WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the
three and six months ended June 30, 2010. As determined under generally
accepted accounting principles (?GAAP?), the Company reported a second
quarter 2010 net loss of $128.9 million, or $3.05 per diluted share,
compared with net income of $37.0 million, or $0.88 per diluted share,
for the prior year period. The 2010 second quarter net loss arose
principally due to two charges associated with the previously disclosed
government investigations and related litigation, which are described
below.
Adjusted net income for the second quarter of 2010, which excludes these
two charges and other government investigation-related expense of $7.8
million, was $38.6 million, or $0.90 per diluted share, as compared with
$59.8 million, or $1.42 per diluted share, for the same period in 2009.
?WellCare has achieved solid progress on our objectives this year,
including our strategic and organizational restructuring, placing
leaders in roles critical to our future, quality accreditations for our
Florida health plans, and resolution of some important legal matters,?
said Alec Cunningham, WellCare's chief executive officer. ?These and
other developments will drive our second half momentum in continuing to
improve health care quality and access, our medical and administrative
cost positions, and our growth outlook.?
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 selling, general, and administrative
(?SG&A?) expenses, primarily related to previously disclosed government
investigations and related litigation, 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.
Strategic and Organizational Restructuring
The Company also announced today a strategic and organizational
restructuring with the objective of ensuring administrative efficiency
and a competitive cost structure. The Company will allocate new
resources and direct substantial investments to priority areas such as
health care quality, information technology, and business development.
The restructuring includes a workforce reduction resulting from
streamlining and improving business processes and operations, including
the centralization and consolidation of certain functions. The reduction
affects less than 100 associates. In addition, the Company is
eliminating a significant number of open positions, while adding a
smaller number of new positions.
?Changes of this nature are difficult, and we are sensitive to the
potential impacts to our associates, members, government customers, and
business partners,? said Cunningham. ?Nevertheless, we believe these
steps will strengthen our position for future opportunities and new
requirements in government-sponsored health care programs.?
Each associate affected by the workforce reduction will receive
severance pay and outplacement support and will be eligible to apply for
the Company's open positions.
Charges Associated with Government Investigations and Related
Litigation
As described above, the 2010 second quarter net loss arose principally
due to two charges associated with the previously disclosed government
investigations and related litigation. One of the charges results from a
preliminary agreement with the Civil Division of the U.S. Department of
Justice and certain other government agencies to settle their pending
inquiries for the total principal amount of $137.5 million. The
estimated fair value of the settlement is $134 million. The Company
previously had accrued $79 million in anticipation of a settlement.
During the second quarter, the Company accrued an additional $55 million
for the settlement, based on the preliminary agreement.
Separately, WellCare announced this morning that it has reached
agreement on the material terms of a settlement to resolve the claims
asserted against the Company in the previously disclosed securities
class action consolidated complaint. Total principal payments under the
agreement amount to $200 million. During the second quarter, the Company
accrued the $194 million estimated fair value of the settlement.
The Company believes it will be able to meet its known near-term
monetary obligations, including the terms of these settlement
agreements, and maintain sufficient liquidity to operate its business.
There can be no assurance that these settlements will be finalized. In
addition, the outcome of these matters may differ materially from the
preliminary terms.
Highlights of Operations for the Second Quarter
Adjusted net income for the second quarter of 2010 was unfavorable in
comparison to the second quarter of 2009 primarily due to the loss of
gross margin from the December 31, 2009, withdrawal of the Company's
Medicare Advantage private fee-for-service (?PFFS?) plans, as well as
decreased premium revenue from Medicare Advantage coordinated care plans
(?CCPs?) and Medicare stand-alone prescription drug plans (?PDPs?).
These factors were offset in part by a reduction in SG&A expense, as
well as improvement in the PDP medical benefits ratio (?MBR?).
Membership as of June 30, 2010, decreased to 2.2 million compared with
2.4 million members as of June 30, 2009. Medicaid segment membership
decreased by 9,000 year-over-year to 1.3 million as of June 30, 2010,
driven by the withdrawal in mid-2009 from certain Florida counties and
programs, but offset in part by growth in Georgia. Medicare Advantage
membership decreased year-over-year by 138,000 members. The withdrawal
from PFFS plans reduced membership by 107,000 year-over-year. Medicare
Advantage CCP membership decreased 31,000 year-over-year, principally
due to the impact of the previously disclosed 2009 CMS marketing
sanction. PDP membership decreased 57,000 year-over-year, also largely
due to the CMS marketing sanction.
Premium revenue for the second quarter 2010 decreased 25% year-over-year
to $1.3 billion. The decrease is attributable to the withdrawal of PFFS
plans and to the impact of the 2009 CMS marketing sanction on Medicare
Advantage CCP and PDP premium revenue.
Medical benefits expense was $1.1 billion, a decrease of 25% from the
second quarter of 2009. The MBR was 83.9% in the second quarter 2010,
compared with 84.1% in the second quarter of 2009. Excluding the impact
of premium taxes, the second quarter 2010 MBR was 84.5%, a decrease of
100 basis points from 85.5% in the second quarter of 2009. The decrease
was driven by the improved performance of the Company's PDPs and
Medicaid plans, as well as the withdrawal from PFFS plans.
SG&A expense as determined under GAAP was $405 million in the second
quarter of 2010, compared with $215 million in the same period in 2009.
Adjusted SG&A expense, which excludes the government investigations and
related litigation charges and expense described above, was $148 million
in 2010, a decrease of 21% from $188 million in the same period last
year. The decrease in adjusted SG&A expense resulted principally from
the withdrawal from PFFS plans, as well as gains in operating
efficiency. In addition, the elimination of the premium tax associated
with the Georgia Medicaid program reduced SG&A expense in 2010 relative
to 2009. These favorable variances were offset in part by increased
costs for Medicare Advantage CCP marketing and infrastructure
investments. Adjusted SG&A expense was 11.1% of total revenues in the
second quarter of 2010, compared with 10.5% of total revenues in the
same period in 2009 due primarily to a lower revenue base in 2010
resulting from the withdrawal of the Company's PFFS plans and the impact
of the 2009 CMS marketing sanction.
Cash Flow and Financial Condition Highlights
Net cash used in operating activities as determined under GAAP was $245
million and $150 million for the six month periods ended June 30, 2010
and 2009, respectively. Net cash used in operating activities, modified
for the timing of receipts from and payments to the Company's government
clients, was $121 million for the six months ended June 30, 2010,
compared with $116 million of net cash provided by operating activities
for the six months ended June 30, 2009.
As of June 30, 2010, unregulated cash and short-term investments were
approximately $160 million. Unregulated cash and short-term investments
were approximately $121 million on March 31, 2010, $120 million on
December 31, 2009, and $77 million on June 30, 2009.
Days in claims payable were 54 days as of June 30, 2010, compared with
55 days as of March 31, 2010, and 52 days as of June 30, 2009. Excluding
the impact of Medicare Advantage PFFS plans, days in claims payable were
51 days as of June 30, 2010, 50 days as of March 31, 2010, and 50 days
as of June 30, 2009.
Financial Outlook
WellCare is updating its financial outlook for the year ended December
31, 2010. Adjusted net income per diluted share now is expected to be
between approximately $2.05 and $2.20, an increase from the previous
guidance for adjusted net income per diluted share of between
approximately $2.00 and $2.20. The following elements of WellCare's
financial outlook are unchanged from the Company's previous guidance.
Premium revenue is expected to be between approximately $5.30 and
$5.40 billion.
The 2010 Medicaid segment MBR is anticipated to be below the 2009 MBR.
The 2010 Medicare Advantage segment MBR will decrease relative to the
2009 MBR.
The 2010 PDP segment MBR is anticipated to decrease from the 2009 MBR.
The adjusted administrative expense ratio is expected to be in the
high 12% range.
Webcast
A discussion of WellCare's second quarter 2010 results will be webcast
live on Monday, August 9, 2010, 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 2.2
million members nationwide as of June 30, 2010. For more information
about WellCare, please visit the Company's website at www.wellcare.com.
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. Our 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 current financial outlook for 2010 and progress on top
priorities such as improving health care quality and access, ensuring a
competitive cost position, and reestablishing 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,
2009, and other 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
Six Months Ended
June 30,
June 30,
2010
2009
2010
2009
Revenues:
Premium
$
1,337,937
$
1,787,851
$
2,691,395
$
3,579,778
Investment and other income
2,712
3,427
5,207
6,761
Total revenues
1,340,649
1,791,278
2,696,602
3,586,539
Expenses:
Medical benefits
1,122,791
1,504,019
2,288,763
3,057,017
Selling, general and administrative
404,770
215,082
578,107
486,823
Depreciation and amortization
5,891
5,957
11,647
11,696
Interest
33
1,017
43
3,083
Total expenses
1,533,485
1,726,075
2,878,560
3,558,619
(Loss) Income before income taxes
(192,836
)
65,203
(181,958
)
27,920
Income tax (benefit) expense
(63,965
)
28,198
(59,505
)
27,848
Net (loss) income
$
(128,871
)
$
37,005
$
(122,453
)
$
72
Net (loss) income per common share:
Basic
$
(3.05
)
$
0.89
$
(2.90
)
$
0.00
Diluted
$
(3.05
)
$
0.88
$
(2.90
)
$
0.00
Weighted-average common shares outstanding:
Basic
42,308,856
41,794,997
42,252,018
41,731,915
Diluted
42,308,856
42,031,427
42,252,018
41,925,301
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
Dec. 31,
2010
2009
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
980,264
$
1,158,131
Investments
45,018
62,722
Premium and other receivables, net
316,359
285,808
Funds receivable for the benefit of members
29,298
77,851
Prepaid expenses and other current assets, net
106,226
104,079
Deferred income tax asset
33,857
28,874
Total current assets
1,511,022
1,717,465
Property, equipment and capitalized software, net
65,299
61,785
Goodwill
111,131
111,131
Other intangible assets, net
12,194
12,961
Long-term investments
42,477
51,710
Restricted investments
131,654
130,550
Deferred income tax asset
81,544
18,745
Other assets
10,480
14,100
Total Assets
$
1,965,801
$
2,118,447
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical benefits payable
$
660,149
$
802,515
Unearned premiums
114
90,496
Accounts payable
8,063
5,270
Other accrued expenses and liabilities
152,304
220,562
Current portion of amounts accrued related to investigation
resolution
Recommend:
