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First quarter adjusted results were negatively impacted by a decrease in investment and other income, an increase in medical benefits expense associated with Medicare Advantage private fee-for-service plans, and an increase in the Medicaid segment medical benefits ratio ("MBR") due to premium rate increases below the Company's historical experience. These factors were offset in part by the favorable development of 2008 medical benefits payable.
As determined under generally accepted accounting principles ("GAAP"), the Company reported a net loss of $36.9 million, or $0.89 per diluted share, for the first quarter 2009, compared with net income of $1.3 million, or $0.03 per diluted share, for the first quarter 2008.
"We have achieved good progress, despite the challenging environment, as our team has remained focused on serving our members, providers and government clients," said Heath Schiesser, WellCare's president and chief executive officer. "In addition, we look forward to repaying our credit facility in full in two days, and we will continue to invest in our infrastructure and compliance programs."
Historical operating results described in this news release are adjusted to exclude certain selling, general, and administrative ("SG&A") expenses for investigation-related matters that management believes are not indicative of longer-term business operations. Management believes adjusted amounts provide additional, useful information for investors. Where applicable, adjusted results are reconciled to the most directly comparable results determined under GAAP. In addition, please also refer to the schedules in this news release that provide supplemental information reconciling historical results determined under GAAP to historical adjusted results.
Highlights of First Quarter Operations
Membership of 2.46 million as of March 31, 2009, essentially was unchanged from 2.45 million members as of March 31, 2008. Medicaid segment membership increased 10% year-over-year to 1.36 million, driven by growth in all programs and the addition of the Hawaii program for the aged, blind, and disabled ("ABD") on February 1, 2009, offset in part by the withdrawals from the Connecticut program in April 2008 and the Ohio ABD program in August 2008. Medicare Advantage membership was 270,000 on March 31, 2009, an increase of 32% from March 31, 2008. Medicare stand-alone Prescription Drug Plan ("PDP") membership decreased 18% year-over-year.
Premium revenue for the first quarter 2009 increased 10.5% year-over-year to $1.79 billion. The growth is attributable principally to increases in Medicaid and Medicare Advantage premiums, offset in part by a decrease in PDP premiums.
Investment and other income was $3.3 million, a decrease of 79% year-over-year, primarily due to reduced market interest rates, and, to a lesser extent, lower average investment and cash balances. The decrease reduced diluted EPS by approximately $0.19 year-over-year.
Medical benefits expense was $1.55 billion, compared with $1.40 billion for the same period last year. First quarter medical benefits expense was affected by the year-to-year increase in costs associated with Medicare Advantage private fee-for-service plans. This increase reduced adjusted diluted EPS by approximately $0.33 year-over-year. On May 4, 2009, WellCare announced its intention to withdraw in 2010 from private fee-for-service plans. Medical benefits expense also was affected by the favorable development of 2008 medical benefits payable in both the Company's Medicaid and Medicare segments, which amounted to $0.46 per diluted share.
The medical benefits ratio was 86.7% in the first quarter 2009, compared with 86.2% in 2008. The 50 basis point increase in the MBR was driven principally by the Medicaid segment MBR, which increased primarily due to premium rate increases below the Company's historical experience
Adjusted SG&A expense was $215.2 million, or 12.0% of total revenues, compared with $194.8 million, or 11.9% of total revenues, for the same period last year. The increase principally resulted from growth in the Company's operations and investments in infrastructure and compliance programs.
Cash Flow and Financial Condition Highlights
For the first quarter ended March 31, 2009, net cash provided by operations was $54.5 million after adjusting for the timing of receipt of payments from the Company's government clients. Please refer to the supplemental information for a reconciliation of adjusted net cash provided by operations to net cash used in operations of $105.8 million as determined under GAAP.
WellCare has a senior secured credit facility that has a term loan with an outstanding balance of $152.4 million as of March 31, 2009. The Company expects to pay the outstanding balance in full on its due date of May 13, 2009.
Days in claims payable were 51 days as of March 31, 2009, compared with 54 days as of December 31, 2008. Adjusted days in claims payable were 49 days as of March 31, 2008. Please refer to the supplemental information for a reconciliation of March 31, 2008 days, in claims payable to adjusted days in claims payable.
Webcast
A discussion of WellCare's first quarter 2009 results as well as the Company's outlook will be webcast live on Monday, May 11, 2009, beginning at 8:30 a.m. Eastern Time. A replay will be available beginning approximately one hour following the conclusion of the live broadcast. 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 exclusively for government-sponsored healthcare 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 nearly 2.5 million members nationwide as of March 31, 2009. 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. 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, risks regarding WellCare's intentions with respect to the repayment of its senior secured credit facility and its level of debt.
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 2008 Annual Report on Form 10-K, as amended, and other filings made 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.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Three Months Ended
March 31,
2009 2008
Revenues:
Premium $ 1,791,927 $ 1,621,374
Investment and other income 3,334 15,547
Total revenues 1,795,261 1,636,921
Expenses:
Medical benefits 1,552,998 1,397,572
Selling, general, and administrative 271,521 227,736
Depreciation and amortization 5,739 5,151
Interest 2,286 3,304
Total expenses 1,832,544 1,633,763
(Loss) income before income taxes (37,283 ) 3,158
Income tax (benefit) expense (350 ) 1,838
Net (loss) income $ (36,933 ) $ 1,320
Net (loss) income per share:
Basic $ (0.89 ) $ 0.03
Diluted $ (0.89 ) $ 0.03
Weighted average common shares outstanding:
Basic 41,680,319 41,126,580
Diluted 41,680,319 41,944,055
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, Dec. 31,
2009 2008
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,134,580 $ 1,181,922
Investments 73,778 70,112
Premium and other receivables, net 285,401 215,525
Other receivables from government partners, net 51,514 825
Funds receivable for the benefit of members 43,754 86,542
Prepaid expenses and other current assets, net 124,583 129,490
Deferred income taxes 23,921 20,154
Total current assets 1,737,531 1,704,570
Property, equipment and capitalized software, net 66,373 66,588
Goodwill 111,131 111,131
Other intangible assets, net 14,110 14,493
Long term investments 48,404 54,972
Restricted investment assets 176,869 199,339
Deferred tax asset 19,814 23,263
Other assets 27,317 29,105
Total Assets $ 2,201,549 $ 2,203,461
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical benefits payable $ 879,801 $ 766,179
Unearned premiums 18,643 81,197
Accounts payable 14,359 5,138
Other accrued expenses 286,891 338,340
Other payables to government partners 31,012 8,100
Taxes payable 13,047 12,187
Debt 152,381 152,741
Other current liabilities 674 674
Total current liabilities 1,396,808 1,364,556
Other liabilities 30,440 33,076
Total liabilities 1,427,248 1,397,632
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, 42,221,355 422 423
and 42,261,345 shares issued and outstanding at March 31, 2009 and
December 31, 2008, respectively)
Paid-in capital 398,707 390,526
Retained earnings 381,708 418,641
Accumulated other comprehensive expense (6,536 ) (3,761 )
Total stockholders' equity 774,301 805,829
Total Liabilities and Stockholders' Equity $ 2,201,549 $ 2,203,461
WELLCARE HEALTH PLANS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
2009 2008
Cash from (used in) operating activities:
Net (loss) income $ (36,933 ) $ 1,320
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization expense 5,739 5,151
Equity-based compensation expense 9,612 7,607
Deferred taxes, net (318 ) 3,563
Changes in operating accounts:
Premium and other receivables, net (69,876 ) 81,748
Other receivables from government partners, net (50,689 ) (6,018 )
Prepaid expenses and other, net 4,907 (32,652 )
Medical benefits payable 113,622 123,638
Unearned premiums (62,554 ) (17,769 )
Accounts payable 9,221 14,475
Other accrued expenses (51,449 ) (20,851 )
Other payables to government partners 22,912 (74,140 )
Taxes 2,288 20,048
Other (2,236 ) (39,341 )
Net cash (used in) provided by operations (105,754 ) 66,779
Cash from (used in) investing activities:
Purchases of investments (18,756 ) (105,999 )
Proceeds from sales and maturities of investments 19,051 175,803
Purchases of restricted investments (17,088 ) (9,317 )
Proceeds from maturities of restricted assets 39,390 738
Additions to property and equipment, net (5,141 ) (3,876 )
Net cash provided by investing activities 17,456 57,349
Cash from (used in) financing activities:
Purchase of treasury stock and other (1,432 ) (1,530 )
Repayments on debt (400 ) (800 )
Funds received for the benefits of members, net of disbursements 42,788 104,039
Net cash provided by financing activities 40,956 101,709
Cash and cash equivalents:
(Decrease) increase during the period (47,342 ) 225,837
Balance at beginning of year 1,181,922 1,008,409
Balance at end of period $ 1,134,580 $ 1,234,246
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 903 $ 15,772
Cash paid for interest $ 1,790 $ 2,971
WELLCARE HEALTH PLANS, INC.
MEMBERSHIP STATISTICS
As of March 31,
2009 2008
Membership by Program
Medicaid Membership
TANF 1,080,000 947,000
S-CHIP 164,000 187,000
SSI 92,000 71,000
FHP 19,000 28,000
Total Medicaid Membership 1,355,000 1,233,000
Medicare Membership
Medicare Advantage 270,000 204,000
Prescription drug plan (stand-alone) 831,000 1,009,000
Total Medicare Membership 1,101,000 1,213,000
Total Membership 2,456,000 2,446,000
Medicaid Membership by State
Florida 490,000 455,000
Georgia 496,000 456,000
Other states 369,000 322,000
Total Medicaid Membership 1,355,000 1,233,000
WELLCARE HEALTH PLANS, INC.
UNAUDITED SEGMENT AND LINE OF BUSINESS INFORMATION
(Dollars in thousands)
Three Months Ended
March 31,
2009 2008
Premium revenue:
Medicaid:
Florida $ 248,692 $ 241,903
Georgia 324,924 307,116
Other states 235,562 184,616
Total Medicaid 809,178 733,635
Medicare:
Medicare Advantage plans 733,099 545,822
Prescription Drug plans 249,650 341,917
Total Medicare 982,749 887,739
Total premium revenue $ 1,791,927 $ 1,621,374
Medical benefits ratio:
Medicaid segment 85.2 % 83.3 %
Medicare segment 87.8 % 88.6 %
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
Reconciliation of GAAP Statements of Operations to Adjusted
Statements of Operations
(Dollars in thousands except per share amounts)
The Company reports operating results on a non-GAAP basis to
exclude certain expenses that management believes are not
indicative of future business trends and operations. Management
believes adjusted amounts provide additional, useful information
for investors. Following are statements of operations and related
measures for the three months ended March 31, 2009 and 2008, as
determined under GAAP, reconciled to the adjusted statements of
operations and related measures for each of the same periods.
Three Months Ended March 31, 2009 Three Months Ended March 31, 2008
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
Revenues:
Premium $ 1,791,927 $ - $ 1,791,927 $ 1,621,374 $ - $ 1,621,374
Investment and other income 3,334 - 3,334 15,547 - 15,547
Total revenues 1,795,261 - 1,795,261 1,636,921 - 1,636,921
Expenses:
Medical benefits 1,552,998 - 1,552,998 1,397,572 - 1,397,572
Selling, general, and (a)
administrative 271,521 (56,300 ) (b) 215,221 227,736 (32,906 ) (a) 194,830
Depreciation and amortization 5,739 - 5,739 5,151 - 5,151
Interest 2,286 - 2,286 3,304 - 3,304
Total expenses 1,832,544 (56,300 ) 1,776,244 1,633,763 (32,906 ) 1,600,857
Income (loss) before income taxes (37,283 ) 56,300 19,017 3,158 32,906 36,064
Income tax expense (benefit) (350 ) 7,097 6,747 1,838 12,504 14,342
Net income (loss) $ (36,933 ) $ 49,203 $ 12,270 $ 1,320 $ 20,402 $ 21,722
Weighted average shares outstanding:
Basic 41,680,319 - 41,680,319 41,126,580 - 41,126,580
Diluted 41,680,319 194,529 41,874,848 41,944,055 - 41,944,055
Net income per share:
Basic $ (0.89 ) $ 1.18 $ 0.29 $ 0.03 $ 0.50 $ 0.53
Diluted $ (0.89 ) $ 1.18 $ 0.29 $ 0.03 $ 0.49 $ 0.52
Medical benefits ratio 86.7 % 86.7 % 86.2 % 86.2 %
Administrative expense ratio 15.1 % (3.1 %) 12.0 % 13.9 % (2.0 %) 11.9 %
Days in claims payable 51 days 51 days 43 days 6 days (c) 49 days
(a) Investigation-related legal, accounting, employee retention, and
other costs: Administrative expenses associated with the government
and Special Committee investigations amounted to approximately $11.5
million and $32.9 million before income taxes, respectively, in the
three month periods ended March 31, 2009 and 2008.
(b) Liability for investigation-related matters: Based on the status of
the government investigations, the Company recorded a liability of
$44.8 million before and after income taxes in the three month
period ended March 31, 2009.
(c) Days in claims payable: Adjusted medical benefits payable as of
March 31, 2008, is $92.9 million greater than medical benefits
payable determined under GAAP. This adjustment results from the
Company's ability to review substantially complete claims
information that became available between the date of the original
actuarially determined estimate and the filing date of the 2007
10-K. Had WellCare filed its 2007 10-K timely and not been able to
observe substantially complete claims information, medical benefits
payable as of March 31, 2008, would have increased by $92.9 million.
The adjustment to March 31, 2008, medical benefits payable results
in six additional days in claims payable as of that date. Therefore,
adjusted days in claims payable is 49 days as of March 31, 2008.
Premium taxes were $24.5 million and $20.3 million, respectively,
for the three month periods ended March 31, 2009 and 2008.
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
Reconciliation of GAAP Net Cash Provided By Operations
To Adjusted Net Cash Provided By Operations
The Company reports cash provided by operations on a non-GAAP
basis to exclude the changes in unearned premiums, premiums and
other receivables, and other receivables to and payables from
government partners. The Company believes that excluding changes
in unearned premiums, premiums and other receivables, and other
receivables to and payables from government partners is useful
measure of cash flow from operations, as these changes are a
function of the timing of cash receipts from and payments to
federal and state agencies at the end of a period.
Three Months Ended
March 31,
2009 2008
Net cash provided by operating activities, as reported under GAAP $ (105,754 ) $ 66,779
Adjusted for change in:
Unearned premiums 62,554 17,769
Premiums receivable 69,876 (81,748 )
Other receivables from government partners 50,689 6,018
Other payables to government partners (22,912 ) 74,140
Net cash provided by operating activities, as adjusted $ 54,453 $ 82,958
SOURCE: WellCare Health Plans, Inc.
WellCare Health Plans, Inc. Investor relations: Gregg Haddad, 813-865-1284 gregg.haddad@wellcare.com or Media relations: Amy Knapp, 813-290-6208 amy.knapp@wellcare.com
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