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Press release from Business Wire

WellCare Reports First Quarter 2012 Results

Wednesday, May 02, 2012

WellCare Reports First Quarter 2012 Results06:30 EDT Wednesday, May 02, 2012 TAMPA, Fla. (Business Wire) -- WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the first quarter ended March 31, 2012. As determined under generally accepted accounting principles (“GAAP”), net income for the first quarter of 2012 was $51.2 million, or $1.18 per diluted share, compared with $21.3 million, or $0.50 per diluted share, for the first quarter of 2011. Adjusted net income for the first quarter of 2012 was $57.3 million, or $1.32 per diluted share, compared with $28.2 million, or $0.66 per diluted share, for the first quarter of 2011. “Growth this quarter reflects the strength of our long-term focus on Medicaid and Medicare, as well as those dually eligible for both programs,” said Alec Cunningham, WellCare's chief executive officer. “We continue to have many important opportunities for growth in providing quality, cost-effective health care solutions to our members and government customers.” WellCare's first quarter results are highlighted by 22% premium revenue growth and sustained discipline in the management of medical and administrative expenses. The Company also continued to devote significant resources to expansion opportunities serving government health care programs. For example, during the first quarter, membership in special needs plans for those dually eligible for Medicare and Medicaid grew more than 60% year over year. In January, Hawaii selected WellCare's ‘Ohana Health Plan to serve individuals, families and children through the QUEST Medicaid program. ‘Ohana also recently was awarded New Health Plan Accreditation from the National Committee for Quality Assurance. WellCare's health care quality initiatives continued to focus on care management, including strengthening resources devoted to resolving Medicaid members' care gaps. In addition, the Company recently has broadly deployed an enhanced case management model that integrates field-based and telephonic multi-disciplinary care teams to better address the clinical, behavioral, and socioeconomic needs of its most medically complex members. Reclassification of Quality Improvement Costs The Company has reassessed its reporting practices and, beginning this quarter, has reclassified to medical benefits expense certain costs related to quality improvement activities that were formerly reported as part of selling, general and administrative (“SG&A”) expense. These quality improvement costs include preventive health and wellness and care management, case and disease management, health plan accreditation costs, provider education and incentives for closing care gaps, health risk assessments and member outreach, and information technology costs related to the above activities. For the first quarter of 2012, this reclassification resulted in an increase to the Company medical benefits ratio (“MBR”) of approximately 160 basis points. With respect to segment performance, the reclassification had the effect of increasing the Medicaid MBR by 160 basis points. The Medicare Advantage segment MBR increased by 190 basis points, and the Prescription Drug Plan (“PDP”) MBR increased 40 basis points. WellCare's adjusted administrative expense ratio, as well as the administrative expense ratio as reported under GAAP, both decreased by 150 basis points as a result of the reclassification. Throughout this news release, prior year data has been reclassified to conform to the current method of presentation. Please refer to the schedule in this news release that provides supplemental information reconciling results determined under the new reporting classification to those reported in prior periods. Highlights of Operations for the First Quarter Adjusted net income for the first quarter of 2012 increased compared with the first quarter of 2011, primarily due to higher premium revenue in all segments, and lower MBRs in the Medicare Advantage and PDP segments. The decrease in our adjusted administrative expense ratio also contributed to the increase in adjusted net income. Membership as of March 31, 2012, increased 6% year over year to 2.5 million, compared with 2.4 million members as of March 31, 2011. Medicaid segment membership increased by 157,000, or 12%, year over year to 1.5 million members as of March 31, 2012. Medicare Advantage membership increased year over year by 31,000, or 26%. PDP segment membership decreased 38,000 year over year, or 4%. Premium revenue for the first quarter of 2012 increased 22% year over year to $1.8 billion. The increase was driven by 26% growth in Medicaid segment premium revenue, 24% growth in Medicare Advantage segment revenue, and 5% growth in PDP segment revenue. Medical benefits expense for the first quarter of 2012 was $1.5 billion, an increase of 20% from the first quarter of 2011. The Company MBR was 86.1% in the first quarter of 2012, compared with 86.9% in the first quarter of 2011. The Medicaid segment MBR increased year over year, while the Medicare Advantage and PDP segment MBRs decreased. The Company recorded net favorable development of prior years' medical benefits payable in both the first quarter of 2012 and the first quarter of 2011. In both years, nearly all of the favorable development was attributable to the Medicaid and Medicare Advantage segments. SG&A expense as determined under GAAP was $162 million in the first quarter of 2012, compared with $151 million for the same period in 2011. Adjusted SG&A was $149 million in the first quarter of 2012, an increase from $140 million in the same period last year. The increase was attributable primarily to membership growth. The adjusted administrative expense ratio was 8.4% in the first quarter of 2012, compared with 9.6% in the same period in 2011. Cash Flow and Financial Condition Highlights Net cash provided by operating activities as determined under GAAP was $8 million for the three months ended March 31, 2012, compared with net cash used in operating activities of $44 million for the three months ended March 31, 2011. Modified for the timing of receipts from, and payments to, WellCare's government customers, net cash provided by operating activities was $16 million for the three months ended March 31, 2012, compared with net cash used in operating activities of $4 million for the three months ended March 31, 2011. As of March 31, 2012, unregulated cash and investments were approximately $257 million. Unregulated cash and investments were approximately $309 million as of December 31, 2011, and $130 million as of March 31, 2011. Days in claims payable were 43 days as of March 31, 2012, compared with 54 days as of December 31, 2011, and 56 days as of March 31, 2011. Financial Outlook WellCare is updating its financial outlook for the year ended December 31, 2012, as follows: Adjusted net income per diluted share is expected to be between approximately $5.20 and $5.40, an increase from the previous guidance of $4.40 and $4.60. The increase is driven primarily by the net favorable development of medical benefits payable recorded in the first quarter of 2012. Premium revenue is expected to be between approximately $7.0 and $7.1 billion, an increase from the previous guidance of $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. This has not changed from the prior guidance. The adjusted administrative expense ratio is expected to be in the range of 8.7% to 8.9%. This is essentially unchanged from the previous guidance of 10.4% to 10.6% after giving effect to the reclassification of quality improvement costs, as described above. All elements of the Company's outlook exclude the impact of Medicaid premium taxes. Webcast A discussion of WellCare's first quarter 2012 results will be webcast live on Wednesday, May 2, 2012, beginning at 9:00 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, Fla., 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 2.5 million members nationwide as of March 31, 2012. 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 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 schedule in this news release that provides 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 “Forward-Looking Statements” and “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, 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.SELECTED DATA FROM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited; dollars in thousands except per share data)   Three Months Ended March 31,2012   2011 Revenues: Premium $ 1,768,171 $ 1,453,552 Medicaid premium taxes   20,376   18,864 Total premium 1,788,547 1,472,416 Investment and other income   2,786   2,326 Total revenues 1,791,333 1,474,742   Expenses: Medical benefits 1,521,791 1,263,317 Selling, general and administrative 161,688 150,966 Medicaid premium taxes 20,376 18,864 Depreciation and amortization 6,970 6,475 Interest   1,150   77 Total expenses   1,711,975   1,439,699   Income before income taxes 79,358 35,043 Income tax expense   28,126   13,713 Net income $ 51,232 $ 21,330   Net income per common share: Basic $ 1.19 $ 0.50 Diluted $ 1.18 $ 0.50   Weighted average common shares outstanding: Basic 42,938,284 42,621,908 Diluted 43,461,607 43,040,529       WELLCARE HEALTH PLANS, INC.CONSOLIDATED BALANCE SHEETS(Unaudited; dollars in thousands except per share data)   March 31,2012Dec. 31, 2011ASSETS Current Assets: Cash and cash equivalents $ 1,444,875 $ 1,325,098 Investments 231,638 198,569 Premium receivables, net 422,095 217,509 Funds receivable for the benefit of members 2,535 162,745 Income taxes receivable – 20,655 Prepaid expenses and other current assets, net 164,476 172,986 Deferred income tax asset   46,465     22,332   Total current assets 2,312,084 2,119,894 Property, equipment and capitalized software, net 105,129 98,238 Goodwill 111,131 111,131 Other intangible assets, net 9,542 9,896 Long-term investments 88,137 83,019 Restricted investments 60,733 60,663 Other assets   2,354     5,270   Total Assets $ 2,689,110   $ 2,488,111     LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Medical benefits payable $ 722,991 $ 744,821 Unearned premiums 207,132 164 Accounts payable 9,074 3,294 Other accrued expenses and liabilities 171,031 215,817 Current portion of amount payable related to investigation resolution 46,234 49,557 Current portion of long-term debt 13,125 11,250 Income taxes payable 29,911 – Other payables to government partners   88,776     98,237   Total current liabilities 1,288,274 1,123,140 Deferred income tax liability 14,086 1,026 Amount payable related to investigation resolution 66,593 101,705 Long-term debt 131,250 135,000 Other liabilities   7,591     10,394   Total liabilities 1,507,794 1,371,265 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, 43,085,753 and 42,848,798 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively) 431 429 Paid-in capital 461,818 448,820 Retained earnings 720,590 669,358 Accumulated other comprehensive loss   (1,523 )   (1,761 ) Total stockholders' equity   1,181,316     1,116,846   Total Liabilities and Stockholders' Equity $ 2,689,110   $ 2,488,111       WELLCARE HEALTH PLANS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited; dollars in thousands)   Three Months Ended March 31,2012   2011 Cash provided by (used in) operating activities: Net income $ 51,232 $ 21,330 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,970 6,475 Equity-based compensation expense 6,381 4,849 Incremental tax benefit from equity-based compensation (2,531 ) – Deferred taxes, net (13,645 ) 21,581 Provision for doubtful receivables 3,614 2,770 Changes in operating accounts: Premium receivables, net (208,800 ) (65,156 ) Prepaid expenses and other current assets, net 9,110 (3,323 ) Medical benefits payable (21,830 ) 47,634 Unearned premiums 206,968 17,149 Accounts payables and other accrued expenses (36,523 ) (43,475 ) Other payables to government partners (9,461 ) 5,574 Amount payable related to investigation resolution (38,435 ) (50,469 ) Income taxes receivable/payable, net 52,663 (8,012 ) Other, net   2,578     (869 ) Net cash provided by (used in) operating activities 8,291 (43,942 )   Cash used in investing activities: Purchases of investments (111,888 ) (198,305 ) Proceeds from sale and maturities of investments 74,087 85,043 Purchases of restricted investments (3,522 ) (4,012 ) Proceeds from maturities of restricted investments 3,444 5,601 Additions to property, equipment and capitalized software, net   (15,431 )   (8,715 ) Net cash used in investing activities (53,310 ) (120,388 )   Cash provided by financing activities: Proceeds from option exercises and other 8,480 1,034 Incremental tax benefit from equity-based compensation 2,531 – Purchase of treasury stock (3,958 ) (744 ) Payments on debt (1,875 ) – Payments on capital leases (592 ) (396 ) Funds received for the benefit of members   160,210     37,806   Net cash provided by financing activities   164,796     37,700     Increase (decrease) in cash and cash equivalents 119,777 (126,630 ) Balance at beginning of year   1,325,098     1,359,548   Balance at end of period $ 1,444,875   $ 1,232,918     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for taxes $ 162   $ 446   Cash paid for interest $ 1,076   $ 74     SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: Non-cash additions to property, equipment, and capitalized software $ 644   $ 812               WELLCARE HEALTH PLANS, INC.MEMBERSHIP STATISTICS(Unaudited)   As of March 31,2012   2011Membership by Program:Medicaid Membership: TANF 1,175,000 1,076,000 CHIP 170,000 164,000 SSI and ABD 123,000 79,000 FHP 18,000 10,000 Total Medicaid Membership 1,486,000 1,329,000   Medicare Membership: Medicare Advantage 150,000 119,000 Prescription Drug Plans 897,000 935,000 Total Medicare Membership 1,047,000 1,054,000 Total Membership 2,533,000 2,383,000   Medicaid Membership by State: Georgia 562,000 559,000 Florida 419,000 410,000 Other states 505,000 360,000 Total Medicaid Membership 1,486,000 1,329,000             WELLCARE HEALTH PLANS, INC.SEGMENT INFORMATION(Unaudited; dollars in thousands)   Three Months Ended March 31,2012   2011Premium revenue:Medicaid: Georgia $ 370,999 $ 353,112 Florida 228,454 221,666 Other states 454,823 262,201 Medicaid premium taxes   20,376   18,864 Total Medicaid 1,074,652 855,843   Medicare: Medicare Advantage 438,230 354,645 Prescription Drug Plans   275,665   261,928 Total Medicare   713,895   616,573 Total Premium Revenue $ 1,788,547 $ 1,472,416   Medical benefits ratios: Medicaid 85.7% 85.6% Medicare Advantage 78.8% 79.5% Prescription Drug Plans 98.9% 101.3% Aggregate 86.1% 86.9%       WELLCARE HEALTH PLANS, INC.SUPPLEMENTAL INFORMATION   Reconciliation of GAAP Selected Data from Consolidated Statements of Comprehensive Incometo Adjusted Selected Data from Consolidated Statements of Comprehensive Income(Unaudited; 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. Following are selected data from the Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2012 and 2011, as determined under GAAP, reconciled to adjusted selected data from the Consolidated Statements of Comprehensive Income for the same periods.   Three Months Ended March 31, 2012Three Months Ended March 31, 2011GAAP   Adjustments   AdjustedGAAP   AdjustmentsAdjusted Revenues:     Premium $ 1,768,171 $ – $ 1,768,171 $ 1,453,552 $ – $ 1,453,552 Medicaid premium taxes   20,376     –     20,376     18,864     –     18,864   Total premium 1,788,547 – 1,788,547 1,472,416 – 1,472,416 Investment and other income   2,786     –     2,786     2,326     –     2,326   Total revenues 1,791,333 – 1,791,333 1,474,742 – 1,474,742   Expenses: Medical benefits 1,521,791 – 1,521,791 1,263,317 – 1,263,317 Selling, general, and administrative 161,688 (12,751 ) (a)(b) 148,937 150,966 (10,747 ) (a)(b) 140,219 Medicaid premium taxes 20,376 – 20,376 18,864 – 18,864 Depreciation and amortization 6,970 – 6,970 6,475 – 6,475 Interest   1,150     –     1,150     77     –     77   Total expenses   1,711,975     (12,751 )   1,699,224     1,439,699     (10,747 )   1,428,952     Income before income taxes 79,358 12,751 92,109 35,043 10,747 45,790 Income tax expense   28,126     6,647     34,773     13,713     3,884     17,597   Net income $ 51,232   $ 6,104   $ 57,336   $ 21,330   $ 6,863   $ 28,193     Weighted average shares: Basic 42,938,284 – 42,938,284 42,621,908 – 42,621,908 Diluted 43,461,607 – 43,461,607 43,040,529 – 43,040,529   Net income per share: Basic $ 1.19 $ 0.15 $ 1.34 $ 0.50 $ 0.16 $ 0.66 Diluted $ 1.18 $ 0.14 $ 1.32 $ 0.50 $ 0.16 $ 0.66   Administrative expense ratio 9.1 % -0.7 % (a)(b) 8.4 % 10.4 % -0.8 % (a)(b) 9.6 %   (a) Investigation-related legal, accounting, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $11.3 million and $8.7 million, respectively, in the three months ended March 31, 2012 and 2011. (b) Liability for government investigation-related litigation resolution: Based on the status of these matters, the Company recorded expense of $1.4 million and $2.0 million, respectively, in the three months ended March 31, 2012 and 2011.       WELLCARE HEALTH PLANS, INC.SUPPLEMENTAL INFORMATION (Continued)   Reconciliation of GAAP Net Cash Provided by or Used in Operating Activitiesto Net Cash Provided by or Used in Operating Activities,Modified for the Timing of Receipts from, and Payments to, Government Customers(Unaudited; 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 cash provided by or used in 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.   Three Months Ended March 31,2012   2011   Net cash provided by (used in) operating activities, reported under GAAP $ 8,291 $ (43,942 ) Modifications to eliminate changes in: Premium receivables, net 205,186 62,386 Unearned premiums (206,968 ) (17,149 ) Other payables to government partners   9,461     (5,574 ) Net cash provided by (used in) operating activities, modified for the timing of receipts from, and payments to, government customers $ 15,970   $ (4,279 )       WELLCARE HEALTH PLANS, INC.SUPPLEMENTAL INFORMATION (Continued)   Reclassification of Quality Improvement Costs(Unaudited; dollars in thousands)   Effective January 1, 2012, the Company reclassified to medical benefits expense certain costs related to quality improvement activities that were formerly reported as SG&A expense. The quality improvement costs that the Company reclassified are consistent with the criteria specified and defined in guidance issued by the Department of Health and Human Services for costs that qualify to be reported as medical benefits under the minimum medical loss ratio provision of The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010. The following table reflects the impact of the Company's reclassification of quality improvement costs for the three month periods ended March 31, June 30, September 30, and December 31, 2011, and for the year ended December 31, 2011.   Three Months EndedYear EndedDecember 31, 2011March 31, 2011   June 30,2011   September 30,2011   December 31, 2011Revised ClassificationMedical benefits expense: Medicaid $ 716,125 $ 659,633 $ 708,339 $ 805,993 $ 2,890,090 Medicare Advantage 281,837 302,723 308,781 305,423 1,198,764 Prescription Drug Plans   265,355     239,651     197,702     156,405     859,113   Total Medical benefits expense $ 1,263,317   $ 1,202,007   $ 1,214,822   $ 1,267,821   $ 4,947,967     SG&A expense: SG&A expense $ 150,966 $ 147,054 $ 160,591 $ 183,496 $ 642,107 Adjustments(a)   (10,747 )   (12,109 )   (7,814 )   (16,337 )   (47,007 ) Adjusted SG&A expense $ 140,219   $ 134,945   $ 152,777   $ 167,159   $ 595,100     Medical benefits ratios: Medicaid 85.6 % 79.9 % 80.4 % 83.8 % 82.4 % Medicare Advantage 79.5 % 82.8 % 82.0 % 79.8 % 81.0 % Prescription Drug Plans 101.3 % 86.8 % 74.4 % 67.1 % 82.9 % Aggregate 86.9 % 81.9 % 79.8 % 80.3 % 82.2 %   Administrative expense ratios: GAAP 10.4 % 10.0 % 10.5 % 11.6 % 10.6 % Adjustments(a)   (0.8 )%   (0.8 )%   (0.5 )%   (1.0 )%   (0.7 )% Adjusted   9.6 %   9.2 %   10.0 %   10.6 %   9.9 %   Previous ClassificationMedical benefits expense: Medicaid $ 703,710 $ 647,690 $ 696,047 $ 790,191 $ 2,837,639 Medicare Advantage 277,029 298,066 304,649 300,756 1,180,500 Prescription Drug Plans   264,301     238,538     196,312     154,781     853,932   Total Medical benefits expense $ 1,245,040   $ 1,184,294   $ 1,197,008   $ 1,245,728   $ 4,872,071     SG&A expense: SG&A expense $ 169,243 $ 164,767 $ 178,405 $ 205,587 $ 718,003 Adjustments(a)   (10,747 )   (12,109 )   (7,814 )   (16,337 )   (47,007 ) Adjusted SG&A expense $ 158,496   $ 152,658   $ 170,591   $ 189,250   $ 670,996     Medical benefits ratios: Medicaid 84.1 % 78.5 % 79.0 % 82.1 % 80.9 % Medicare Advantage 78.1 % 81.5 % 80.9 % 78.6 % 79.8 % Prescription Drug Plans 100.9 % 86.4 % 73.9 % 66.4 % 82.4 % Aggregate 85.7 % 80.7 % 78.6 % 78.9 % 80.9 %   Administrative expense ratios: GAAP 11.6 % 11.2 % 11.7 % 13.0 % 11.9 % Adjustments(a)   (0.7 )%   (0.8 )%   (0.5 )%   (1.0 )%   (0.8 )% Adjusted   10.9 %   10.4 %   11.2 %   12.0 %   11.1 %   (a) Adjustments are expenses associated with government investigation-related legal, accounting, and other costs, as well as liabilities for litigation resolution for each of the respective periods. WellCare Health Plans, Inc.Investor relations:Gregg Haddad, 813-206-3916gregg.haddad@wellcare.comorMedia relations:Jack Maurer, 813-206-2762jack.maurer@wellcare.com