WellCare Reports Second Quarter 2011 Results

WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the second quarter ended June 30, 2011. As determined under generally accepted accounting principles (“GAAP”), net income for the second quarter of 2011 was $69.6 million, or $1.61 per diluted share, compared with a net loss of $128.9 million, or $3.05 per diluted share, for the second quarter of 2010. The 2010 second quarter net loss arose principally due to $256.5 million of pre-tax charges associated with the previously disclosed government investigations and related litigation. Adjusted net income for the second quarter of 2011 was $76.7 million, or $1.77 per diluted share, compared with $38.6 million, or $0.90 per diluted share for the second quarter of 2010.

“These results, as well as our outlook, highlight the progress we have made on WellCare’s top priorities and in particular demonstrate our focus on delivering prudent, profitable growth,” said Alec Cunningham, WellCare’s chief executive officer. “We will continue to strengthen the alignment of our capabilities with the needs of our government customers, members, and business partners to help ensure we sustain and build on this momentum.”

WellCare’s recent accomplishments are highlighted by second quarter membership growth of 9% year-over-year, which was driven by the Medicare Prescription Drug Plans (“PDP”) and Medicare Advantage segments. In early July, the Kentucky Cabinet for Health and Family Services selected WellCare of Kentucky to serve the state’s new Medicaid program, which is expected to commence in October 2011. On August 1, 2011, WellCare entered into a new $300 million senior secured credit facility which provides liquidity to support growth, as well as additional flexibility in the management of the Company’s capital structure. WellCare also has continued to achieve progress on its health care quality and access initiatives with the recent accreditation of its Missouri plan by the National Committee for Quality Assurance and with broad-based improvement in Healthcare Effectiveness Data and Information Set results across the Company’s lines of business.

Highlights of Operations for the Second Quarter

Adjusted net income for the second quarter of 2011 increased relative to the second quarter of 2010, primarily due to the favorable development of prior years’ medical benefits payable as well as higher premium revenue, offset in part by increased selling, general, and administrative (“SG&A”) expense and increases in the Medicare Advantage and PDP segments’ medical benefits ratios (“MBRs”).

Membership as of June 30, 2011, increased to 2.4 million, compared with 2.2 million members as of June 30, 2010. PDP segment membership increased 209,000 year-over-year, or 28%. Medicare Advantage membership increased year-over-year by 9,000 members, or 8%. Medicaid segment membership decreased by 11,000 year-over-year to 1.3 million members as of June 30, 2011.

Premium revenue for the second quarter of 2011 increased 10% year-over-year to $1.5 billion. The increase mainly was due to growth in PDP segment premium revenue, which increased 33% year-over-year. In addition, second quarter 2011 Medicare Advantage segment revenue increased 11%, and Medicaid segment premium revenue increased 4%, both relative to the second quarter of 2010.

Medical benefits expense for the second quarter of 2011 was $1.2 billion, an increase of 5% from the second quarter of 2010. The MBR was 80.7% in the second quarter of 2011, compared with 84.5% in the second quarter of 2010. The decrease principally resulted from favorable development of prior years’ medical benefits payable, predominately in the Medicaid segment, offset in part by increases in the Medicare Advantage and PDP segments’ MBRs.

SG&A expense as determined under GAAP was $165 million in the second quarter of 2011, compared with $395 million for the same period in 2010. Adjusted SG&A was $153 million in the second quarter of 2011, an increase from $139 million in the same period last year. The year-over-year increase in adjusted SG&A expense was driven primarily by technology investments, including those required by regulatory changes, investments in health care quality and medical management, and membership growth. These increases were offset in part by improvements in operating efficiency. The adjusted administrative expense ratio was 10.4% in the second quarter of 2011, unchanged from the same period in 2010.

Credit Facility

On August 1, 2011, WellCare entered into a $300 million senior secured credit facility that can be used for general corporate purposes. The credit agreement includes a $150 million term loan facility as well as a $150 million revolving credit facility. Also on August 1, 2011, the Company borrowed $150 million pursuant to the term loan facility. Both the term loan and revolving credit facility are set to expire in August 2016. The credit agreement contains customary covenants and restrictions. The new credit agreement replaces WellCare’s previous $65 million revolving credit facility, which was never drawn upon.

Cash Flow and Financial Condition Highlights

Net cash used in operating activities as determined under GAAP was $31 million and $245 million for the six months ended June 30, 2011 and 2010, respectively. Net cash provided by operating activities, modified for the timing of receipts from, and payments to, WellCare’s government customers, was $45 million for the first half of 2011, compared with the net use of cash of $121 million over the same six month period in 2010.

As of June 30, 2011, unregulated cash and investments were approximately $188 million. Unregulated cash and investments were approximately $130 million as of March 31, 2011, and $160 million on June 30, 2010.

Days in claims payable were 56 days as of June 30, 2011, compared with 57 days as of March 31, 2011, and 54 days as of June 30, 2010.

Financial Outlook

WellCare is updating its financial outlook for the year ended December 31, 2011. The following elements of WellCare’s financial outlook have changed:

  • Adjusted net income per diluted share now is expected to be between approximately $4.60 and $4.80, an increase from the previous guidance for adjusted net income per diluted share of between approximately $3.35 and $3.65. The increase is driven by favorable development during the first half of 2011 of prior years’ medical benefits payable, as well as an improved operating outlook.
  • Premium revenue is expected to be between approximately $6.0 and $6.1 billion. The previous guidance was for premium revenue to be between $5.8 and $5.9 billion. The increase results primarily from the expected premium revenue from the new Kentucky Medicaid program.

The following elements of WellCare’s financial outlook are unchanged:

  • The adjusted administrative expense ratio is expected to be in the range of 10.7% to 10.9%.
  • The 2011 Medicaid segment MBR is anticipated to be below the 2010 MBR.
  • The 2011 Medicare Advantage and PDP segments’ MBRs each are anticipated to increase relative to the respective 2010 segment MBRs.

All elements of the Company’s outlook exclude the impact of Medicaid premium taxes.

Webcast

A discussion of WellCare’s second quarter 2011 results will be webcast live on Wednesday, August 3, 2011, 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 2.4 million members nationwide as of June 30, 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 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
June 30,

Six Months Ended
June 30,

2011201020112010
Revenues:
Premium $ 1,467,239 $ 1,328,553 $ 2,920,791 $ 2,672,267
Medicaid premium taxes 18,105 9,384 36,969 19,128
Total premium 1,485,344 1,337,937 2,957,760 2,691,395
Investment and other income 2,291 2,712 4,617 5,207
Total revenues 1,487,635 1,340,649 2,962,377 2,696,602
Expenses:
Medical benefits 1,184,294 1,122,791 2,429,335 2,288,763
Selling, general and administrative 164,767 395,386 334,010 558,979
Medicaid premium taxes 18,105 9,384 36,969 19,128
Depreciation and amortization 6,896 5,891 13,370 11,647
Interest 98 33 175 43
Total expenses 1,374,160 1,533,485 2,813,859 2,878,560
Income (loss) before income taxes 113,475 (192,836 ) 148,518 (181,958 )
Income tax expense (benefit) 43,875 (63,965 ) 57,588 (59,505 )
Net income (loss) $ 69,600 $ (128,871 ) $ 90,930 $ (122,453 )
Net income (loss) per common share:
Basic $ 1.63 $ (3.05 ) $ 2.13 $ (2.90 )
Diluted $ 1.61 $ (3.05 ) $ 2.11 $ (2.90 )
Weighted average common shares outstanding:
Basic 42,752,235 42,308,856 42,686,323 42,252,018
Diluted 43,293,926 42,308,856 43,155,051 42,252,018

WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands except per share data)

June 30,
2011

Dec. 31,
2010

ASSETS
Current Assets:
Cash and cash equivalents $ 1,255,995 $ 1,359,548
Investments 201,589 108,788
Premium receivables, net 209,826 127,796
Funds receivable for the benefit of members 10,114 33,182
Income taxes receivable 9,973
Prepaid expenses and other current assets, net 127,030 114,492
Deferred income tax asset 41,627 61,392
Total current assets 1,846,181 1,815,171
Property, equipment and capitalized software, net 78,247 76,825
Goodwill 111,131 111,131
Other intangible assets, net 10,662 11,428
Long-term investments 91,717 62,931
Restricted investments 68,653 107,569
Deferred income tax asset 52,817 58,340
Other assets 3,555 3,898
Total Assets $ 2,262,963 $ 2,247,293
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Medical benefits payable $ 723,671 $ 742,990
Unearned premiums 66,194 67,383
Accounts payable 6,575 8,284
Other accrued expenses and liabilities 154,359 199,033
Current portion of amounts accrued related to investigation resolution 49,023 121,406
Note payable related to investigation resolution 35,000
Other payables to government partners 53,140 46,605
Income taxes payable 20,708
Total current liabilities 1,108,670 1,185,701
Amounts accrued related to investigation resolution 207,222 216,136
Other liabilities 11,112 13,410
Total liabilities 1,327,004 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, 42,675,763 and 42,541,725 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively) 427 425
Paid-in capital 441,285 428,818
Retained earnings 496,042 405,112
Accumulated other comprehensive loss (1,795 ) (2,309 )
Total stockholders’ equity 935,959 832,046
Total Liabilities and Stockholders’ Equity $ 2,262,963 $ 2,247,293

WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)

Six Months Ended
June 30,

20112010
Cash provided by (used in) operating activities:
Net income (loss) $ 90,930 $ (122,453 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization 13,370 11,647
Equity-based compensation expense 9,875 2,479
Incremental tax benefit from equity-based compensation (1,137 )
Deferred taxes, net 25,288 (62,913 )
Changes in operating accounts:
Premium receivables, net (82,030 ) (30,551 )
Prepaid expenses and other current assets, net (12,538 ) (2,147 )
Medical benefits payable (19,319 ) (142,366 )
Unearned premiums (1,189 ) (90,382 )
Accounts payable and other accrued expenses (42,045 ) (43,703 )
Other payables to government partners 6,535 (2,195 )
Amounts accrued related to investigation resolution (46,296 ) 246,621
Income taxes, net 29,540 (455 )
Other, net (2,278 ) (8,196 )
Net cash used in operating activities (31,294 ) (244,614 )
Cash provided by (used in) investing activities:
Purchases of investments (286,184 ) (2,049 )
Proceeds from sale and maturities of investments 165,617 30,603
Purchases of restricted investments (15,789 ) (6,777 )
Proceeds from maturities of restricted investments 54,520 5,729
Additions to property, equipment and capitalized software, net (17,186 ) (6,872 )
Net cash (used in) provided by investing activities (99,022 ) 20,634
Cash provided by (used in) financing activities:
Proceeds from option exercises and other 4,509 989
Incremental tax benefit from equity-based compensation 1,137
Purchase of treasury stock (774 ) (3,291 )
Payments on capital leases (1,177 ) (138 )
Funds received for the benefit of members 23,068 48,553
Net cash provided by financing activities 26,763 46,113
Cash and cash equivalents:
Decrease during period (103,553 ) (177,867 )
Balance at beginning of year 1,359,548 1,158,131
Balance at end of period $ 1,255,995 $ 980,264
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 3,710 $ 10,725
Cash paid for interest $ 173 $
Equipment acquired through capital leases $ $ 8,411
Issuance of note payable related to investigation resolution $ 35,000 $

WELLCARE HEALTH PLANS, INC.
MEMBERSHIP STATISTICS

As of June 30,
20112010
Membership by Program
Medicaid Membership
TANF 1,064,000 1,071,000
S-CHIP 164,000 168,000
SSI and ABD 79,000 78,000
FHP 10,000 11,000

Total Medicaid Membership

1,317,000 1,328,000
Medicare Membership
Medicare Advantage 124,000 115,000
Prescription Drug Plan (stand-alone) 950,000 741,000
Total Medicare Membership 1,074,000 856,000
Total Membership 2,391,000 2,184,000
Medicaid Membership by State
Florida 404,000 420,000
Georgia 559,000 537,000
Other states 354,000 371,000
Total Medicaid Membership 1,317,000 1,328,000

WELLCARE HEALTH PLANS, INC.
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2011201020112010
Premium revenue:

Medicaid:
Florida $ 219,136 $ 222,427 $ 440,801 $ 446,245
Georgia 344,702 328,659 697,814 653,817
Other states 261,442 240,228 523,644 490,541
Medicaid premium taxes 18,105 9,384 36,969 19,128
Total Medicaid 843,385 800,698 1,699,228 1,609,731
Medicare:
Medicare Advantage plans 365,773 329,945 720,418 681,028
Prescription Drug plans 276,186 207,294 538,114 400,636
Total Medicare 641,959 537,239 1,258,532 1,081,664
Total Premium Revenue $ 1,485,344 $ 1,337,937 $ 2,957,760 $ 2,691,395

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 second quarter ended June 30, 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 June 30, 2011Three Months Ended June 30, 2010
GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 1,467,239 $ $ 1,467,239 $ 1,328,553 $ $ 1,328,553
Medicaid premium taxes 18,105 18,105 9,384 9,384
Total premium 1,485,344 1,485,344 1,337,937 1,337,937
Investment and other income 2,291 2,291 2,712 2,712
Total revenues 1,487,635 1,487,635 1,340,649 1,340,649
Expenses:
Medical benefits 1,184,294 1,184,294 1,122,791 1,122,791
Selling, general, and administrative 164,767 (12,109 )

(a)
(b)

152,658 395,386 (256,456 )

(a)
(b)

138,930
Medicaid premium taxes 18,105 18,105 9,384 9,384
Depreciation and amortization 6,896 6,896 5,891 5,891
Interest 98 98 33 33
Total expenses 1,374,160 (12,109 ) 1,362,051 1,533,485 (256,456 ) 1,277,029
Income (loss) before income taxes 113,475 12,109 125,584 (192,836 ) 256,456 63,620
Income tax expense (benefit) 43,875 5,038 48,913 (63,965 ) 88,997 25,032
Net income (loss) $ 69,600 $ 7,071 $ 76,671 $ (128,871 ) $ 167,459 $ 38,588
Weighted average shares:
Basic 42,752,235 42,752,235 42,308,856 42,308,856
Diluted 43,293,926 43,293,926 42,308,856 461,131 42,769,987
Net income (loss) per share:
Basic $ 1.63 $ 0.16 $ 1.79 $ (3.05 ) $ 3.96 $ 0.91
Diluted $ 1.61 $ 0.16 $ 1.77 $ (3.05 ) $ 3.95 $ 0.90
Medical benefits ratio:
Medicaid 78.5 % 78.5 % 87.0 % 87.0 %
Medicare Advantage 81.5 % 81.5 % 78.4 % 78.4 %
Prescription Drug Plans 86.4 % 86.4 % 84.8 % 84.8 %
Aggregate 80.7 % 80.7 % 84.5 % 84.5 %
Administrative expense ratio 11.2 % -0.8 %

(a)
(b)

10.4 % 29.7 % -19.3 %

(a)
(b)

10.4 %
.
Days in claims payable 56 56 54 54

(a)

Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government and Company investigations amounted to $7.9 million and $7.8 million, respectively, in the quarters ended June 30, 2011 and 2010.

(b)

Liability for investigation resolution: Based on the status of the government investigations, the Company recorded expense of $4.2 million and $248.7 million, respectively, in the quarters ended June 30, 2011 and 2010.

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)

Six Months Ended June 30, 2011Six Months Ended June 30, 2010
GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 2,920,791 $ $ 2,920,791 $ 2,672,267 $ $ 2,672,267
Medicaid premium taxes 36,969 36,969 19,128 19,128
Total premium 2,957,760 2,957,760 2,691,395 2,691,395
Investment and other income 4,617 4,617 5,207 5,207
Total revenues 2,962,377 2,962,377 2,696,602 2,696,602
Expenses:
Medical benefits 2,429,335 2,429,335 2,288,763 2,288,763
Selling, general, and administrative 334,010 (22,856 )

(a)
(b)

311,154 558,979 (257,724 )

(a)
(b)

301,255
Medicaid premium taxes 36,969 36,969 19,128 19,128
Depreciation and amortization 13,370 13,370 11,647 11,647
Interest 175 175 43 43
Total expenses 2,813,859 (22,856 ) 2,791,003 2,878,560 (257,724 ) 2,620,836
Income (loss) before income taxes 148,518 22,856 171,374 (181,958 ) 257,724 75,766
Income tax expense (benefit) 57,588 8,922 66,510 (59,505 ) 89,320 29,815
Net income (loss) $ 90,930 $ 13,934 $ 104,864 $ (122,453 ) $ 168,404 $ 45,951
Weighted average shares:
Basic 42,686,323 42,686,323 42,252,018 42,252,018
Diluted 43,155,051 43,155,051 42,252,018 507,320 42,759,338
Net income (loss) per share:
Basic $ 2.13 $ 0.33 $ 2.46 $ (2.90 ) $ 3.99 $ 1.09
Diluted $ 2.11 $ 0.32 $ 2.43 $ (2.90 ) $ 3.97 $ 1.07
Medical benefits ratio:
Medicaid 81.3 % 81.3 % 87.4 % 87.4 %
Medicare Advantage 79.8 % 79.8 % 78.6 % 78.6 %
Prescription Drug Plans 93.4 % 93.4 % 90.8 % 90.8 %
Aggregate 83.2 % 83.2 % 85.6 % 85.6 %
Administrative expense ratio 11.4 % -0.8 %

(a)
(b)

10.6 % 20.9 % -9.6 %

(a)
(b)

11.3 %

(a)

Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government and Company investigations amounted to $16.7 million and $8.6 million, respectively, in the six months ended June 30, 2011 and 2010.

(b)

Liability for investigation resolution: Based on the status of the government investigations, the Company recorded expense of $6.2 million and $249.1 million, respectively, in the six months ended June 30, 2011 and 2010.

WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reconciliation of GAAP Net Cash Used in Operating Activities
to Net Cash Provided by (Used in) Operating Activities
Modified for the Timing of Receipts from, and Payments to, Government Customers
(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 operating 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.

Six Months Ended
June 30,

20112010
Net cash used in operating activities, as reported under GAAP $ (31,294 ) $ (244,614 )
Modifications to eliminate changes in:
Premium receivables, net 82,030 30,551
Unearned premiums 1,189 90,382
Other payables to government partners (6,535 ) 2,195
Net cash provided by (used in) operating activities, modified for the timing of receipts from, and payments to, government customers $ 45,390 $ (121,486 )

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
Related Stocks:
Stock Market XML and JSON Data API provided by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.
Press Release Service provided by PRConnect.
Stock quotes supplied by Six Financial
Postage Rates Bots go here