WellCare Health Plans, Inc. : WellCare Reports First Quarter 2012 Results
05/02/2012| 06:35am US/Eastern
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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.
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, 2012
Dec. 31, 2011
ASSETS
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
2011
Membership 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
2011
Premium 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 Income
to 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, 2012
Three Months Ended March 31, 2011
GAAP
Adjustments
Adjusted
GAAP
Adjustments
Adjusted
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
Activities
to 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 Ended
Year Ended December 31, 2011
March 31, 2011
June 30, 2011
September 30, 2011
December 31, 2011
Revised Classification
Medical 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 Classification
Medical 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.
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