November 04, 2010 at 06:30 AM EDT
WellCare Reports Third Quarter 2010 Results

WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the three and nine months ended September 30, 2010. As determined under generally accepted accounting principles (“GAAP”), the Company reported net income for the third quarter of 2010 of $42.9 million, or $1.00 per diluted share, compared with net income of $28.7 million, or $0.68 per diluted share, for the prior year period.

Adjusted net income for the third quarter of 2010 was $37.9 million, or $0.89 per diluted share, as compared with $34.7 million, or $0.82 per diluted share, for the same period in 2009. Adjusted net income excludes a benefit, net of certain expenses and before income taxes, of $7 million, which results from matters related to previously disclosed government investigations and related litigation. Additional information on this benefit is provided later in this news release.

“We are pleased with our financial and operating results for the third quarter, which were driven by our progress in improving health care quality and access, ensuring a competitive cost structure, and re-establishing prudent, profitable growth,” said Alec Cunningham, WellCare’s chief executive officer. “We will sustain our focus on these objectives in 2011 to continue to strengthen our performance in meeting the needs of our members, government customers, and business partners.”

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.

Highlights of Operations for the Third Quarter

Adjusted net income for the third quarter of 2010 was favorable in comparison to the third quarter of 2009 primarily due to the performance of the Medicare prescription drug plan (“PDP”) and Medicaid segments, as well as lower SG&A expense. These improvements were offset in part by the loss of gross margin from the December 31, 2009, withdrawal of our Medicare Advantage private fee-for-service (“PFFS”) plans, and from reduced membership in our Medicare Advantage coordinated care plans (“CCPs”) due mainly to the impact of the previously disclosed 2009 CMS marketing sanction.

Membership as of September 30, 2010, decreased to 2.2 million compared with 2.3 million members as of September 30, 2009. Medicaid segment membership increased by 6,000 year-over-year to 1.3 million as of September 30, 2010, principally due to growth in the Georgia Medicaid program. Medicare Advantage membership decreased year-over-year by 124,000 members. The withdrawal from PFFS plans reduced membership by 101,000 year-over-year. Medicare Advantage CCP membership decreased 23,000, and PDP membership decreased 12,000 year-over-year, principally due to the impact of the 2009 CMS marketing sanction.

Premium revenue for the third quarter 2010 decreased 17% year-over-year to $1.4 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 premium revenue, offset in part by growth in revenue for the Medicaid and PDP segments.

Medical benefits expense was $1.1 billion, a decrease of 19% from the third quarter of 2009. The medical benefits ratio (“MBR”) was 82.8% in the third quarter of 2010, compared with 85.2% in the third quarter of 2009. Excluding the impact of premium taxes, the third quarter 2010 MBR was 83.9%, a decrease of 270 basis points from 86.6% in the third 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 $162 million in the third quarter of 2010, compared with $196 million for the same period in 2009. Adjusted SG&A was $169 million in 2010, a decrease of 9% from $186 million in the same period last year. Adjusted SG&A expense excludes a net benefit of $7 million resulting from directors and officers (“D&O”) liability insurance recoveries of $25 million, offset in part by $18 million in government investigations and related litigation expense. The year-over-year decrease in adjusted SG&A expense resulted principally from the reduction in the Georgia Medicaid program premium tax rate, the withdrawal from PFFS plans, and from gains in operating efficiency. Adjusted SG&A expense was 12.2% of total revenues in the third quarter of 2010, compared with 11.2% 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 $72 million, compared with net cash provided by operating activities of $70 million for the nine month periods ended September 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 $28 million for the nine months ended September 30, 2010, compared with net cash provided by operating activities of $142 million for the nine months ended September 30, 2009.

As of September 30, 2010, unregulated cash and short-term investments were approximately $201 million. Unregulated cash and short-term investments were approximately $160 million as of June 30, 2010, $120 million on December 31, 2009, and $93 million on September 30, 2009.

Days in claims payable were 56 days as of September 30, 2010, compared with 54 days as of June 30, 2010, and 56 days as of September 30, 2009. Excluding the impact of Medicare Advantage PFFS plans, days in claims payable were 55 days as of September 30, 2010, 51 days as of June 30, 2010, and 52 days as of September 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 $2.30 and $2.35, an increase from the previous guidance for adjusted net income per diluted share of between approximately $2.05 and $2.20. The following elements of WellCare’s financial outlook also have changed.

  • Premium revenue is expected to be between approximately $5.40 and $5.45 billion, an increase from the previous guidance of $5.30 to $5.40 billion.
  • The 2010 Medicaid segment MBR is anticipated to be above the 2009 MBR. The previous guidance was for the 2010 Medicaid segment MBR to be below the 2009 MBR. Excluding the impact of premium taxes, the 2010 Medicaid segment MBR is expected to decrease relative to the 2009 MBR.
  • The adjusted administrative expense ratio is expected to be in the mid-12% range, down from the high 12% range as described in the previous guidance.

The following elements of WellCare’s financial outlook are unchanged from the Company’s previous guidance.

  • The 2010 Medicare Advantage segment MBR will decrease relative to the 2009 MBR.
  • The 2010 PDP segment MBR will decrease from the 2009 MBR.

Webcast

A discussion of WellCare’s third quarter 2010 results will be webcast live on Thursday, November 4, 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 September 30, 2010. For more information about WellCare, please visit the Company’s website at www.wellcare.com.

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. 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

September 30,

Nine Months Ended

September 30,

2010200920102009
Revenues:
Premium $ 1,385,874 $ 1,666,031 $ 4,077,269 $ 5,245,809
Investment and other income 2,299 1,614 7,506 8,375
Total revenues 1,388,173 1,667,645 4,084,775 5,254,184
Expenses:
Medical benefits 1,147,107 1,420,193 3,435,870 4,477,210
Selling, general and administrative 161,662 195,665 739,769 682,488
Depreciation and amortization 6,123 5,851 17,770 17,547
Interest 117 4 160 3,087
Total expenses 1,315,009 1,621,713 4,193,569 5,180,332
Income (loss) before income taxes 73,164 45,932 (108,794 ) 73,852
Income tax expense (benefit) 30,248 17,272 (29,257 ) 45,120
Net income (loss) $ 42,916 $ 28,660 $ (79,537 ) $ 28,732
Net income (loss) per common share:
Basic $ 1.01 $ 0.68 $ (1.88 ) $ 0.69
Diluted $ 1.00 $ 0.68 $ (1.88 ) $ 0.68
Weighted average common shares outstanding:
Basic 42,411,455 41,849,749 42,313,973 41,771,713
Diluted 42,740,369 42,280,035 42,313,973 42,007,302

WELLCARE HEALTH PLANS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

Sept. 30,

2010

Dec. 31,

2009

(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,091,015 $ 1,158,131
Investments 72,709 62,722
Premium and other receivables, net 309,998 285,808
Funds receivable for the benefit of members 55,262 77,851
Prepaid expenses and other current assets, net 121,106 104,079
Deferred income tax asset 56,638 28,874
Total current assets 1,706,728 1,717,465
Property, equipment and capitalized software, net 68,534 61,785
Goodwill 111,131 111,131
Other intangible assets, net 11,811 12,961
Long-term investments 46,838 51,710
Restricted investments 124,694 130,550
Deferred income tax asset 69,277 29,654
Other assets 4,118 3,191
Total Assets $ 2,143,131 $ 2,118,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Medical benefits payable $ 703,664 $ 802,515
Unearned premiums 65,992 90,496
Accounts payable 8,869 5,270
Other accrued expenses and liabilities 150,834 220,562
Current portion of amounts accrued related to investigation resolution 117,601 18,192
Other payables to government partners 42,447 38,147
Income taxes payable 18,362 4,888
Total current liabilities 1,107,769 1,180,070
Amounts accrued related to investigation resolution 213,649 40,205
Other liabilities 19,677 17,272
Total liabilities 1,341,095 1,237,547
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, 42,538,975 and 42,361,207 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively) 425 424
Paid-in capital 424,529 425,083
Retained earnings 378,975 458,512
Accumulated other comprehensive loss (1,893 ) (3,119 )
Total stockholders’ equity 802,036 880,900
Total Liabilities and Stockholders’ Equity $ 2,143,131 $ 2,118,447

WELLCARE HEALTH PLANS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; dollars in thousands)

Nine Months Ended

September 30,

20102009
Cash provided by (used in) operating activities:
Net (loss) income $ (79,537 ) $ 28,732
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization 17,770 17,547
Equity-based compensation expense 8,655 29,776
Deferred taxes, net (67,386 ) 8,526
Changes in operating accounts:
Premium and other receivables, net (24,190 ) 10,111
Other receivables from government partners, net (40,073 )
Prepaid expenses and other current assets, net (17,027 ) 15,301
Medical benefits payable (98,851 ) 91,708
Unearned premiums (24,504 ) (60,489 )
Accounts payable and other accrued expenses (43,635 ) (64,465 )
Other payables to government partners 4,300 18,397
Amounts accrued related to investigation resolution 249,915 30,249
Income taxes, net 7,594 (5,450 )
Other, net (5,088 ) (10,328 )
Net cash (used in) provided by operating activities (71,984 ) 69,542
Cash provided by (used in) investing activities:
Purchases of investments (117,903 ) (19,295 )
Proceeds from sales and maturities of investments 114,726 34,012
Purchases of restricted investments (18,386 ) (64,039 )
Proceeds from maturities of restricted investments 24,298 131,707
Additions to property, equipment and capitalized software, net (16,192 ) (9,908 )
Net cash (used in) provided by investing activities (13,457 ) 72,477
Cash provided by (used in) financing activities:
Proceeds from option exercises and other 1,091 418
Purchase of treasury stock (4,420 )
Payments on debt (152,800 )
Payments on capital leases (935 )
Funds received (used) for the benefit of members 22,589 (341 )
Net cash provided by (used in) financing activities 18,325 (152,723 )
Cash and cash equivalents:
Decrease during the period (67,116 ) (10,704 )
Balance at beginning of year 1,158,131 1,181,922
Balance at end of period $ 1,091,015 $ 1,171,218
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 35,686 $ 58,489
Cash paid for interest $ 183 $ 2,642
Equipment acquired through capital leases $ 8,868 $ 559

WELLCARE HEALTH PLANS, INC.

MEMBERSHIP STATISTICS

As of September 30,
20102009
Membership by Program
Medicaid Membership
TANF 1,073,000 1,072,000
S-CHIP 168,000 158,000
SSI and ABD 77,000 78,000
FHP 10,000 14,000
Total Medicaid Membership 1,328,000 1,322,000
Medicare Membership
Medicare Advantage 116,000 240,000
Prescription Drug Plan (stand-alone) 756,000 768,000
Total Medicare Membership 872,000 1,008,000
Total Membership 2,200,000 2,330,000
Medicaid Membership by State
Florida 418,000 412,000
Georgia 548,000 527,000
Other states 362,000 383,000
Total Medicaid Membership 1,328,000 1,322,000

WELLCARE HEALTH PLANS, INC.

SEGMENT INFORMATION

(Unaudited; dollars in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010200920102009
Premium revenue:
Medicaid:
Florida $ 223,409 $ 220,409 $ 669,654 $ 720,662
Georgia 359,744 345,640 1,013,471 999,487
Other states 271,740 248,062 781,499 716,899
Total Medicaid 854,893 814,111 2,464,624 2,437,048
Medicare:
Medicare Advantage plans 331,338 660,009 1,012,366 2,142,921
Prescription Drug plans 199,643 191,911 600,279 665,840
Total Medicare 530,981 851,920 1,612,645 2,808,761
Total Premium Revenue $ 1,385,874 $ 1,666,031 $ 4,077,269 $ 5,245,809

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. Following are statements of operations and related measures for the third quarters ended September 30, 2010 and 2009, 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, 2010Three Months Ended September 30, 2009
GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 1,385,874 $ $ 1,385,874 $ 1,666,031 $ $ 1,666,031
Investment and other income 2,299 2,299 1,614 1,614
Total revenues 1,388,173 1,388,173 1,667,645 1,667,645
Expenses:
Medical benefits 1,147,107 1,147,107 1,420,193 1,420,193
Selling, general, and administrative 161,662 7,342

(a)

(b)

(c)

169,004 195,665 (9,463 )

(a)

(b)

186,202
Depreciation and amortization 6,123 6,123 5,851 5,851
Interest 117 117 4 4
Total expenses 1,315,009 7,342 1,322,351 1,621,713 (9,463 ) 1,612,250
Income before income taxes 73,164 (7,342 ) 65,822 45,932 9,463 55,395
Income tax expense 30,248 (2,280 ) 27,968 17,272 3,414 20,686
Net income $ 42,916 $ (5,062 ) $ 37,854 $ 28,660 $ 6,049 $ 34,709
Weighted average shares:
Basic 42,411,455 42,411,455 41,849,749 41,849,749
Diluted 42,740,369 42,740,369 42,280,035 42,280,035
Net income per share:
Basic $ 1.01 $ (0.12 ) $ 0.89 $ 0.68 $ 0.15 $ 0.83
Diluted $ 1.00 $ (0.11 ) $ 0.89 $ 0.68 $ 0.14 $ 0.82
Medical benefits ratio:
Medicaid 86.9 % 86.9 % 87.2 % 87.2 %
Medicare Advantage 78.7 % 78.7 % 83.4 % 83.4 %
Prescription Drug Plans 71.7 % 71.7 % 83.2 % 83.2 %
Aggregate 82.8 % 82.8 % 85.2 % 85.2 %
Administrative expense ratio 11.6 % 0.6 %

(a)

(b)

(c)

12.2 % 11.7 % -0.5 %

(a)

(b)

11.2 %
Days in claims payable 56 56 56 56

(a) Investigation-related legal, accounting, employee retention, and other costs:  Administrative expenses associated with the government and Company investigations, net of D&O insurance recoveries, amounted to a credit of $10.5 million and expense of $9.0 million, in the quarters ended September 30, 2010 and 2009, respectively.

(b) Liability for investigation resolution:  Based on the status of the government investigations, the Company recorded expense of $2.3 million and $0.5 million, respectively, in the quarters ended September 30, 2010 and 2009.

(c) Liability for securities class action litigation resolution:  The Company recorded expense of $0.8 million in the three months ended September 30, 2010, as its estimate for the resolution of putative securities class action litigation.

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, 2010Nine Months Ended September 30, 2009
GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 4,077,269 $ $ 4,077,269 $ 5,245,809 $ $ 5,245,809
Investment and other income 7,506 7,506 8,375 8,375
Total revenues 4,084,775 4,084,775 5,254,184 5,254,184
Expenses:
Medical benefits 3,435,870 3,435,870 4,477,210 4,477,210
Selling, general, and administrative 739,769 (250,381 )

(a)

(b)

(c)

489,388 682,488 (93,146 )

(a)

(b)

589,342
Depreciation and amortization 17,770 17,770 17,547 17,547
Interest 160 160 3,087 3,087
Total expenses 4,193,569 (250,381 ) 3,943,188 5,180,332 (93,146 ) 5,087,186
(Loss) income before income taxes (108,794 ) 250,381 141,587 73,852 93,146 166,998
Income tax (benefit) expense (29,257 ) 87,038 57,781 45,120 15,120 60,240
Net (loss) income $ (79,537 ) $ 163,343 $ 83,806 $ 28,732 $ 78,026 $ 106,758
Weighted average shares:
Basic 42,313,973 42,313,973 41,771,713 41,771,713
Diluted 42,313,973 424,564 42,738,537 42,007,302 42,007,302
Net (loss) income

per share:

Basic $ (1.88 ) $ 3.86 $ 1.98 $ 0.69 $ 1.87 $ 2.56
Diluted $ (1.88 ) $ 3.84 $ 1.96 $ 0.68 $ 1.86 $ 2.54
Medical benefits ratio:
Medicaid 86.6 % 86.6 % 85.8 % 85.8 %
Medicare Advantage 78.6 % 78.6 % 82.2 % 82.2 %
Prescription Drug Plans 84.4 % 84.4 % 93.6 % 93.6 %
Aggregate 84.3 % 84.3 % 85.3 % 85.3 %
Administrative expense ratio 18.1 % -6.1 %

(a)

(b)

(c)

12.0 % 13.0 % -1.8 %

(a)

(b)

11.2 %

(a) Investigation-related legal, accounting, employee retention, and other costs:  Administrative expenses associated with the government and Company investigations, net of D&O insurance recoveries, amounted to a credit of $1.1 million and expense of $32.9 million, in the nine months ended September 30, 2010 and 2009, respectively.

(b) Liability for investigation resolution:  Based on the status of the government investigations, the Company recorded expense of $56.7 million and $60.2 million, respectively, in the nine months ended September 30, 2010 and 2009.

(c) Liability for securities class action litigation resolution:  The Company recorded expense of $194.8 million in the nine months ended September 30, 2010, as its estimate for the resolution of putative securities class action litigation.

WELLCARE HEALTH PLANS, INC.

UNAUDITED SUPPLEMENTAL INFORMATION

Reconciliation of Medical Benefits Ratios and Administrative Expense Ratio

to Medical Benefits Ratios and Administrative Expense Ratio Modified

to Exclude Premium Taxes and Certain Specified Expenses

The Company reports MBRs and administrative expense ratios on a non-GAAP basis that excludes premium taxes paid primarily on Medicaid managed care premium revenue, as well as certain investigation and litigation-related administrative expenses, net of D&O insurance recoveries.  The Company believes that MBRs and administrative expense ratios excluding premium taxes are useful measures for investors, as premium taxes are recorded as both revenue of and expense to the Company, and therefore do not affect the Company’s operating results.  In addition, certain investigation and litigation-related administrative expenses, net of D&O insurance recoveries, are excluded from the administrative expense ratio, as management believes these expenses are not indicative of longer-term business trends and operations.

GAAP

Adjustments

(see pages

10 and 11)

Adjusted

Premium Tax

Impact

Excluding

Premium Taxes

Three Months Ended September 30, 2010
Medical benefits ratio:
Medicaid 86.9% 86.9% 2.0% 88.9%
Medicare Advantage 78.7% 78.7% 78.7%
PDP 71.7% 71.7% 71.7%
Aggregate 82.8% 82.8% 1.1% 83.9%
Administrative expense ratio 11.6% 0.6% 12.2% -1.2% 11.0%
Three Months Ended September 30, 2009
Medical benefits ratio:
Medicaid 87.2% 87.2% 3.0% 90.2%
Medicare Advantage 83.4% 83.4% 83.4%
PDP 83.2% 83.2% 83.2%
Aggregate 85.2% 85.2% 1.4% 86.6%
Administrative expense ratio 11.7% -0.5% 11.2% -1.5% 9.7%
GAAP

Adjustments

(see pages

10 and 11)

Adjusted

Premium Tax

Impact

Excluding

Premium Taxes

Nine Months Ended September 30, 2010
Medical benefits ratio:
Medicaid 86.6% 86.6% 1.3% 87.9%
Medicare Advantage 78.6% 78.6% 78.6%
PDP 84.4% 84.4% 84.4%
Aggregate 84.3% 84.3% 0.8% 85.1%
Administrative expense ratio 18.1% -6.1% 12.0% -0.8% 11.2%
Nine Months Ended September 30, 2009
Medical benefits ratio:
Medicaid 85.8% 85.8% 3.0% 88.8%
Medicare Advantage 82.2% 82.2% 82.2%
PDP 93.6% 93.6% 93.6%
Aggregate 85.3% 85.3% 1.4% 86.7%
Administrative expense ratio 13.0% -1.8% 11.2% -1.4% 9.8%

Premium taxes were $19.0 million and $26.8 million, respectively, for the three months ended September 30, 2010 and 2009.  Premium taxes were $38.1 million and $80.1 million, respectively, for the nine months ended September 30, 2010 and 2009.

WELLCARE HEALTH PLANS, INC.

UNAUDITED SUPPLEMENTAL INFORMATION

Reconciliation of GAAP Net Cash (Used in) Provided by Operating Activities

to Net Cash (Used in) Provided by Operating Activities Modified

for the Timing of Receipts from and Payments to Government Clients

(Dollars in thousands)

The Company reports cash (used in) provided by operating activities on a non-GAAP basis to exclude the changes in unearned premiums, premiums and other receivables, and other receivables from and payables to government customers.  The Company believes that 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,
20102009

Net cash (used in) provided by operating activities, as reported under GAAP Modifications to eliminate changes in:

$ (71,984 ) $ 69,542
Premium and other receivables, net 24,190 (10,111 )
Other receivables from government partners, net 40,073
Unearned premiums 24,504 60,489
Other payables to government partners (4,300 ) (18,397 )
Net cash (used in) provided by operating activities, modified for the timing of receipts from and payments to government clients $ (27,590 ) $ 141,596

Reconciliation of GAAP Days in Claims Payable to Days in Claims Payable Modified

to Eliminate the Impact of Medicare Advantage Private Fee-for-Service Plans

The Company reports days in claims payable on a non-GAAP basis to exclude the impact of Medicare Advantage PFFS plans.  The Company believes that days in claims payable excluding the impact of PFFS plans is a useful measure for investors, because the Company withdrew these plans on December 31, 2009, and, as a result, the impact of the plans on historical operations is not necessarily indicative of the Company’s future long-term business operations.  Days in claims payable is equal to the medical benefits payable at the end of a quarter divided by average medical benefits expense per calendar day for the quarter.

Quarters Ended

September 30,

2009

December 31,

2009

March 31,

2010

June 30

2010

September 30,

2010

Days in claims payable, as reported under GAAP 56 53 55 54 56
Modification to eliminate impact of PFFS plans (4 ) (4 ) (5 ) (3 ) (1 )
Days in claims payable, modified to eliminate the impact of PFFS plans 52 49 50 51 55

Contacts:

WellCare Health Plans, Inc.
Investor relations:
Gregg Haddad, 813-206-3916
gregg.haddad@wellcare.com
or
Media relations:
Amy Knapp, 813-290-6208
amy.knapp@wellcare.com
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