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Press release from Business Wire

WellCare Reports Annual and Fourth Quarter 2011 Results

Wednesday, February 15, 2012

WellCare Reports Annual and Fourth Quarter 2011 Results06:30 EST Wednesday, February 15, 2012 TAMPA, Fla. (Business Wire) -- WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the fourth quarter and year ended December 31, 2011. As determined under generally accepted accounting principles (“GAAP”), net income for the fourth quarter of 2011 was $85.1 million, or $1.96 per diluted share, compared with $26.1 million, or $0.61 per diluted share, for the fourth quarter of 2010. Adjusted net income for the fourth quarter of 2011 was $93.4 million, or $2.15 per diluted share, compared with $30.4 million, or $0.71 per diluted share, for the fourth quarter of 2010. As determined under GAAP, the Company reported net income for the year 2011 of $264.2 million, or $6.10 per diluted share, compared with a net loss of $53.4 million, or $1.26 per share, for 2010. Adjusted net income for 2011 was $291.4 million, or $6.73 per diluted share, compared with $114.2 million, or $2.67 per diluted share, for 2010. “In many ways, our achievements during 2011 transformed the Company and positioned us well for the future,” said Alec Cunningham, WellCare's chief executive officer. “Most importantly, growth across our lines of business means we are helping hundreds of thousands more people to improve their health and quality of life, while also helping our government customers more effectively manage their limited resources.” WellCare's 2011 accomplishments are highlighted by accreditations of its Georgia and Missouri health plans by the National Committee for Quality Assurance, or NCQA, as well as broad-based year-over-year improvement across all of the Company's lines of business in Healthcare Effectiveness Data and Information Set, or HEDIS®, measures. WellCare also maintained a disciplined approach to ensuring a competitive cost structure, reducing its adjusted administrative expense ratio by 60 basis points in 2011. In addition, medical expense management initiatives contributed meaningfully to improvement in the Company's medical benefits ratio (“MBR”). During the third quarter, the Company completed an upgrade of its core operating system, which is enabling further progress in improving service, productivity, and compliance. Finally, WellCare delivered prudent, profitable growth, highlighted by Medicaid program awards in Kentucky and Hawaii. In addition, membership enrolled in WellCare's Medicare Advantage dual special needs plans increased over 50%, and Medicare Prescription Drug Plans (“PDPs”) membership grew 27% in 2011. Highlights of Operations for the Fourth Quarter Adjusted net income for the fourth quarter of 2011 increased compared with the fourth quarter of 2010, primarily due to the favorable development of medical benefits payable as well as higher premium revenue. In addition, resolution of prior years' state tax matters contributed to the better-than-anticipated outcome. Results for the fourth quarter of 2011 also were affected by greater-than-expected Kentucky Medicaid membership following the Company's November launch of the program. Membership as of December 31, 2011, increased 15% year over year to 2.6 million, compared with 2.2 million members as of December 31, 2010. PDP segment membership increased 208,000 year over year, or 27%. Medicare Advantage membership increased year over year by 19,000 members, or 16%. Medicaid segment membership increased by 111,000, or 8%, year over year to 1.5 million members as of December 31, 2011. Premium revenue for the fourth quarter of 2011 increased 18% year over year to $1.6 billion. The increase was driven by growth in PDP segment premium revenue, which increased 26% year over year. In addition, Medicare Advantage segment revenue increased 18% and Medicaid segment revenue increased 17% year over year. Medical benefits expense for the fourth quarter of 2011 was $1.2 billion, an increase of 13% from the fourth quarter of 2010. The Company MBR was 78.9% in the fourth quarter of 2011, compared with 82.5% in the fourth quarter of 2010. The MBRs of all three segments also decreased year over year. The net impact of the favorable development of medical benefits payable was $66 million in the fourth quarter of 2011, compared with $38 million in the fourth quarter of 2010. Selling, general and administrative (“SG&A”) expense as determined under GAAP was $206 million in the fourth quarter of 2011, compared with $194 million for the same period in 2010. Adjusted SG&A was $189 million in the fourth quarter of 2011, an increase from $179 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, as well as by membership growth. The adjusted administrative expense ratio was 12.0% in the fourth quarter of 2011, compared with 13.4% in same period in 2010. Cash Flow and Financial Condition Highlights Net cash provided by operating activities as determined under GAAP was $162 million in the year ended December 31, 2011, compared with $223 million for the year 2010. Net cash provided by operating activities, modified for the timing of receipts from, and payments to, WellCare's government customers, was $280 million for 2011, compared with $73 million in 2010. As of December 31, 2011, unregulated cash and investments were approximately $309 million. Unregulated cash and investments were approximately $324 million as of September 30, 2011, and $193 million as of December 31, 2010. Days in claims payable were 55 days as of December 31, 2011, compared with 58 days as of September 30, 2011, and 62 days as of December 31, 2010. Financial Outlook The Company is providing its financial outlook for the year ended December 31, 2012: Adjusted net income per diluted share is expected to be between approximately $4.40 and $4.60. Premium revenue is expected to be between approximately $6.95 and $7.05 billion. The 2012 Medicaid, Medicare Advantage, and PDP segments' MBRs each are anticipated to increase relative to the respective 2011 segment MBRs. The adjusted administrative expense ratio is expected to be in the range of 10.4% to 10.6%. All elements of the Company's outlook exclude the impact of Medicaid premium taxes. Webcast A discussion of WellCare's fourth quarter and year 2011 results will be webcast live on Wednesday, February 15, 2012, 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 2.6 million members nationwide as of December 31, 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 Ended December 31,Year Ended December 31,2011   20102011   2010 Revenues: Premium $ 1,578,119 $ 1,334,625 $ 6,021,967 $ 5,373,816 Medicaid premium taxes   20,325   18,296   76,163   56,374   Total premium 1,598,444 1,352,921 6,098,130 5,430,190 Investment and other income   1,688   2,529   8,738   10,035   Total revenues   1,600,132   1,355,450   6,106,868   5,440,225     Expenses: Medical benefits 1,245,728 1,100,761 4,872,071 4,536,631 Selling, general and administrative 205,587 194,203 718,003 895,894 Medicaid premium taxes 20,325 18,296 76,163 56,374 Depreciation and amortization 6,632 6,176 26,454 23,946 Interest   2,687   69   6,510   229   Total expenses   1,480,959   1,319,505   5,699,201   5,513,074   Income (loss) from operations 119,173 35,945 407,667 (72,849 ) Gain on repurchase of subordinated notes   10,807   –   10,807   –   Income (loss) before income taxes 129,980 35,945 418,474 (72,849 ) Income tax expense (benefit)   44,919   9,808   154,228   (19,449 ) Net income (loss) $ 85,061 $ 26,137 $ 264,246 $ (53,400 )   Net income (loss) per common share: Basic $ 1.98 $ 0.62 $ 6.17 $ (1.26 ) Diluted $ 1.96 $ 0.61 $ 6.10 $ (1.26 )   Weighted average common shares outstanding: Basic 42,985,406 42,492,250 42,817,466 42,365,061 Diluted 43,461,343 42,898,465 43,328,756 42,365,061       WELLCARE HEALTH PLANS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited; Dollars in thousands except per share data)   As of December 31,20112010ASSETS Current Assets: Cash and cash equivalents $ 1,325,098 $ 1,359,548 Investments 198,569 108,788 Premium receivables, net 217,509 127,796 Funds receivable for the benefit of members 162,745 33,182 Income taxes receivable 20,655 9,973 Prepaid expenses and other current assets, net 172,986 114,492 Deferred income tax asset   22,332     61,392   Total current assets 2,119,894 1,815,171 Property, equipment and capitalized software, net 98,238 76,825 Goodwill 111,131 111,131 Other intangible assets, net 9,896 11,428 Long-term investments 83,019 62,931 Restricted investments 60,663 107,569 Deferred income tax asset – 58,340 Other assets   5,270     3,898   Total Assets $ 2,488,111   $ 2,247,293     LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Medical benefits payable $ 744,821 $ 742,990 Unearned premiums 164 67,383 Accounts payable 3,294 8,284 Other accrued expenses and liabilities 215,817 199,033 Current portion of amounts accrued related to investigation resolution 49,557 121,406 Current portion of long-term debt 11,250 – Other payables to government partners   98,237     46,605   Total current liabilities 1,123,140 1,185,701 Deferred income tax liability 1,026 – Amounts accrued related to investigation resolution 101,705 216,136 Long-term debt 135,000 – Other liabilities   10,394     13,410   Total liabilities   1,371,265     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, 42,848,798 and 42,541,725 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively) 429 425 Paid-in capital 448,820 428,818 Retained earnings 669,358 405,112 Accumulated other comprehensive loss   (1,761 )   (2,309 ) Total stockholders' equity   1,116,846     832,046   Total Liabilities and Stockholders' Equity $ 2,488,111   $ 2,247,293       WELLCARE HEALTH PLANS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited; Dollars in thousands)   Year Ended December 31,2011   2010 Cash from operating activities: Net income (loss) $ 264,246 $ (53,400 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 26,454 23,946 Equity-based compensation expense 19,530 14,801 Incremental tax benefit from equity-based compensation (2,778 ) – Gain on repurchase of subordinated notes (10,807 ) – Deferred taxes, net 98,170 (61,204 ) Provision for doubtful receivables 11,080 (6,889 ) Changes in operating accounts: Premium receivables, net (96,770 ) 158,124 Prepaid expenses and other current assets, net (62,016 ) (3,634 ) Medical benefits payable 1,831 (59,525 ) Unearned premiums (67,219 ) (23,113 ) Accounts payable and other accrued expenses 14,018 752 Other payables to government partners 51,632 8,458 Amounts accrued related to investigation resolution (73,780 ) 256,207 Income taxes receivable/payable, net (12,809 ) (21,134 ) Other, net   1,217     (10,332 ) Net cash provided by operating activities   161,999     223,057   Cash used in investing activities: Purchases of investments (386,186 ) (219,961 ) Proceeds from sale and maturities of investments 277,486 163,993 Purchases of restricted investments (34,828 ) (21,820 ) Proceeds from maturities of restricted investments 81,524 44,800 Additions to property, equipment and capitalized software, net   (49,576 )   (27,516 ) Net cash used in investing activities   (111,580 )   (60,504 ) Cash (used in) provided by financing activities: Proceeds from option exercises and other 6,287 1,443 Incremental tax benefit from equity-based compensation 2,778 – Purchase of treasury stock (3,684 ) (6,237 ) Proceeds from debt, net of issuance costs 147,473 – Repurchase of subordinated notes (101,693 ) – Payments on debt (3,750 ) – Payments on capital leases (2,717 ) (1,011 ) Funds received for the benefit of members   (129,563 )   44,669   Net cash (used in) provided by financing activities   (84,869 )   38,864   Cash and cash equivalents: (Decrease) increase during period (34,450 ) 201,417 Balance at beginning of year   1,359,548     1,158,131   Balance at end of year $ 1,325,098   $ 1,359,548     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for taxes $ 69,846   $ 75,962   Cash paid for interest $ 5,920   $ 228     SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: Non-cash issuance of subordinated notes $ 112,500   $ –   Non-cash additions to property, equipment and capitalized software $ 2,449   $ 2,354   Equipment acquired through capital leases $ –   $ 8,868       WELLCARE HEALTH PLANS, INC.MEMBERSHIP STATISTICS(Unaudited)   As of December 31,2011   2010Membership by ProgramMedicaid Membership TANF 1,159,000 1,085,000 CHIP 162,000 168,000 SSI and ABD 115,000 77,000 FHP 15,000 10,000 Total Medicaid Membership 1,451,000 1,340,000   Medicare Membership Medicare Advantage 135,000 116,000 Prescription Drug Plan (stand-alone) 976,000 768,000 Total Medicare Membership 1,111,000 884,000 Total Membership 2,562,000 2,224,000   Medicaid Membership by State Florida 404,000 415,000 Georgia 562,000 566,000 Other states 485,000 359,000 Total Medicaid Membership 1,451,000 1,340,000       WELLCARE HEALTH PLANS, INC.SEGMENT INFORMATION(Unaudited; Dollars in thousands)   Three Months Ended December 31,Year Ended December 31,2011   20102011   2010Premium revenue: Medicaid: Florida $ 215,888 $ 220,052 $ 881,081 $ 889,705 Georgia 364,697 352,847 1,449,263 1,357,354 Other states 381,764 252,932 1,175,104 1,005,318 Medicaid premium taxes   20,325   18,296   76,163   56,374 Total Medicaid   982,674   844,127   3,581,611   3,308,751   Medicare: Medicare Advantage plans 382,735 323,723 1,479,750 1,336,089 Prescription Drug plans   233,035   185,071   1,036,769   785,350 Total Medicare   615,770   508,794   2,516,519   2,121,439 Total Premium Revenue $ 1,598,444 $ 1,352,921 $ 6,098,130 $ 5,430,190   Medical benefits ratio: Medicaid 82.1% 86.5% 80.9% 87.5% Medicare Advantage 78.6% 79.8% 79.8% 78.9% Prescription Drug Plans 66.4% 69.4% 82.4% 80.9% Aggregate 78.9% 82.5% 80.9% 84.4%       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)   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 fourth quarter and year ended December 31, 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 December 31, 2011Three Months Ended December 31, 2010GAAP   Adjustments   AdjustedGAAP   Adjustments   Adjusted Revenues: Premium $ 1,578,119 $ – $ 1,578,119 $ 1,334,625 $ – $ 1,334,625 Medicaid premium taxes   20,325     –     20,325     18,296     –     18,296   Total premium 1,598,444 – 1,598,444 1,352,921 – 1,352,921 Investment and other income   1,688     –     1,688     2,529     –     2,529   Total revenues   1,600,132     –     1,600,132     1,355,450     –     1,355,450     Expenses: Medical benefits 1,245,728 – 1,245,728 1,100,761 – 1,100,761 Selling, general, and administrative 205,587 (16,337 ) (a)(b) 189,250 194,203 (15,557 ) (a)(b) 178,646 Medicaid premium taxes 20,325 – 20,325 18,296 – 18,296 Depreciation and amortization 6,632 – 6,632 6,176 – 6,176 Interest   2,687     (1,441 ) (c)   1,246     69     –     69   Total expenses   1,480,959     (17,778 )   1,463,181     1,319,505     (15,557 )   1,303,948     Income from operations 119,173 17,778 136,951 35,945 15,557 51,502 Gain on repurchase of subordinated notes   10,807     (10,807 ) (d)   –     –     –     –   Income before income taxes 129,980 6,971 136,951 35,945 15,557 51,502 Income tax expense (benefit)   44,919     (1,372 )   43,547     9,808     11,287     21,095   Net income $ 85,061   $ 8,343   $ 93,404   $ 26,137   $ 4,270   $ 30,407     Weighted average shares: Basic 42,985,406 – 42,985,406 42,492,250 – 42,492,250 Diluted 43,461,343 – 43,461,343 42,898,465 – 42,898,465   Net income per share: Basic $ 1.98 $ 0.19 $ 2.17 $ 0.62 $ 0.10 $ 0.72 Diluted $ 1.96 $ 0.19 $ 2.15 $ 0.61 $ 0.10 $ 0.71   Administrative expense ratio 13.0 % -1.0 % (a)(b) 12.0 % 14.5 % -1.1 % (a)(b) 13.4 %   (a) Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $15.4 million and, net of D&O insurance recoveries, $9.1 million, respectively, in the quarters ended December 31, 2011 and 2010. (b) Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $0.9 million and $6.5 million, respectively, in the quarters ended December 31, 2011 and 2010. (c) Investigation and related litigation interest expense: The Company's tradable unsecured subordinated notes that were issued in connection with the final resolution of the securities class action settlement incurred $1.4 million of interest expense in the quarter ended December 31, 2011. (d) Gain on repurchase of subordinated notes: In December 2011, the Company repurchased all of its outstanding tradable unsecured subordinated notes at a purchase price equal to 90% of the principal amount, which resulted in a gain of $10.8 million in the quarter ended December 31, 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)   Year Ended December 31, 2011Year Ended December 31, 2010GAAP   Adjustments   AdjustedGAAP   Adjustments   Adjusted Revenues: Premium $ 6,021,967 $ – $ 6,021,967 $ 5,373,816 $ – $ 5,373,816 Medicaid premium taxes   76,163     –     76,163     56,374     –     56,374   Total premium 6,098,130 6,098,130 5,430,190 5,430,190 Investment and other income   8,738     –     8,738     10,035     –     10,035   Total revenues   6,106,868     –     6,106,868     5,440,225     –     5,440,225     Expenses: Medical benefits 4,872,071 – 4,872,071 4,536,631 – 4,536,631 Selling, general, and administrative 718,003 (47,007 ) (a)(b) 670,996 895,894 (265,938 ) (a)(b) 629,956 Medicaid premium taxes 76,163 – 76,163 56,374 – 56,374 Depreciation and amortization 26,454 – 26,454 23,946 – 23,946 Interest   6,510     (4,254 ) (c)   2,256     229     –     229   Total expenses   5,699,201     (51,261 )   5,647,940     5,513,074     (265,938 )   5,247,136     Income (loss) from operations 407,667 51,261 458,928 (72,849 ) 265,938 193,089 Gain on repurchase of subordinated notes   10,807     (10,807 ) (d)   –     –     –     –   Income (loss) before income taxes 418,474 40,454 458,928 (72,849 ) 265,938 193,089 Income tax expense (benefit)   154,228     13,279     167,507     (19,449 )   98,325     78,876   Net income (loss) $ 264,246   $ 27,175   $ 291,421   $ (53,400 ) $ 167,613   $ 114,213     Weighted average shares: Basic 42,817,466 – 42,817,466 42,365,061 – 42,365,061 Diluted 43,328,756 – 43,328,756 42,365,061 428,989 42,794,050   Net income (loss) per share: Basic $ 6.17 $ 0.64 $ 6.81 $ (1.26 ) $ 3.96 $ 2.70 Diluted $ 6.10 $ 0.63 $ 6.73 $ (1.26 ) $ 3.93 $ 2.67   Administrative expense ratio 11.9 % -0.8 % (a)(b) 11.1 % 16.6 % -4.9 % (a)(b) 11.7 %   (a) Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $39.3 million and, net of D&O insurance recoveries, $7.2 million, respectively, in the year ended December 31, 2011 and 2010. (b) Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $7.7 million and $258.7 million, respectively, in the year ended December 31, 2011 and 2010. (c) Investigation and related litigation interest expense: The Company's tradable unsecured subordinated notes that were issued in connection with the final resolution of the securities class action settlement incurred $4.3 million of interest expense in the year ended December 31, 2011. (d) Gain on repurchase of subordinated notes: In December 2011, the Company repurchased all of its outstanding tradable unsecured subordinated notes at a purchase price equal to 90% of the principal amount, which resulted in a gain of $10.8 million in the year ended December 31, 2011.     WELLCARE HEALTH PLANS, INC.UNAUDITED SUPPLEMENTAL INFORMATION   Reconciliation of GAAP Net Cash Provided by Operating Activitiesto Net Cash Provided by Operating Activities,Modified for the Timing of Receipts from, and Payments to, Government Customers(Dollars in thousands)   The Company reports cash provided by 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 cash provided by operating activities 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.   Year EndedDecember 31,2011   2010 Net cash provided by operating activities, as reported under GAAP $ 161,999 $ 223,057 Modifications to eliminate changes in: Premium receivables, net 96,770 (158,124 ) Other receivables from government partners, net 5,181 (6,728 ) Unearned premiums 67,219 23,113 Other payables to government partners   (51,632 )   (8,458 ) Net cash provided by operating activities, modified for the timing of receipts from and payments to government customers $ 279,537   $ 72,860   WellCare Health Plans, Inc.Investor relations:Gregg Haddad, 813-206-3916gregg.haddad@wellcare.comorMedia relations:Denise Malecki, 813-206-2747denise.malecki@wellcare.com