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WellCare Reports Fourth Quarter And Year 2012 Results

Additional information concerning these and other important risks and uncertainties can be found in our filings with the U.S. Securities and Exchange Commission (“the SEC”), included 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, 2012, we expect to file later today and other subsequent filings by WellCare with the SEC, 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)

   

For the Three Months Ended December 31,

For the Years Ended December 31,

2012   2011 2012   2011
Revenues:
Premium $ 1,964,970 $ 1,578,119 $ 7,318,053 $ 6,021,967
Medicaid premium taxes   21,116   20,325   82,164   76,163
Total premium 1,986,086 1,598,444 7,400,217 6,098,130
Investment and other income   2,043   1,688   8,815   8,738
Total revenues 1,988,129 1,600,132 7,409,032 6,106,868
 
Expenses:
Medical benefits 1,686,523 1,267,820 6,303,934 4,947,967
Selling, general and administrative 193,349 183,495 690,842 642,107
Medicaid premium taxes 21,116 20,325 82,164 76,163
Depreciation and amortization 8,827 6,632 31,531 26,454
Interest   959   2,687   4,122   6,510
Total expenses   1,910,774   1,480,959   7,112,593   5,699,201
 
Income from operations 77,355 119,173 296,439 407,667
Gain on repurchase of subordinated notes     10,807     10,807
Income before income taxes   77,355   129,980   296,439   418,474
Income tax expense   28,588   44,919   111,711   154,228
Net income $ 48,767 $ 85,061 $ 184,728 $ 264,246
 
Net income per common share:
Basic $ 1.13 $ 1.98 $ 4.29 $ 6.17
Diluted $ 1.11 $ 1.96 $ 4.22 $ 6.10
 
Weighted average common shares outstanding:
Basic 43,205,782 42,985,406 43,104,216 42,817,466
Diluted 43,823,873 43,461,343 43,826,285 43,328,756
 
 
WELLCARE HEALTH PLANS, INC.
CONSOLIDATED BALANCE SHEETS

(Unaudited; dollars in thousands except share data)

   

Dec. 31, 2012

Dec. 31, 2011

ASSETS
Current Assets:
Cash and cash equivalents $ 1,100,495 $ 1,325,098
Investments 220,344 198,569
Premiums receivable, net 387,294 217,509
Pharmacy rebates receivable, net 126,832 109,933
Funds receivable for the benefit of members 126,646 162,745
Income taxes receivable 15,615 20,655
Prepaid expenses and other current assets, net 96,276 63,053
Deferred income tax asset   27,208     22,332  
Total current assets 2,100,710 2,119,894
Property, equipment and capitalized software, net 131,518 98,238
Goodwill 223,839 111,131
Other intangible assets, net 53,028 9,896
Long-term investments 96,700 83,019
Restricted investments 67,364 60,663
Other assets   2,357     5,270  
Total Assets $ 2,675,516   $ 2,488,111  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Medical benefits payable $ 732,994 $ 744,821
Unearned premiums 146 164
Accounts payable 18,582 3,294
Other accrued expenses and liabilities 221,055 215,817
Current portion of amount payable related to investigation resolution 37,305 49,557
Current portion of long-term debt 15,000 11,250
Other payables to government partners   88,344     98,237  
Total current liabilities 1,113,426 1,123,140
Deferred income tax liability 42,058 1,026
Amount payable related to investigation resolution 68,171 101,705
Long-term debt 120,000 135,000
Other liabilities   8,697     10,394  
Total liabilities 1,352,352 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, 43,212,375 and 42,848,798 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively)

432 429
Paid-in capital 469,434 448,820
Retained earnings 854,086 669,358
Accumulated other comprehensive loss   (788 )   (1,761 )
Total stockholders’ equity   1,323,164     1,116,846  
Total Liabilities and Stockholders’ Equity $ 2,675,516   $ 2,488,111  
 
 
WELLCARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; dollars in thousands)

 
For the Years Ended

December 31,

2012   2011
Cash (used in) provided by operating activities:
Net income $ 184,728 $ 264,246

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

Depreciation and amortization 31,531 26,454
Equity-based compensation expense 14,886 19,530
Incremental tax benefit from equity-based compensation (3,763 ) (2,778 )
Gain on repurchase of subordinated notes (10,807 )
Deferred taxes, net 18,791 98,170
Provision for doubtful receivables 16,535 11,080
Changes in operating accounts, net of effects from acquisitions:
Premiums receivable, net (180,262 ) (96,770 )
Pharmacy rebates receivable, net (12,441 ) (24,746 )
Prepaid expenses and other current assets, net (28,969 ) (37,270 )
Medical benefits payable (38,588 ) 1,831
Unearned premiums (18 ) (67,219 )
Accounts payables and other accrued expenses 14,922 14,018
Other payables to government partners (12,156 ) 51,632
Amount payable related to investigation resolution (45,786 ) (73,780 )
Income taxes receivable/payable, net 7,841 (12,809 )
Other, net   2,010     1,217  
Net cash (used in) provided by operating activities (30,739 ) 161,999
 
Cash used in investing activities:
Acquisitions, net of cash acquired (126,571 )
Purchases of investments (465,629 ) (386,186 )
Proceeds from sale and maturities of investments 436,839 277,486
Purchases of restricted investments (36,660 ) (34,828 )
Proceeds from maturities of restricted investments 30,452 81,524
Additions to property, equipment and capitalized software, net   (61,268 )   (49,576 )
Net cash used in investing activities (222,837 ) (111,580 )
 
Cash provided by (used in) financing activities:
Proceeds from debt, net of issuance costs (585 ) 147,473
Proceeds from option exercises and other 9,407 6,287
Incremental tax benefit from equity-based compensation 3,763 2,778
Purchase of treasury stock (6,477 ) (3,684 )
Payments on debt (11,250 ) (3,750 )
Repurchase of subordinated notes (101,693 )
Payments on capital leases (2,219 ) (2,717 )
Funds receivable for the benefit of members   36,334     (129,563 )
Net cash provided by (used in) financing activities   28,973     (84,869 )
 
Decrease in cash and cash equivalents (224,603 ) (34,450 )
Balance at beginning of period   1,325,098     1,359,548  
Balance at end of period $ 1,100,495   $ 1,325,098  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 101,023 $ 69,846
Cash paid for interest $ 3,612   $ 5,920  
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Non-cash issuance of subordinated notes $   $ 112,500  
Non-cash additions to property, equipment, and capitalized software $ 3,278   $ 2,449  
 
         
WELLCARE HEALTH PLANS, INC.
MEMBERSHIP STATISTICS

(Unaudited)

 
As of December 31,
2012   2011
Membership by Program
Medicaid Membership
TANF 1,212,000 1,159,000
CHIP 207,000 162,000
SSI, ABD and Other 146,000 115,000
FHP and Georgia Family Planning 22,000 15,000
Total Medicaid Membership 1,587,000 1,451,000
 
Medicare Membership
Medicare Advantage 213,000 135,000
Prescription Drug Plan 869,000 976,000
Total Medicare Membership 1,082,000 1,111,000
Total Membership 2,669,000 2,562,000
 
Medicaid Membership by State
Georgia 570,000 562,000
Florida 454,000 404,000
Kentucky 207,000 129,000
Other 356,000 356,000
Total Medicaid Membership 1,587,000 1,451,000
 
   
WELLCARE HEALTH PLANS, INC.
SEGMENT INFORMATION

(Unaudited; dollars in thousands)

 

For the Three Months Ended December 31,

For the Years Ended December 31,

2012   2011 2012   2011
Premium revenue:
Medicaid:
Georgia $ 370,395 $ 364,697 $ 1,460,781 $ 1,449,263
Florida 257,476 215,887 970,900 881,081
Kentucky 225,706 86,245 723,739 86,245
Other states 327,529 295,520 1,233,648 1,088,859
Medicaid premium taxes   21,116   20,325   82,164   76,163
Total Medicaid 1,202,222 982,674 4,471,232 3,581,611
 
Medicare:
Medicare Advantage plans 571,873 382,735 1,936,378 1,479,750
Prescription Drug plans   211,991   233,035   992,607   1,036,769
Total Medicare   783,864   615,770   2,928,985   2,516,519
Total Premium Revenue $ 1,986,086 $ 1,598,444 $ 7,400,217 $ 6,098,130
 
Medical benefits ratios:
Medicaid, including premium taxes 87.1% 82.0% 87.0% 80.7%
Medicaid 88.7% 83.8% 88.7% 82.4%
Medicare Advantage 86.9% 79.8% 84.2% 81.0%
Prescription Drug Plans 66.9% 67.1% 78.7% 82.9%
 
   
WELLCARE HEALTH PLANS, INC.
SUPPLEMENTAL INFORMATION
 
Reconciliation of Certain GAAP Financial Information
Associated with Government Investigation-Related Matters

(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 is certain financial information for the fourth quarter and year ended December 31, 2012 and 2011, as determined under GAAP, reconciled to the adjusted financial information for the same periods.

 
For the Three Months Ended

December 31, 2012

For the Three Months Ended

December 31, 2011

GAAP   Adjustments  

Adjusted (Non-GAAP)

GAAP   Adjustments  

Adjusted

(Non-GAAP)

Selling, general, and administrative expense $ 193,349 $ (14,123 )  

(a)

(b)

$ 179,226 $ 183,495 $ (16,337 )  

(a)

(b)

$ 167,158
Interest expense 959 959 2,687 (1,441 )

(c)

1,246
Gain on repurchase of subordinated notes 10,807 (10,807 )

(e)

Income tax expense (benefit) 28,588 5,245

(d)

33,833 44,919 (1,372 )

(d)

43,547
Net income 48,767 8,878 57,645 85,061 8,343 93,404
 
Net income per share:
Basic $ 1.13 $ 0.21 $ 1.33 $ 1.98 $ 0.19 $ 2.17
Diluted $ 1.11 $ 0.21 $ 1.32 $ 1.96 $ 0.19 $ 2.15
 
For the Year Ended

December 31, 2012

For the Year Ended

December 31, 2011

GAAP Adjustments

Adjusted (Non-GAAP)

GAAP Adjustments

Adjusted

(Non-GAAP)

Selling, general, and administrative expense $ 690,842 $ (51,580 )

(a)

(b)

$ 639,262 $ 642,107 $ (47,007 )

(a)

(b)

$ 595,100
Interest expense 4,122 4,122 6,510 (4,254 )

(c)

2,256
Gain on repurchase of subordinated notes 10,807 (10,807 )

(e)

Income tax expense 111,711 20,697

(d)

132,408 154,228 13,279

(d)

167,507
Net income 184,728 30,883 215,611 264,246 27,175 291,421
 
Net income per share:
Basic $ 4.29 $ 0.71 $ 5.00 $ 6.17 $ 0.64 $ 6.81
Diluted $ 4.22 $ 0.70 $ 4.92 $ 6.10 $ 0.63 $ 6.73

(a)

Investigation-related legal, accounting, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $13.3 million and $15.4 million, respectively, in the three months ended December 31, 2012 and 2011, and $47.7 million and $39.3 million, respectively, for the year ended December 31, 2012 and 2011.

(b)

Liability for government investigation-related litigation resolution: Based on the status of government investigation-related litigation, the Company recorded expense of $0.8 million and $0.9 million, respectively, in the three months ended December 31, 2012 and 2011, and $3.8 million and $7.7 million, respectively, for the year ended December 31, 2012 and 2011.

(c)

Investigation-related interest expense: The Company’s tradable unsecured subordinated notes issued in connection with the final resolution of the settlement of the securities class action that was associated with the government investigations incurred $1.4 million and $4.3 million, respectively, in interest expense for the three months and year ended December 31, 2011.

(d)

Income tax expense: Had the Company not recorded the government investigation related items described above, the Company estimates that its income tax expense would be increased by $5.2 million in the three months ended December 31, 2012, with an income tax benefit recognized of $1.4 million for the three months ended December 31, 2011, and $20.7 million and $13.3 million, respectively, for the year ended December 31, 2012 and 2011, based on the effective income tax rates applicable to adjusted (non-GAAP) results.

(e)

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.
SUPPLEMENTAL INFORMATION (Continued)
 
Reconciliation of Administrative Expense Ratios

(Unaudited; dollars in thousands)

 

The Company reports administrative expense ratio on an adjusted or non-GAAP basis modified to reflect the impact of Medicaid premium taxes and expenses associated with government investigations and related litigation on this ratio.

   

For the Three Months Ended December 31,

For the Years Ended December 31,

2012   2011 2012   2011
Total premium revenue:
As determined under GAAP $ 1,986,086 $ 1,598,444 $ 7,400,217 $ 6,098,130
Medicaid premium taxes   (21,116 )   (20,325 )   (82,164 )   (76,163 )

Total premium revenue net of Medicaid premium taxes (Non-GAAP)

$ 1,964,970   $ 1,578,119   $ 7,318,053   $ 6,021,967  
 
Administrative expense ratio:
As determined under GAAP 9.7 % 11.5 % 9.3 % 10.5 %
Impact of Medicaid premium taxes   0.1 %   0.1 %   0.1 %   0.1 %
Excluding Medicaid premium taxes 9.8 % 11.6 % 9.4 % 10.6 %

Selling, general and administrative expense adjustments

  (0.7 %)   (1.0 %)   (0.7 %)   (0.7 %)
Adjusted (Non-GAAP)   9.1 %   10.6 %   8.7 %   9.9 %
 
 
Reconciliation of GAAP Net Cash Used in or Provided by Operating Activities
to Net Cash Provided by Operating Activities,
Modified for the Timing of Receipts from, and Payments to, Government Customers

(Unaudited; dollars in thousands)

 

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

 
For the Years Ended

December 31,

2012   2011

Net cash (used in) provided by operating activities, as reported under GAAP

$ (30,739 ) $ 161,999
Modifications to eliminate changes in:
Premiums receivable 180,262 96,770
Provision for doubtful receivables (16,535 ) (11,080 )
Unearned premiums 18 67,219
Other payables to government customers   12,156     (51,632 )

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

$ 145,162   $ 263,276  
 
 
WELLCARE HEALTH PLANS, INC.
SUPPLEMENTAL INFORMATION (Continued)
 
Kentucky Medicaid Program Reconciliation of GAAP MBR to MBR Recast to Reflect
Development of Medical Benefits Payable in the Period in which the Services were Provided

(Unaudited)

 

The Company reports Kentucky Medicaid Program MBRs on a non-GAAP basis modified to reflect the favorable or unfavorable development of medical benefits payable in the period in which the expense was incurred. The Company believes that the recast MBRs are useful measures for investors, as the recast MBRs may better reflect changes in the Company’s Kentucky Medicaid program performance over time.

 
Three Months Ended
Dec. 31,

2011

  March 31,

2012

  June 30,

2012

  Sept. 30,

2012

 

Dec. 31,

2012

MBR as reported under GAAP 106.3% 105.9% 109.5% 106.2% 100.3%

Development reflected in period in which services were provided

9.6% 9.7% (6.8)% (2.2)% (3.7%)
MBR as recast 115.9% 115.6% 102.7% 104.0% 96.6%




Stock quotes in this article: WCG 

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