TAMPA, Fla.
(July 24, 2014) - WellCare Health Plans, Inc. (NYSE: WCG)
today reported results for the three and six months ended June 30,
2014. As determined under generally accepted accounting principles
(GAAP), the Company reported a second quarter of 2014 net loss of
$7.5 million, or $0.17 per diluted share, compared with net income
of $46.9 million, or $1.07 per diluted share, for the second
quarter of 2013. The adjusted (non-GAAP) net loss for the second
quarter of 2014 was $3.1 million, or $0.07 per diluted share,
compared with adjusted net income of $59.2 million, or $1.35 per
diluted share, for the second quarter of 2013.
In addition, WellCare is updating
its outlook for adjusted net income per diluted share for the year
ending December 31, 2014. At this time, the Company expects
adjusted net income per diluted share to be between $2.20 and
$2.50. The Company's previous guidance for adjusted net income was
for a range between $4.40 and $4.75 per diluted share.
"We are disappointed in the second
quarter results and the revised 2014 outlook," said Dave Gallitano,
WellCare's chairman of the board and CEO. "In assessing our results
and outlook, we believe the focus should be on three issues. The
first issue is the new population and utilization of services for
the Florida Medicaid Managed Medical Assistance (MMA) program
start-up. The second issue is claims reserve development and an
increase in claims reserves to reflect our current estimate. The
third issue is this quarter's impairment and other charges,
primarily related to Easy Choice's continued poor performance.
There are pluses and minuses to other aspects of our performance,
but these would not have led to revised guidance."
Compared with WellCare's 2014
financial guidance as published on May 6, 2014, the primary factors
affecting the change in the Company's full year outlook are as
follows:
-
WellCare's participation in the Florida MMA
program commenced May 1, 2014, with the implementation of three
regions. Three additional regions were implemented in June and one
in July. WellCare's final region will be implemented in August.
Based on the Company's experience to date with MMA members'
utilization of services, medical benefits expense now is forecast
to be higher than previously expected. The increased medical
expense negatively impacted the year 2014 outlook by approximately
$73 to $80 million, or $1.05 to $1.15 per diluted share, as
compared with the prior guidance. Consistent with past
implementation of new programs, WellCare is pursuing improvements
to care management and increased reimbursement in order to enhance
the financial performance of the MMA program.
-
In the second quarter of 2014, the Company
recorded net unfavorable development of medical benefits payable
amounting to $51.4 million, or $0.74 per diluted share, compared
with net unfavorable development of $4.7 million, or $0.07 per
diluted share, in the second quarter of 2013. Of the second quarter
of 2014 reserve development, $29.1 million, or $0.42 per diluted
share, was related to 2013 and prior years' claims reserves. The
unfavorable development resulted primarily from the Medicaid Health
Plans segment. Consistent with the Company's historical practice,
the revised guidance for 2014 does not anticipate reserve
development in future periods. Based on its reserve development
experience over the past few quarters, the Company has refined
certain assumptions associated with establishing claims
reserves.
-
The Company recorded charges of $24.1 million,
or $0.35 per diluted share, in the second quarter of 2014 to
primarily reflect the impairment of certain intangible assets
associated with the Company's 2012 acquisition of Easy Choice
Health Plan, Inc. Easy Choice offers Medicare Advantage plans in
certain counties in California.
-
In the first quarter of 2014, the Company
recorded a bargain purchase gain resulting from its acquisition of
Windsor Health Group, Inc. (Windsor). In the second quarter of
2014, WellCare increased the bargain purchase gain by approximately
$11.1 million, or $0.25 per diluted share, to reflect refined
estimates of the fair value of certain tax benefits acquired as
part of the transaction.
"With these steps, we believe that
the Company has a strong foundation for future performance,"
Gallitano said.
An update of elements comprising
WellCare's financial guidance is provided on page 4 of this news
release.
Company
Operations for the Second Quarter of 2014
The adjusted net loss per diluted
share for the second quarter of 2014 of $0.07 is $1.42 lower
compared with the $1.35 in adjusted net income per diluted share
for same period in 2013. The decrease resulted primarily from
reduced gross margin rates in all three of the Company's segments
and the impairment and other non-operating charges, primarily
related to Easy Choice. These unfavorable variances were offset in
part by higher revenues and a lower administrative expense ratio,
as well as the increase in the Windsor bargain purchase gain.
Membership as of June 30, 2014,
increased 36% to 3.9 million compared with membership as of June
30, 2013. Premium revenue for the second quarter of 2014 increased
35% year over year to $3.1 billion. Medical benefits expense for
the second quarter of 2014 was $2.8 billion, an increase of 41%
from the second quarter of 2013.
Selling, general and
administrative (SG&A) expense as determined under GAAP was $229
million in the second quarter of 2014 compared with $205 million
for the same period in 2013. Adjusted (non-GAAP) SG&A expense
was $220 million in the first quarter of 2014, an increase of 18%
from $186 million for the same period last year. The increase was
driven primarily by increased membership, including membership
associated with acquisitions. The adjusted administrative expense
ratio was 7.1% in the second quarter of 2014 compared with 8.1% for
the same period in 2013. The decrease in the ratio resulted from
improved operating leverage and productivity gains, offset in part
by investments in operational infrastructure and growth
initiatives.
For the second quarter of 2014,
operating expenses related to WellCare's growth initiatives,
including the Florida MMA program implementation, were $0.10 per
diluted share. Expenses for infrastructure focused on quality,
service, and productivity improvements amounted to $0.08 per
diluted share.
Medicaid
Health Plans Segment Operations
The Medicaid Health Plans segment
membership increased by 363,000, or 20% year over year, to 2.2
million members as of June 30, 2014. The increase resulted mainly
from growth in the Florida, Kentucky, and Georgia programs. These
gains were offset partially by the Company's departure from the
Ohio Medicaid program in June 2013. Premium revenue was $1.8
billion for the second quarter of 2014, an increase of 36% year
over year, and was driven by the increase in enrollment and changes
in the geographic and demographic mix of membership, as well as
higher per member per month rates relating to the Florida MMA
membership.
In the second quarter of 2014,
WellCare recorded $21.3 million for the anticipated Affordable Care
Act ("ACA") industry fee expense related to the Medicaid Health
Plans segment. The Company recorded anticipated Medicaid state ACA
industry fee reimbursements of $33.2 million, based on arrangements
reached with seven states. For all seven states, the reimbursement
includes the fee amount plus a gross-up for the non-tax
deductibility of the fee. The second quarter of 2014 reimbursement
was approximately 87% of the expected full reimbursement for the
quarter. The unreimbursed portion decreased the Company's net
income per diluted share by $0.07. WellCare's 2014 guidance
continues to reflect the expectation that state Medicaid programs
will reimburse the Company for the ACA industry fee and the related
impact to the Company's income tax expense.
The Medicaid Health Plans segment
gross margin rate for the second quarter of 2014 was 7.0%, a
decrease of 550 basis points compared with the second quarter of
2013. The decrease resulted mainly from a higher medical benefits
ratio (MBR). The segment MBR of 93.5% for the second quarter of
2014 increased 600 basis points from the second quarter of 2013
primarily due to the higher net unfavorable prior period reserve
development recorded during the second quarter of 2014.
Medicare Health
Plans Segment Operations
The Medicare Health Plans segment
membership as of June 30, 2014, increased by 123,000 year over
year, or 45%, to 395,000 members. Medicare Advantage plans
membership as of June 2014 was 349,000, an increase of 28%, or
77,000 members. Premium revenue for the quarter grew 29% year over
year to $978 million. The growth resulted primarily from organic
sales activity primarily in New York, California, Texas, and
Florida, as well as the Company's Windsor acquisition.
The Medicare Health Plans segment
gross margin rate for the second quarter of 2014 was 10.4%, a
decrease of 310 basis points compared with the second quarter of
2013. The decrease resulted from lower premium rates and the
implementation of the ACA industry fee. The segment MBR of 88.3%
for the second quarter of 2014 increased 180 basis points from the
second quarter of 2013, mainly as a result of reimbursement
pressure.
Medicare
Prescription Drug Plans Segment Operations
The Medicare Prescription Drug
Plans (PDPs) segment membership as of June 30, 2014, increased
546,000 year over year, or 71%, to 1.3 million members. The
increase primarily was due to the outcome of the 2014 bids, as well
as the inclusion of membership from the Windsor acquisition.
Premium revenue for the quarter increased 60% to $297 million,
primarily due to the increase in membership, offset in part by a
lower average premium per member.
The PDP segment gross margin rate
for the second quarter of 2014 was 6.4%, a decrease of 320 basis
points year over year, as a result of the higher segment MBR as
well as the implementation of the ACA industry fee. The segment MBR
for the second quarter of 2014 of 92.6% increased 210 basis points
compared with the second quarter of 2013. The increase resulted
from the outcome of the 2014 bids and higher utilization of branded
medications, particularly by members who enrolled in the Company's
plans beginning in January 2014. Higher utilization and unit costs
for specialty medications also contributed to the increase in the
MBR.
Cash Flow
and Financial Condition
Net cash used in operating
activities was $246.6 million for the six months ended June 30,
2014, compared with net cash used in operating activities of $48.6
million for the six months ended June 30, 2013. The increase in
cash used resulted primarily from the timing of the receipt of
certain premium payments. These payments were received early in
July.
As of June 30, 2014, unregulated
cash and investments were approximately $206.4 million, compared
with $488.0 million as of March 31, 2014. The decrease in
unregulated cash and investments resulted mainly from funding
required for various subsidies and other payments due to the
Company from the Centers for Medicare & Medicaid Services (CMS)
associated with Medicare PDPs and Medicare Advantage plans. These
CMS subsidies and payments include, among others, the catastrophic
reinsurance subsidy and various premium and cost sharing subsidies
for low income members, as well as the CMS risk corridor. Growth in
WellCare's PDP and Medicare Advantage membership and drug unit
costs has resulted in higher subsidy payments compared with prior
years that are due to the Company from CMS.
Medical benefits payable was $1.4
billion as of June 30, 2014, compared with $1.1 billion as of
March 31, 2014. Days in claims payable (DCP) were 44 days as
of June 30, 2014, compared with 39 days as of March 31, 2014,
and 40 days as of June 30, 2013. The increase resulted primarily
from reserves established in conjunction with the recent growth of
WellCare's Medicaid programs, particularly in Florida and
Kentucky.
Financial
Outlook
The Company is updating its
financial outlook for the year ending December 31, 2014:
-
Adjusted net income per diluted share is
expected to be between approximately $2.20 and $2.50. The previous
guidance was for adjusted net income per diluted share of between
$4.40 and $4.75.
-
Premium revenue is expected to be between $12.3
and $12.4 billion. The Company previously anticipated premium
revenue to be between $12.0 and $12.1 billion. The increase results
from improved growth outlooks for all of the Company's
segments.
-
Premium revenue rates of change and MBRs for
each of the Company's segments are anticipated to be as
follows:
Segment |
Premium Revenue Year-over-Year
Change |
MBR |
Medicaid Health Plans |
Increase 31% to 32% |
90.25% to 90.75% |
Medicare Health Plans |
Increase 25% to 26% |
88.25% to 88.75% |
Medicare PDPs |
Increase 48% to 49% |
90.25% to 90.75% |
-
The adjusted administrative expense ratio is
expected to be between 7.8% and 7.9%. Previous guidance was for the
adjusted administrative expense ratio to be between 8.4% and
8.5%.
-
The ACA industry fee expense is expected to be
approximately $137 million.
-
Interest expense is anticipated to be
approximately $39 million.
-
The effective income tax rate is expected to be
between 53% and 54%.
The Company's revised outlook
includes the acquisition of certain assets of Healthfirst Health
Plan of New Jersey, Inc., which closed effective July 1, 2014.
Please refer to the "Basis of Presentation" information in this
news release for information about the determination of the
Company's measurements and ratios.
Complete
News Release
The complete news release
describing WellCare's second quarter 2014 results has been
published on the Company's website at www.wellcare.com.
Webcast
A discussion of WellCare's second
quarter of 2014 results will be webcast live on Friday, July 25,
2014, beginning at 8:00 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.
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, Fla., WellCare offers a variety of health
plans for families, children, and the aged, blind, and disabled, as
well as prescription drug plans. The Company serves approximately
3.9 million members nationwide as of June 30, 2014. 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, WellCare provides certain non-GAAP measurements that
management believes are useful in assessing the Company's
performance. Following is a description of the calculation of
important GAAP and non-GAAP measures used in this news release.
Premium revenue as described in
this news release excludes Medicaid state premium taxes revenue and
Medicaid state reimbursements of the ACA industry fee.
Gross margin is determined as the
difference of premium revenue and the sum of Medicaid state premium
taxes revenue, medical benefits expense and ACA industry fee
expense. The gross margin rate is determined by gross margin
divided by the difference of premium revenue and Medicaid state
premium tax revenue.
The Company measures MBRs
excluding Medicaid state premium taxes and Medicaid state ACA
industry fee reimbursements (non-GAAP), which are equal to medical
benefits expense divided by the difference of premium revenue and
the sum of Medicaid state premium taxes revenue and Medicaid state
ACA industry fee reimbursements revenue. The Company's 2014
Medicaid MBR guidance uses this non-GAAP definition of MBR. MBRs as
determined under GAAP are equal to medical benefits expense divided
by total premium revenues.
Net income and certain other
operating results are reported after adjustment for certain
SG&A expenses related to previously disclosed government
investigations and related litigation and resolution costs.
Management believes these government investigation-related expenses
are not indicative of long-term business operations.
Adjusted SG&A expense
(non-GAAP) is equal to SG&A expense less certain SG&A
expenses related to previously disclosed government investigations
and related litigation and resolution costs.
The adjusted administrative
expense ratio (non-GAAP) is equal to adjusted SG&A expense
divided by the difference of total revenues and the sum of Medicaid
state premium taxes revenue and Medicaid state ACA industry fee
reimbursements revenue. The administrative expense ratio (GAAP) is
equal to SG&A expense divided by total premium revenues.
Please refer to the schedules in
this news release that provide supplemental information that
reconcile results determined under GAAP to non-GAAP results.
The schedules
contained in this news release may contain totals that do not foot
due to rounding.
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. For example, statements regarding the Company's
financial outlook and reimbursement of the ACA industry fee by
state Medicaid programs contain 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,
WellCare's ability to effectively estimate and manage growth,
WellCare's ability to address operational challenges relating to
new business, WellCare's ability to effectively execute and
integrate acquisitions, potential reductions in Medicaid and
Medicare revenue, including due to sequestration, WellCare's
ability to estimate and manage medical benefits expense
effectively, WellCare's ability to negotiate with its state
Medicaid customers regarding reimbursement of the ACA industry fee
and WellCare's ability to comply with the terms of the Corporate
Integrity Agreement. Given the risks and uncertainties inherent in
forward-looking statements, any of WellCare's forward-looking
statements could be incorrect and investors are cautioned not to
place undue reliance on any of our forward-looking statements.
Additional information concerning
these and other important risks and uncertainties can be found in
the Company's 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, 2013, the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2014,
and other filings by WellCare with the SEC, which contain
discussions of WellCare's business and the various factors that may
affect it. Subsequent events and developments may cause actual
results to differ, perhaps materially, from WellCare's
forward-looking statements. WellCare undertakes no duty to update
these forward-looking statements to reflect any future events,
developments, or otherwise.
CONTACTS:
Investor Relations
Gregg Haddad
813-206-3916
gregg.haddad@wellcare.com
Media
Relations
Crystal Warwell Walker
813-206-2697
crystal.walker@wellcare.com
WellCare Health Plans - second
quarter 2014 earnings presentation
WellCare Health Plans - second quarter 2014 results
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: WellCare Health Plans, Inc. via Globenewswire
HUG#1837970
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