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WellCare Reports Annual And Fourth Quarter 2011 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 December 31,

Year Ended December 31,

2011   2010 2011   2010
Revenues:
Premium $ 1,578,119 $ 1,334,625 $ 6,021,967 $ 5,373,816
Medicaid premium taxes   20,325   18,296   76,163   56,374  
Total premium 1,598,444 1,352,921 6,098,130 5,430,190
Investment and other income   1,688   2,529   8,738   10,035  
Total revenues   1,600,132   1,355,450   6,106,868   5,440,225  
 
Expenses:
Medical benefits 1,245,728 1,100,761 4,872,071 4,536,631
Selling, general and administrative 205,587 194,203 718,003 895,894
Medicaid premium taxes 20,325 18,296 76,163 56,374
Depreciation and amortization 6,632 6,176 26,454 23,946
Interest   2,687   69   6,510   229  
Total expenses   1,480,959   1,319,505   5,699,201   5,513,074  
Income (loss) from operations 119,173 35,945 407,667 (72,849 )
Gain on repurchase of subordinated notes   10,807     10,807    
Income (loss) before income taxes 129,980 35,945 418,474 (72,849 )
Income tax expense (benefit)   44,919   9,808   154,228   (19,449 )
Net income (loss) $ 85,061 $ 26,137 $ 264,246 $ (53,400 )
 
Net income (loss) per common share:
Basic $ 1.98 $ 0.62 $ 6.17 $ (1.26 )
Diluted $ 1.96 $ 0.61 $ 6.10 $ (1.26 )
 
Weighted average common shares outstanding:
Basic 42,985,406 42,492,250 42,817,466 42,365,061
Diluted 43,461,343 42,898,465 43,328,756 42,365,061
 
   
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; Dollars in thousands except per share data)

 
As of December 31,
2011 2010
ASSETS
Current Assets:
Cash and cash equivalents $ 1,325,098 $ 1,359,548
Investments 198,569 108,788
Premium receivables, net 217,509 127,796
Funds receivable for the benefit of members 162,745 33,182
Income taxes receivable 20,655 9,973
Prepaid expenses and other current assets, net 172,986 114,492
Deferred income tax asset   22,332     61,392  
Total current assets 2,119,894 1,815,171
Property, equipment and capitalized software, net 98,238 76,825
Goodwill 111,131 111,131
Other intangible assets, net 9,896 11,428
Long-term investments 83,019 62,931
Restricted investments 60,663 107,569
Deferred income tax asset 58,340
Other assets   5,270     3,898  
Total Assets $ 2,488,111   $ 2,247,293  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Medical benefits payable $ 744,821 $ 742,990
Unearned premiums 164 67,383
Accounts payable 3,294 8,284
Other accrued expenses and liabilities 215,817 199,033
Current portion of amounts accrued related to investigation resolution 49,557 121,406
Current portion of long-term debt 11,250
Other payables to government partners   98,237     46,605  
Total current liabilities 1,123,140 1,185,701
Deferred income tax liability 1,026
Amounts accrued related to investigation resolution 101,705 216,136
Long-term debt 135,000
Other liabilities   10,394     13,410  
Total liabilities   1,371,265     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, 42,848,798 and 42,541,725 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively) 429 425
Paid-in capital 448,820 428,818
Retained earnings 669,358 405,112
Accumulated other comprehensive loss   (1,761 )   (2,309 )
Total stockholders’ equity   1,116,846     832,046  
Total Liabilities and Stockholders’ Equity $ 2,488,111   $ 2,247,293  
 
 
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in thousands)

 

Year Ended December 31,

2011   2010
Cash from operating activities:
Net income (loss) $ 264,246 $ (53,400 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 26,454 23,946
Equity-based compensation expense 19,530 14,801
Incremental tax benefit from equity-based compensation (2,778 )
Gain on repurchase of subordinated notes (10,807 )
Deferred taxes, net 98,170 (61,204 )
Provision for doubtful receivables 11,080 (6,889 )
Changes in operating accounts:
Premium receivables, net (96,770 ) 158,124
Prepaid expenses and other current assets, net (62,016 ) (3,634 )
Medical benefits payable 1,831 (59,525 )
Unearned premiums (67,219 ) (23,113 )
Accounts payable and other accrued expenses 14,018 752
Other payables to government partners 51,632 8,458
Amounts accrued related to investigation resolution (73,780 ) 256,207
Income taxes receivable/payable, net (12,809 ) (21,134 )
Other, net   1,217     (10,332 )
Net cash provided by operating activities   161,999     223,057  
Cash used in investing activities:
Purchases of investments (386,186 ) (219,961 )
Proceeds from sale and maturities of investments 277,486 163,993
Purchases of restricted investments (34,828 ) (21,820 )
Proceeds from maturities of restricted investments 81,524 44,800
Additions to property, equipment and capitalized software, net   (49,576 )   (27,516 )
Net cash used in investing activities   (111,580 )   (60,504 )
Cash (used in) provided by financing activities:
Proceeds from option exercises and other 6,287 1,443
Incremental tax benefit from equity-based compensation 2,778
Purchase of treasury stock (3,684 ) (6,237 )
Proceeds from debt, net of issuance costs 147,473
Repurchase of subordinated notes (101,693 )
Payments on debt (3,750 )
Payments on capital leases (2,717 ) (1,011 )
Funds received for the benefit of members   (129,563 )   44,669  
Net cash (used in) provided by financing activities   (84,869 )   38,864  
Cash and cash equivalents:
(Decrease) increase during period (34,450 ) 201,417
Balance at beginning of year   1,359,548     1,158,131  
Balance at end of year $ 1,325,098   $ 1,359,548  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 69,846   $ 75,962  
Cash paid for interest $ 5,920   $ 228  
 
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Non-cash issuance of subordinated notes $ 112,500   $  
Non-cash additions to property, equipment and capitalized software $ 2,449   $ 2,354  
Equipment acquired through capital leases $   $ 8,868  
 
 
WELLCARE HEALTH PLANS, INC.
MEMBERSHIP STATISTICS

(Unaudited)

 
As of December 31,
2011   2010
Membership by Program
Medicaid Membership
TANF 1,159,000 1,085,000
CHIP 162,000 168,000
SSI and ABD 115,000 77,000
FHP 15,000 10,000
Total Medicaid Membership 1,451,000 1,340,000
 
Medicare Membership
Medicare Advantage 135,000 116,000
Prescription Drug Plan (stand-alone) 976,000 768,000
Total Medicare Membership 1,111,000 884,000

Total Membership

2,562,000 2,224,000
 
Medicaid Membership by State
Florida 404,000 415,000
Georgia 562,000 566,000
Other states 485,000 359,000
Total Medicaid Membership 1,451,000 1,340,000
 
   
WELLCARE HEALTH PLANS, INC.
SEGMENT INFORMATION

(Unaudited; Dollars in thousands)

 

Three Months Ended December 31,

Year Ended December 31,

2011   2010 2011   2010
Premium revenue:
Medicaid:
Florida $ 215,888 $ 220,052 $ 881,081 $ 889,705
Georgia 364,697 352,847 1,449,263 1,357,354
Other states 381,764 252,932 1,175,104 1,005,318
Medicaid premium taxes   20,325   18,296   76,163   56,374
Total Medicaid   982,674   844,127   3,581,611   3,308,751
 
Medicare:
Medicare Advantage plans 382,735 323,723 1,479,750 1,336,089
Prescription Drug plans   233,035   185,071   1,036,769   785,350
Total Medicare   615,770   508,794   2,516,519   2,121,439
Total Premium Revenue $ 1,598,444 $ 1,352,921 $ 6,098,130 $ 5,430,190
 
Medical benefits ratio:
Medicaid 82.1% 86.5% 80.9% 87.5%
Medicare Advantage 78.6% 79.8% 79.8% 78.9%
Prescription Drug Plans 66.4% 69.4% 82.4% 80.9%
Aggregate 78.9% 82.5% 80.9% 84.4%
 
   
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 fourth quarter and year ended December 31, 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 December 31, 2011 Three Months Ended December 31, 2010
GAAP   Adjustments   Adjusted GAAP   Adjustments   Adjusted
Revenues:
Premium $ 1,578,119 $ $ 1,578,119 $ 1,334,625 $ $ 1,334,625
Medicaid premium taxes   20,325         20,325     18,296         18,296  
Total premium 1,598,444 1,598,444 1,352,921 1,352,921
Investment and other income   1,688         1,688     2,529         2,529  
Total revenues   1,600,132         1,600,132     1,355,450         1,355,450  
 
Expenses:
Medical benefits 1,245,728 1,245,728 1,100,761 1,100,761
Selling, general, and administrative 205,587 (16,337 )

(a)

(b)

189,250 194,203 (15,557 )

(a)

(b)

178,646
Medicaid premium taxes 20,325 20,325 18,296 18,296
Depreciation and amortization 6,632 6,632 6,176 6,176
Interest   2,687     (1,441 )

(c)

  1,246     69         69  
Total expenses   1,480,959     (17,778 )   1,463,181     1,319,505     (15,557 )   1,303,948  
 
Income from operations 119,173 17,778 136,951 35,945 15,557 51,502
Gain on repurchase of subordinated notes   10,807     (10,807 )

(d)

               
Income before income taxes 129,980 6,971 136,951 35,945 15,557 51,502
Income tax expense (benefit)   44,919     (1,372 )   43,547     9,808     11,287     21,095  
Net income $ 85,061   $ 8,343   $ 93,404   $ 26,137   $ 4,270   $ 30,407  
 
Weighted average shares:
Basic 42,985,406 42,985,406 42,492,250 42,492,250
Diluted 43,461,343 43,461,343 42,898,465 42,898,465
 
Net income per share:
Basic $ 1.98 $ 0.19 $ 2.17 $ 0.62 $ 0.10 $ 0.72
Diluted $ 1.96 $ 0.19 $ 2.15 $ 0.61 $ 0.10 $ 0.71
 
Administrative expense ratio 13.0 % -1.0 %

(a)

(b)

12.0 % 14.5 % -1.1 %

(a)

(b)

13.4 %
 

(a)

Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $15.4 million and, net of D&O insurance recoveries, $9.1 million, respectively, in the quarters ended December 31, 2011 and 2010.

(b)

Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $0.9 million and $6.5 million, respectively, in the quarters ended December 31, 2011 and 2010.

(c)

Investigation and related litigation interest expense: The Company’s tradable unsecured subordinated notes that were issued in connection with the final resolution of the securities class action settlement incurred $1.4 million of interest expense in the quarter ended December 31, 2011.

(d)

Gain on repurchase of subordinated notes: In December 2011, the Company repurchased all of its outstanding tradable unsecured subordinated notes at a purchase price equal to 90% of the principal amount, which resulted in a gain of $10.8 million in the quarter ended December 31, 2011.

 
   
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)

 
Year Ended December 31, 2011 Year Ended December 31, 2010
GAAP   Adjustments   Adjusted GAAP   Adjustments   Adjusted
Revenues:
Premium $ 6,021,967 $ $ 6,021,967 $ 5,373,816 $ $ 5,373,816
Medicaid premium taxes   76,163         76,163     56,374         56,374  
Total premium 6,098,130 6,098,130 5,430,190 5,430,190
Investment and other income   8,738         8,738     10,035         10,035  
Total revenues   6,106,868         6,106,868     5,440,225         5,440,225  
 
Expenses:
Medical benefits 4,872,071 4,872,071 4,536,631 4,536,631
Selling, general, and administrative 718,003 (47,007 )

(a)

(b)

670,996 895,894 (265,938 )

(a)

(b)

629,956
Medicaid premium taxes 76,163 76,163 56,374 56,374
Depreciation and amortization 26,454 26,454 23,946 23,946
Interest   6,510     (4,254 )

(c)

  2,256     229         229  
Total expenses   5,699,201     (51,261 )   5,647,940     5,513,074     (265,938 )   5,247,136  
 
Income (loss) from operations 407,667 51,261 458,928 (72,849 ) 265,938 193,089
Gain on repurchase of subordinated notes   10,807     (10,807 )

(d)

               
Income (loss) before

income taxes

418,474 40,454 458,928 (72,849 ) 265,938 193,089
Income tax expense (benefit)   154,228     13,279     167,507     (19,449 )   98,325     78,876  
Net income (loss) $ 264,246   $ 27,175   $ 291,421   $ (53,400 ) $ 167,613   $ 114,213  
 
Weighted average shares:
Basic 42,817,466 42,817,466 42,365,061 42,365,061
Diluted 43,328,756 43,328,756 42,365,061 428,989 42,794,050
 
Net income (loss) per share:
Basic $ 6.17 $ 0.64 $ 6.81 $ (1.26 ) $ 3.96 $ 2.70
Diluted $ 6.10 $ 0.63 $ 6.73 $ (1.26 ) $ 3.93 $ 2.67
 
Administrative expense ratio 11.9 % -0.8 %

(a)

(b)

11.1 % 16.6 % -4.9 %

(a)

(b)

11.7 %
 

(a)

Investigation-related legal, accounting, employee retention, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $39.3 million and, net of D&O insurance recoveries, $7.2 million, respectively, in the year ended December 31, 2011 and 2010.

(b)

Liability for government investigation resolution and related litigation: Based on the status of these matters, the Company recorded expense of $7.7 million and $258.7 million, respectively, in the year ended December 31, 2011 and 2010.

(c)

Investigation and related litigation interest expense: The Company’s tradable unsecured subordinated notes that were issued in connection with the final resolution of the securities class action settlement incurred $4.3 million of interest expense in the year ended December 31, 2011.

(d)

Gain on repurchase of subordinated notes: In December 2011, the Company repurchased all of its outstanding tradable unsecured subordinated notes at a purchase price equal to 90% of the principal amount, which resulted in a gain of $10.8 million in the year ended December 31, 2011.

 
 
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
 
Reconciliation of GAAP Net Cash Provided by Operating Activities
to Net Cash Provided by Operating Activities,
Modified for the Timing of Receipts from, and Payments to, Government Customers

(Dollars in thousands)

 

The Company reports cash provided by 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 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.

 

Year Ended December 31,

2011   2010
Net cash provided by operating activities, as reported under GAAP $ 161,999 $ 223,057
Modifications to eliminate changes in:
Premium receivables, net 96,770 (158,124 )
Other receivables from government partners, net 5,181 (6,728 )
Unearned premiums 67,219 23,113
Other payables to government partners   (51,632 )   (8,458 )

Net cash provided by operating activities, modified for the timing of receipts from and payments to government customers

$ 279,537   $ 72,860  




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