U.S. Securities and Exchange Commission, which contain discussions of WellCare's business and the various factors that may affect it. WellCare undertakes no duty to update these forward-looking statements to reflect any future events, developments, or otherwise.   WELLCARE HEALTH PLANS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited; Dollars in thousands except per share data)       Three Months EndedSeptember 30,     Nine Months EndedSeptember 30,2011     20102011     2010 Revenues: Premium $ 1,523,057 $ 1,366,924 $ 4,443,848 $ 4,039,191 Medicaid premium taxes   18,869   18,950   55,838   38,078   Total premium 1,541,926 1,385,874 4,499,686 4,077,269 Investment and other income   2,433   2,299   7,050   7,506   Total revenues   1,544,359   1,388,173   4,506,736   4,084,775     Expenses: Medical benefits 1,197,008 1,147,107 3,626,342 3,435,870 Selling, general and administrative 178,405 142,712 512,415 701,691 Medicaid premium taxes 18,869 18,950 55,838 38,078 Depreciation and amortization 6,453 6,123 19,824 17,770 Interest   3,648   117   3,823   160   Total expenses   1,404,383   1,315,009   4,218,242   4,193,569     Income (loss) before income taxes 139,976 73,164 288,494 (108,794 ) Income tax expense (benefit)   51,721   30,248   109,309   (29,257 ) Net income (loss) $ 88,255 $ 42,916 $ 179,185 $ (79,537 )   Net income (loss) per common share: Basic $ 2.06 $ 1.01 $ 4.19 $ (1.88 ) Diluted $ 2.03 $ 1.00 $ 4.14 $ (1.88 )   Weighted average common shares outstanding: Basic 42,887,381 42,411,455 42,757,476 42,313,973 Diluted 43,424,414 42,740,369 43,285,969 42,313,973     WELLCARE HEALTH PLANS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited; Dollars in thousands except per share data)       Sept. 30,2011     Dec. 31,2010ASSETS Current Assets: Cash and cash equivalents $ 1,787,733 $ 1,359,548 Investments 217,033 108,788 Premium receivables, net 223,826 127,796 Funds receivable for the benefit of members – 33,182 Income taxes receivable – 9,973 Prepaid expenses and other current assets, net 139,724 114,492 Deferred income tax asset   41,770     61,392   Total current assets 2,410,086 1,815,171 Property, equipment and capitalized software, net 87,005 76,825 Goodwill 111,131 111,131 Other intangible assets, net 10,279 11,428 Long-term investments 79,850 62,931 Restricted investments 64,772 107,569 Non-current deferred income tax asset 50,931 58,340 Other assets   5,271     3,898   Total Assets $ 2,819,325   $ 2,247,293     LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Medical benefits payable $ 757,102 $ 742,990 Unearned premiums 275,757 67,383 Accounts payable 6,839 8,284 Other accrued expenses and liabilities 193,586 199,033 Current portion of amounts accrued related to investigation resolution 43,932 121,406 Current portion of long-term debt 9,375 – Other payables to government partners 76,672 46,605 Funds held for the benefit of members 28,222 – Income taxes payable   40,875     –   Total current liabilities 1,432,360 1,185,701 Amounts accrued related to investigation resolution 100,915 216,136 Long-term debt 138,750 – Subordinated notes 111,946 – Other liabilities   10,597     13,410   Total liabilities   1,794,568     1,415,247   Commitments and contingencies – – Stockholders' Equity: Preferred stock, $0.01 par value (20,000,000 authorized, no shares issued or outstanding) – – Common stock, $0.01 par value (100,000,000 authorized, 42,793,466 and 42,541,725 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively) 428 425 Paid-in capital 441,860 428,818 Retained earnings 584,296 405,112 Accumulated other comprehensive loss   (1,827 )   (2,309 ) Total stockholders' equity   1,024,757     832,046   Total Liabilities and Stockholders' Equity $ 2,819,325   $ 2,247,293       WELLCARE HEALTH PLANS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited; Dollars in thousands)       Nine Months EndedSeptember 30,2011     2010 Cash provided by (used in) operating activities: Net income (loss) $ 179,185 $ (79,537 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 19,824 17,770 Equity-based compensation expense 13,160 8,655 Incremental tax benefit from equity-based compensation (2,518 ) – Deferred taxes, net 27,032 (67,386 ) Changes in operating accounts: Premium receivables, net (96,030 ) (24,190 ) Prepaid expenses and other current assets, net (25,232 ) (17,027 ) Medical benefits payable 14,112 (98,851 ) Unearned premiums 208,374 (24,504 ) Accounts payable and other accrued expenses (2,967 ) (43,635 ) Other payables to government partners 30,067 4,300 Amounts accrued related to investigation resolution (80,749 ) 249,915 Income taxes, net 36,995 7,594 Other, net   (2,240 )   (5,088 ) Net cash provided by (used in) operating activities   319,013     (71,984 ) Cash provided by (used in) investing activities: Purchases of investments (332,934 ) (117,903 ) Proceeds from sale and maturities of investments 208,758 114,726 Purchases of restricted investments (26,118 ) (18,386 ) Proceeds from maturities of restricted investments 68,712 24,298 Additions to property, equipment and capitalized software, net   (30,773 )   (16,192 ) Net cash used in investing activities   (112,355 )   (13,457 ) Cash provided by (used in) financing activities: Proceeds from debt, net of issuance costs 147,747 – Payments on debt (1,875 ) – Proceeds from option exercises and other 4,624 1,091 Incremental tax benefit from equity-based compensation 2,518 – Purchase of treasury stock (3,538 ) (4,420 ) Payments on capital leases (2,006 ) (935 ) Funds held for the benefit of members   74,057     22,589   Net cash provided by financing activities   221,527     18,325   Cash and cash equivalents: Increase (decrease) during period 428,185 (67,116 ) Balance at beginning of year   1,359,548     1,158,131   Balance at end of period $ 1,787,733   $ 1,091,015     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for taxes $ 46,109   $ 35,686   Cash paid for interest $ 697   $ 183   Equipment acquired through capital leases $ –   $ 8,868   Issuance of subordinated notes $ 112,500   $ –       WELLCARE HEALTH PLANS, INC.MEMBERSHIP STATISTICS(Unaudited)       As of September 30,2011     2010Membership by ProgramMedicaid Membership TANF 1,060,000 1,073,000 S-CHIP 161,000 168,000 SSI and ABD 79,000 77,000 FHP 13,000 10,000 Total Medicaid Membership 1,313,000 1,328,000   Medicare Membership Medicare Advantage 130,000 116,000 Prescription Drug Plan (stand-alone) 967,000 756,000 Total Medicare Membership 1,097,000 872,000 Total Membership 2,410,000 2,200,000   Medicaid Membership by State Florida 395,000 418,000 Georgia 561,000 548,000 Other states 357,000 362,000 Total Medicaid Membership 1,313,000 1,328,000     WELLCARE HEALTH PLANS, INC.SEGMENT INFORMATION(Unaudited; Dollars in thousands)       Three Months EndedSeptember 30,     Nine Months EndedSeptember 30,2011     20102011     2010Premium revenue: Medicaid: Florida $ 224,392 $ 223,409 $ 665,194 $ 669,654 Georgia 386,752 350,689 1,084,566 1,004,507 Other states 269,696 261,845 793,339 752,385 Medicaid premium taxes   18,869   18,950   55,838   38,078 Total Medicaid   899,709   854,893   2,598,937   2,464,624   Medicare: Medicare Advantage plans 376,597 331,338 1,097,015 1,012,366 Prescription Drug plans   265,620   199,643   803,734   600,279 Total Medicare   642,217   530,981   1,900,749   1,612,645 Total Premium Revenue $ 1,541,926 $ 1,385,874 $ 4,499,686 $ 4,077,269   WELLCARE HEALTH PLANS, INC.UNAUDITED SUPPLEMENTAL INFORMATIONReconciliation of GAAP Statements of Operations to Adjusted Statements of Operations(Dollars in thousands except per share data) The Company reports adjusted operating results on a non-GAAP basis to exclude certain expenses that management believes are not indicative of longer term business trends and operations. The following are statements of operations and related measures for the third quarter ended September 30, 2011 and 2010, as determined under GAAP, reconciled to the Adjusted Statements of Operations and related measures for each of the same periods.     Three Months Ended September 30, 2011       Three Months Ended September 30, 2010GAAP     Adjustments     AdjustedGAAP     Adjustments     Adjusted Revenues: Premium $ 1,523,057 $ − $ 1,523,057 $ 1,366,924 $ − $ 1,366,924 Medicaid premium taxes   18,869     −     18,869     18,950     −     18,950   Total premium 1,541,926 − 1,541,926 1,385,874 − 1,385,874 Investment and other income   2,433     −     2,433     2,299     −     2,299   Total revenues   1,544,359     −     1,544,359     1,388,173     −     1,388,173     Expenses: Medical benefits 1,197,008 − 1,197,008 1,147,107 − 1,147,107 Selling, general, and administrative 178,405 (7,814 ) (a)(b) 170,591 142,712 7,342 (a)(b) 150,054 Medicaid premium taxes 18,869 − 18,869 18,950 − 18,950 Depreciation and amortization 6,453 − 6,453 6,123 − 6,123 Interest   3,648     (2,812 ) (c)   836     117     −     117   Total expenses   1,404,383     (10,626 )   1,393,757     1,315,009     7,342     1,322,351     Income before income taxes 139,976 10,626 150,602 73,164 (7,342 ) 65,822 Income tax expense   51,721     5,730     57,451     30,248     (2,280 )   27,968   Net income $ 88,255   $ 4,896   $ 93,151   $ 42,916   $ (5,062 ) $ 37,854     Weighted average shares: Basic 42,887,381 − 42,887,381 42,411,455 − 42,411,455 Diluted 43,424,414 − 43,424,414 42,740,369 − 42,740,369   Net income per share: Basic $ 2.06 $ 0.11 $ 2.17 $ 1.01 $ (0.12 ) $ 0.89 Diluted $ 2.03 $ 0.12 $ 2.15 $ 1.00 $ (0.11 ) $ 0.89   Medical benefits ratio: Medicaid 79.0 % 79.0 % 88.9 % 88.9 % Medicare Advantage 80.9 % 80.9 % 78.7 % 78.7 % Prescription Drug Plans 73.9 % 73.9 % 71.7 % 71.7 % Aggregate 78.6 % 78.6 % 83.9 % 83.9 %   Administrative expense ratio 11.7 % -0.5 % (a)(b) 11.2 % 10.4 % 0.6 % (a)(b) 11.0 %   Days in claims payable 58 58 56 56   (a)   Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government and Company investigations amounted to $7.3 million and, net of D&O insurance recoveries, a credit of $10.5 million, respectively, in the quarters ended September 30, 2011 and 2010. (b) Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $0.5 million and $3.1 million, respectively, in the quarters ended September 30, 2011 and 2010. (c) Investigation-related interest expense: The Company's tradable unsecured subordinated notes issued in connection with the final resolution of the securities class action settlement incurred $2.8 million in interest expense in the quarter ended September 30, 2011.     WELLCARE HEALTH PLANS, INC.UNAUDITED SUPPLEMENTAL INFORMATION   Reconciliation of GAAP Statements of Operations to Adjusted Statements of Operations(Dollars in thousands except per share data)       Nine Months Ended September 30, 2011       Nine Months Ended September 30, 2010GAAP     Adjustments     AdjustedGAAP     Adjustments     Adjusted Revenues: Premium $ 4,443,848 $ − $ 4,443,848 $ 4,039,191 $ − $ 4,039,191 Medicaid premium taxes   55,838     −     55,838     38,078     −     38,078   Total premium 4,499,686 − 4,499,686 4,077,269 − 4,077,269 Investment and other income   7,050     −     7,050     7,506     −     7,506   Total revenues   4,506,736     −     4,506,736     4,084,775     −     4,084,775     Expenses: Medical benefits 3,626,342 − 3,626,342 3,435,870 − 3,435,870 Selling, general, and administrative 512,415 (30,670 ) (a)(b) 481,745 701,691 (250,381 ) (a)(b) 451,310 Medicaid premium taxes 55,838 − 55,838 38,078 − 38,078 Depreciation and amortization 19,824 − 19,824 17,770 − 17,770 Interest   3,823     (2,812 ) (c)   1,011     160     −     160   Total expenses   4,218,242     (33,482 )   4,184,760     4,193,569     (250,381 )   3,943,188     Income (loss) before income taxes 288,494 33,482 321,976 (108,794 ) 250,381 141,587 Income tax expense (benefit)   109,309     14,652     123,961     (29,257 )   87,038     57,781   Net income (loss) $ 179,185   $ 18,830   $ 198,015   $ (79,537 ) $ 163,343   $ 83,806     Weighted average shares: Basic 42,757,476 − 42,757,476 42,313,973 − 42,313,973 Diluted 43,285,969 − 43,285,969 42,313,973 424,564 42,738,537   Net income (loss) per share: Basic $ 4.19 $ 0.44 $ 4.63 $ (1.88 ) $ 3.86 $ 1.98 Diluted $ 4.14 $ 0.44 $ 4.58 $ (1.88 ) $ 3.84 $ 1.96   Medical benefits ratio: Medicaid 80.5 % 80.5 % 87.9 % 87.9 % Medicare Advantage 80.2 % 80.2 % 78.6 % 78.6 % Prescription Drug Plans 87.0 % 87.0 % 84.4 % 84.4 % Aggregate 81.6 % 81.6 % 85.1 % 85.1 %   Administrative expense ratio 11.5 % -0.7 % (a)(b) 10.8 % 17.3 % -6.1 % (a)(b) 11.2 %   (a)   Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government and Company investigations amounted to $23.9 million and, net of D&O insurance recoveries, a credit of $1.1 million, respectively, in the nine months ended September 30, 2011 and 2010. (b) Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $6.8 million and $251.5 million, respectively, in the nine months ended September 30, 2011 and 2010. (c) Investigation-related interest expense: The Company's tradable unsecured subordinated notes issued in connection with the final resolution of the securities class action settlement incurred $2.8 million in interest expense in the nine months ended September 30, 2011.   WELLCARE HEALTH PLANS, INC.UNAUDITED SUPPLEMENTAL INFORMATIONReconciliation of GAAP Net Cash Used in Operating Activitiesto Net Cash Provided by (Used in) Operating Activities,Modified for the Timing of Receipts from, and Payments to, Government Customers(Dollars in thousands) The Company reports cash provided by, or used in, operating activities on a non-GAAP basis to exclude the changes in premium receivables, unearned premiums, and other receivables from, and payables to, government customers. The Company believes that operating cash flow excluding these changes is a useful measure for investors, as the excluded changes are a function of the timing of cash receipts from, and payments to, federal and state government agencies at the end of a period.     Nine Months Ended September 30,2011     2010 Net cash provided by (used in) operating activities, as reported under GAAP $ 319,013 $ (71,984 ) Modifications to eliminate changes in: Premium receivables, net 96,030 24,190 Unearned premiums (208,374 ) 24,504 Other payables to government partners   (30,067 )   (4,300 ) Net cash provided by (used in) operating activities, modified for the timing of receipts from, and payments to, government customers $ 176,602   $ (27,590 ) WellCare Health Plans, Inc.Investor relations:Gregg Haddad, 813-206-3916gregg.haddad@wellcare.comorMedia relations:Amy Knapp, 813-290-6208amy.knapp@wellcare.com