Press Release

WellCare Reports Third Quarter 2018 Results

COMPANY INCREASES FULL-YEAR 2018 GUIDANCE

Company Release - 10/30/2018 6:00 AM ET

TAMPA, Fla., Oct. 30, 2018 /PRNewswire/ -- WellCare Health Plans, Inc. (NYSE: WCG) ("WellCare") today reported results for the quarter ended September 30, 2018. As determined under generally accepted accounting principles (GAAP), net income for the third quarter of 2018 was $130.6 million, or $2.70 per diluted share. Adjusted net income for the third quarter of 2018 was $161.2 million, or $3.33 per diluted share.

(PRNewsfoto/WellCare Health Plans, Inc.)

"We delivered strong operating and financial results in the third quarter," said Ken Burdick, WellCare's chief executive officer. "With the recent closing of the Meridian acquisition and our Medicaid contract wins in Florida and Arizona, we are excited about our substantial growth outlook as we move through the end of the year and into 2019."

"As a result of our performance, we are revising our full-year 2018 adjusted earnings per diluted share guidance to a range of $10.90 to $11.00," Burdick continued.                                                                                                  


Key Metrics

3Q18

3Q17

Earnings per diluted share (EPS) (GAAP)

$2.70

$3.82

Adjusted EPS(1)

$3.33

$4.08

Net income margin (GAAP)

2.6%

3.9%

Adjusted net income margin(1)

3.3%

4.2%




Total Revenue (GAAP) ($ millions)

$5,058.1

$4,402.9

Adjusted Total Revenue(1) ($ millions)

$4,955.1

$4,373.4




Revenue ($ millions):



Medicaid Health Plans (GAAP)

$3,223.3

$2,722.7

Adjusted Medicaid Health Plans(1)

$3,120.3

$2,693.2

Medicare Health Plans

$1,582.0

$1,466.3

Medicare Prescription Drug Plans (PDP)

$182.3

$201.9




Segment Medical Benefits Ratios (MBR):



Medicaid Health Plans (GAAP)

84.9%

86.0%

Adjusted Medicaid Health Plans(1)

87.8%

86.9%

Medicare Health Plans

84.8%

85.7%

Medicare Prescription Drug Plans (PDP)

63.1%

70.7%




Selling, General and Administrative (SG&A) Ratio (GAAP)

8.6%

8.5%

Adjusted SG&A Ratio(1)

8.5%

8.3%


(1) Refer to the Basis of Presentation for a discussion of these adjusted (non-GAAP) financial measures

Key Highlights

  • GAAP and adjusted total revenue of $5.1 billion and $5.0 billion for the third quarter of 2018 increased 14.9 percent and 13.3 percent, respectively, compared with the third quarter of 2017.
  • GAAP and adjusted Medicaid Health Plans revenue of $3.2 billion and $3.1 billion for the third quarter of 2018 increased 18.4 percent and 15.9 percent, respectively, compared with the third quarter of 2017.
  • In August 2018, WellCare raised approximately $2.1 billion in gross proceeds via common stock and debt offerings in order to fund the acquisition of Meridian Health Plan of Michigan, Inc., Meridian Health Plan of Illinois, Inc. and MeridianRx, a pharmacy benefit manager (collectively "Meridian").
  • Effective September 1, 2018, WellCare closed the previously announced acquisition of Meridian.
  • On September 27, 2018, WellCare announced it entered into agreements to acquire Aetna Inc.'s entire standalone Medicare Part D prescription drug business.  The closing of this transaction is subject to the closing of CVS Health's acquisition of Aetna and other customary closing conditions.
  • WellCare's Medicare Advantage (MA) contracts serving certain of the company's members in California, Florida, Texas and New York/Maine, received an overall rating of 4.0 Stars or higher on CMS's 5-Star Rating System for the 2019 Plan Year. As of September 30, 2018, these contracts served approximately 42.3 percent of WellCare's total MA members, excluding our two dual demonstration MA contracts, which are not subject to Star Ratings.
  • As of September 30, 2018, unregulated cash and investments were approximately $462.6 million.

2018 Financial Outlook

WellCare is increasing its full-year adjusted EPS guidance to a range of $10.90 to $11.00 from its previous guidance range of $10.70 to $10.90 per diluted share. Refer to the Appendix included in this news release for specific 2018 guidance metrics, related footnotes and basis of presentation.

Consolidated Operations Results

GAAP net income for the third quarter of 2018 was $130.6 million, or $2.70 per diluted share, compared with GAAP net income of $171.6 million, or $3.82 per diluted share, for the third quarter of 2017. Adjusted net income for the third quarter of 2018 was $161.2 million, or $3.33 per diluted share, compared with adjusted net income of $183.6 million, or $4.08 per diluted share, for the third quarter of 2017. The year-over-year decrease in GAAP and adjusted net income primarily reflect the recognition of certain previously unrecognized tax benefits and incremental retroactive revenue related to Florida during the third quarter of 2017 and the reinstatement of the ACA Health Insurer Fee (HIF) for 2018, which is nondeductible for tax purposes. These decreases were partially offset by continued operational execution across all three business segments and the effect of the Tax Cut and Jobs Act of 2017 that resulted in a lower statutory tax rate for 2018.

GAAP net income margin for the third quarter of 2018 was 2.6 percent compared with 3.9 percent for the third quarter of 2017. Adjusted net income margin for the third quarter of 2018 was 3.3 percent compared with 4.2 percent for the third quarter of 2017.

GAAP and adjusted total revenue of $5.1 billion and $5.0 billion for the third quarter of 2018 increased 14.9 percent and 13.3 percent, respectively, compared with the third quarter of 2017. The year-over-year increases in GAAP and adjusted total revenue were primarily the result of the company's acquisition of Meridian, the addition of new members as a result of the statewide expansion of the Illinois Medicaid program, organic growth in our Medicare Health Plans segment, and the reinstatement of the ACA HIF for 2018.

GAAP SG&A expense was $433.2 million for the third quarter of 2018 compared with $372.3 million for the third quarter of 2017. Adjusted SG&A expense was $420.0 million for the third quarter of 2018 compared with $364.8 million for the third quarter of 2017. The year-over-year increases in GAAP and adjusted SG&A expense were primarily the result of the company's growth.

The GAAP SG&A expense ratio was 8.6 percent in the third quarter of 2018 compared with 8.5 percent in the third quarter of 2017. The adjusted SG&A expense ratio was 8.5 percent in the third quarter of 2018 compared with 8.3 percent in the third quarter of 2017.

Medicaid Health Plans Segment Results

Medicaid Health Plans membership was 3.9 million as of September 30, 2018 and increased by approximately 1.2 million members, or 43.7 percent, compared with September 30, 2017. The increase was primarily due to the company's 2018 acquisition of Meridian as well as net organic growth. 

GAAP and adjusted Medicaid Health Plans revenue was $3.2 billion and $3.1 billion, respectively, for the third quarter of 2018, an increase of 18.4 percent and 15.9 percent, respectively, compared with the third quarter of 2017. The increases in GAAP and adjusted premium revenue were primarily the result of the company's 2018 acquisition of Meridian and the addition of new members as a result of the statewide expansion of the Illinois Medicaid program. In addition, the reinstatement of the ACA HIF in 2018 and associated Medicaid ACA HIF reimbursement also contributed to the year-over-year increase in GAAP Medicaid premium revenue.

The GAAP Medicaid Health Plans MBR was 84.9 percent for the third quarter of 2018 compared with 86.0 percent for the third quarter of 2017. The decrease in the GAAP Medicaid Health Plans MBR was primarily the result of the reinstatement of the Medicaid ACA HIF reimbursement in 2018.  The adjusted Medicaid Health Plans MBR was 87.8 percent for the third quarter of 2018 compared with 86.9 percent for the third quarter of 2017, primarily as a result of the acquisition of Meridian and incremental retroactive revenue related to Florida received in the third quarter of 2017, partially offset by continued operational execution.

Medicare Health Plans Segment Results

Medicare Health Plans membership was approximately 544,000 as of September 30, 2018 and increased by approximately 52,000 members, or 10.6 percent, compared with September 30, 2017. The increase was primarily a result of the company's 2018 acquisition of Meridian as well as organic growth.

Medicare Health Plans revenue of $1.6 billion for the third quarter of 2018 increased 7.9 percent compared with the third quarter of 2017. The increase was primarily due to organic growth and the company's 2018 acquisition of Meridian.

The Medicare Health Plans MBR for the third quarter of 2018 was 84.8 percent compared with 85.7 percent for the third quarter of 2017. The year-over-year decrease was primarily due to continued operational execution and the company's 2018 bid strategy.

Medicare Prescription Drug Plans (PDP) Segment Results

Medicare PDP membership was approximately 1.1 million as of September 30, 2018, and decreased by approximately 85,000 members, or 7.4 percent, compared with September 30, 2017. The decrease was primarily a result of the company's 2018 bid positioning.

Medicare PDP revenue of $182.3 million for the third quarter of 2018 decreased by 9.7 percent compared with the third quarter of 2017. The decrease was primarily due to the decline in membership as a result of company's 2018 bid positioning.

The Medicare PDP segment MBR for the third quarter of 2018 was 63.1 percent compared with 70.7 percent for the third quarter of 2017. The decrease was primarily the result of the company's 2018 bid positioning and continued operational execution.     

Operating Cash Flow and Financial Condition

Net cash used by operating activities was $578.6 million for the three months ended September 30, 2018, compared with net cash provided by operating activities of $910.6 million for the three months ended September 30, 2017.  The year-over-year change in operating cash flow is primarily attributable to the advanced receipt of October CMS Medicare premiums in September 2017 and the payment of the ACA HIF in September 2018.

As of September 30, 2018, unregulated cash and investments were approximately $462.6 million, which includes the effects of the Meridian transaction, compared with $582.2 million as of September 30, 2017.

Days in claims payable (DCP) was 54.2 days as of September 30, 2018 compared with 51.0 days as of September 30, 2017 and 55.2 days as of June 30, 2018.

Conference Call and Webcast

A discussion of WellCare's third quarter 2018 results will be available via a conference call and live webcast today at 8:30 a.m. EDT.

The conference call will be webcast live from the company's website and will be available at the following link:  https://services.choruscall.com/links/wcg181030.html. The webcast should be accessed a few minutes prior to the conference call start time. A replay of the webcast will be available for one year following the conclusion of the live broadcast and will be accessible on the company's website at http://ir.wellcare.com/Event.

The conference call can also be accessed by pre-registering using the following link: http://dpregister.com/10123489. Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call. Participants may pre-register now, or at any time prior to the call, and will receive simple instructions via email.

For those parties who do not have internet access or are unable to pre-register, the conference call may be accessed by calling:

Domestic participant dial-in number (toll-free):           1-844-492-3724
International participant dial-in number:                      1-412-542-4185

A telephonic replay will be available until midnight EST on Tuesday, November 6, 2018. This replay may be accessed by dialing either of the numbers below and entering the replay access code 10123489:

Domestic replay number (toll-free):  1-877-344-7529
International replay number:             1-412-317-0088

About WellCare Health Plans, Inc.

Headquartered in Tampa, Fla., WellCare Health Plans, Inc. (NYSE: WCG) focuses primarily on providing government-sponsored managed care services to families, children, seniors and individuals with complex medical needs primarily through Medicaid, Medicare Advantage and Medicare Prescription Drug Plans, as well as individuals in the Health Insurance Marketplace. WellCare serves approximately 5.5 million members nationwide as of September 30, 2018. For more information about WellCare, please visit the company's website at www.wellcare.com.

Basis of Presentation

Discontinued Operations

In 2016, Universal American, a subsidiary of WellCare, completed the sale of its life insurance business while retaining ownership of the life insurance subsidiary. Universal American entered into a 100% quota-share reinsurance treaty with the buyer, which, among other treaties, resulted in the reinsurance of all of the life insurance policies underwritten by the retained subsidiary. Accordingly, the discontinued business has not materially affected WellCare's results of operations for the periods presented in this news release. For additional information, refer to Note 19–Discontinued Operations within the Consolidated Financial Statements included in the company's Annual Report on Form 10-K for the period ended December 31, 2017.

Non-GAAP Financial Measures

In addition to results determined under GAAP, WellCare provides certain non-GAAP financial measures that management believes are useful in assessing the company's performance. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. The company has provided a reconciliation of the historical non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP.

Earnings per share, net income and, as noted below, other specific operating and financial measures have been adjusted for the effect of certain expenses, and as appropriate, the related tax effect, related to previously disclosed government investigations and related litigation and resolution costs ("investigation costs"); amortization expense associated with acquisitions ("acquisition-related amortization expenses"); and certain one-time transaction and integration costs related to the acquisitions of Universal American  and Meridian ("transaction and integration costs").

Although the excluded items may recur, WellCare believes that by providing non-GAAP measures exclusive of these items, it facilitates period-over-period comparisons and provides additional clarity about events and trends affecting its core operating performance, as well as providing comparability to competitor results. The investigation costs are related to a discrete incident which management does not expect to reoccur. WellCare has adjusted for acquisition-related amortization expenses as these transactions do not directly relate to the servicing of products for our customers and are not directly related to the core performance of its business operations. The transaction and integrations costs are related to specific 2017 and 2018 events, which do not reflect the underlying ongoing performance of the business.

In addition, because reimbursements for Medicaid premium tax and the ACA HIF are both included in the premium rates or reimbursement established in certain Medicaid contracts and also recognized separately as a component of expense, the company excludes these reimbursements from premium revenue and total revenue when calculating key ratios as the company believes that these components are not indicative of operating performance.

The company is not able to project at the time of this news release the amount of expenses associated with investigation costs or transaction and integration costs and, therefore, cannot reconcile projected non-GAAP measures affected by these items to projected GAAP measures.

Following is a description of the adjustments made to GAAP measures used to calculate the non-GAAP measures used in this news release.

Adjusted total revenue (non-GAAP) = Total revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement.

Adjusted premium revenue (non-GAAP) = Premium revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement. The company's adjusted Medicaid Health Plans segment premium revenue uses this non-GAAP definition of adjusted premium revenue.

MBR (GAAP) = medical benefits expense divided by premium revenue (GAAP).

Adjusted MBR (non-GAAP) = medical benefits expense divided by adjusted premium revenue. The company's adjusted Medicaid Health Plans segment MBR uses this non-GAAP definition of adjusted MBR.

SG&A expense ratio (GAAP) = SG&A expense (GAAP) divided by total revenue (GAAP).

Adjusted SG&A expense (non-GAAP) = SG&A expense (GAAP) less investigation costs and transaction and integration costs.

Adjusted SG&A ratio (non-GAAP) = adjusted SG&A expense divided by adjusted total revenue.

Adjusted depreciation & amortization (non-GAAP) = depreciation & amortization expense (GAAP) less acquisition-related amortization expenses.

Adjusted income before taxes (non-GAAP) = income before income taxes (GAAP) less investigation costs, acquisition-related amortization expenses, and transaction and integration costs.

Adjusted income tax expense (non-GAAP) = income tax associated with the applicable adjusted income before taxes, based on the applicable effective income tax rate.

Adjusted effective income tax rate (non-GAAP) = adjusted income tax expense divided by adjusted income before taxes.

Adjusted net income (non-GAAP) = adjusted income before taxes less adjusted income tax expense.

Net income margin (GAAP) = net income (GAAP) divided by total revenue (GAAP).

Adjusted net income margin (non-GAAP) = adjusted net income divided by adjusted total revenue.

Adjusted earnings per diluted share (non-GAAP) = Adjusted net income divided by weighted average common shares outstanding on a fully diluted basis.

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," "will," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions are forward-looking statements. For example, statements regarding the company's financial outlook and the status of the pending acquisition of Aetna's Part D business and the status of new 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 integrating care management, advocating for our members, building advanced relationships with providers and government partners, ensuring a competitive cost position, and delivering prudent, profitable growth, WellCare's ability to effectively estimate and manage growth, the ability to complete the acquisition of the Aetna Part D business in a timely manner or at all (which may adversely affect WellCare's business and the price of the common stock of WellCare), the failure to satisfy the conditions to the consummation of the acquisition (including the closing of CVS Health's acquisition of Aetna and other customary closing conditions),  WellCare's ability to effectively execute and integrate acquisitions, including the ability to achieve expected synergies within the expected time frames or at all, the ability to achieve accretion to WellCare's earnings, revenues or other benefits expected, disruption to business relationships, operating results, and business generally of WellCare and/or Meridian and the ability to retain Meridian employees, potential reductions in Medicaid and Medicare revenue, WellCare's ability to estimate and manage medical benefits expense effectively, including through its vendors, its ability to negotiate actuarially sound rates, especially in new programs with limited experience, WellCare's ability to improve healthcare quality and access, the appropriation and payment by state governments of Medicaid premiums receivable, the outcome of any protests and litigation related to Medicaid awards, the approval of Medicaid contracts by CMS, any changes to the programs or contracts, WellCare's ability to address operational challenges related to new business, and WellCare's ability to meet the requirements of readiness reviews. 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, 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, 2017, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, 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's forward-looking statements speak only as of the date on which the statements are made. WellCare undertakes no duty, and expressly disclaims any obligation, to update these forward-looking statements to reflect any future events, developments or otherwise.

2018 Financial Outlook

WellCare is increasing its full-year 2018 adjusted EPS guidance to a range of $10.90 to $11.00 from its previous guidance range of $10.70 to $10.90.

 

Guidance Metric

2018 Guidance
as of October 30, 2018

Revenue:


GAAP Medicaid Health Plans

$12.7B to $12.9B

Adjusted Medicaid Health Plans(1)

$12.3B to $12.45B

Medicare Health Plans

$6.25B to $6.35B

Medicare PDP

$825M to $875M

Medicaid ACA industry fee reimbursement

$280M to $285M

Products and services

$120M to $125M

Investment and other income(2)

$101M to $105M

GAAP total revenue

$20.0B to $20.3B

Adjusted total revenue(1)

$19.6B to $19.9B



Segment MBR:


GAAP Medicaid Health Plans

85.6% to 85.9%

Adjusted Medicaid Health Plans(1)

88.4% to 88.8%

Medicare Health Plans

84.1% to 84.7%

Medicare PDP

75.0% to 76.5%



Costs of products and services

$117M to $121M

Adjusted SG&A ratio(3)(4)

8.35% to 8.45%

ACA industry fee expense

$342M to $346M

GAAP depreciation and amortization (D&A) expense

$178M to $182M

Adjusted D&A expense(5)

$102M to $106M

Interest expense

$87M to $89M

Adjusted effective income tax rate(4)(6)

34.0% to 35.0%



Adjusted EPS(4)(7)

$10.90 to $11.00



(1) 

Excludes an estimated $125.0 million to $130.0 million in Medicaid premium taxes and $280.0 million to $285.0 million in ACA industry fee reimbursement.

(2)

Investment & other income primarily includes investment income and specialty pharmacy business sold to nonmembers.

(3)

SG&A expense (GAAP) less investigation costs and transaction and integration costs divided by premium revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement.

(4)

WellCare is not able to estimate amounts associated with investigation costs and acquisition-related transaction and integration costs expected to be incurred in 2018 and, therefore, cannot reconcile these metrics to total projected GAAP metrics.

(5) 

Excludes an estimated $75.0 million to $77.0 million in acquisition-related amortization expenses.

(6) 

Excludes the estimated income tax effect associated with the investigation costs, acquisition-related amortization expenses, and transaction and integration costs.

(7) 

The company estimates adjusted earnings per diluted share guidance by adjusting net income for the estimated net-of-tax effect of investigation costs, acquisition-related amortization expense, and transaction and integration costs.

 

 

WELLCARE HEALTH PLANS, INC.

MEMBERSHIP INFORMATION

(Unaudited)









Change from








June 30, 2018


September 30, 2017


September 30,
2018


June 30,
2018


September 30,
2017


Change


%
Change


Change


%
Change

Medicaid Health Plans

Membership by State:














Illinois

862,000



254,000



139,000



608,000



239.4

%


723,000



520.1

%

Florida

735,000



737,000



757,000



(2,000)



(0.3)

%


(22,000)



(2.9)

%

Michigan

512,000







512,000



%


512,000



%

Georgia

502,000



515,000



498,000



(13,000)



(2.5)

%


4,000



0.8

%

Kentucky

448,000



455,000



446,000



(7,000)



(1.5)

%


2,000



0.4

%

Missouri

265,000



279,000



291,000



(14,000)



(5.0)

%


(26,000)



(8.9)

%

New York

152,000



150,000



144,000



2,000



1.3

%


8,000



5.6

%

Arizona

143,000



144,000



156,000



(1,000)



(0.7)

%


(13,000)



(8.3)

%

Other states

284,000



284,000



285,000





%


(1,000)



(0.4)

%

Total Medicaid Health Plans Membership (1)

3,903,000



2,818,000



2,716,000



1,085,000



38.5

%


1,187,000



43.7

%















Medicaid Health Plans

Membership by Program:














TANF

3,315,000



2,349,000



2,274,000



966,000



41.1

%


1,041,000



45.8

%

SSI, ABD, Duals and LTC

421,000



311,000



302,000



110,000



35.4

%


119,000



39.4

%

CHIP and other

167,000



158,000



140,000



9,000



5.7

%


27,000



19.3

%

Total Medicaid Health Plans Membership (1)

3,903,000



2,818,000



2,716,000



1,085,000



38.5

%


1,187,000



43.7

%















Medicare Health Plans:














Medicare Advantage by State:














Texas

104,000



104,000



106,000





%


(2,000)



(1.9)

%

Florida

96,000



96,000



101,000





%


(5,000)



(5.0)

%

New York

89,000



89,000



89,000





%




%

Georgia

50,000



50,000



46,000





%


4,000



8.7

%

Other states

205,000



171,000



150,000



34,000



19.9

%


55,000



36.7

%

Total Medicare Health Plans (1)

544,000



510,000



492,000



34,000



6.7

%


52,000



10.6

%















Medicare Prescription Drug Plans

1,056,000



1,056,000



1,141,000





%


(85,000)



(7.4)

%















Health Insurance Marketplace

5,000







5,000



%


5,000



%















Total Membership

5,508,000



4,384,000



4,349,000



1,124,000



25.6

%


1,159,000



26.6

%















(1) Medicaid Health Plans and Medicare Health Plans membership includes members who are dually-eligible and participate in both our Medicaid and Medicare programs. The dually-eligible membership was 68,000, 55,000 and 52,000 at September 30, 2018, June 30, 2018 and September 30, 2017, respectively.

 

 

WellCare Health Plans, Inc.

Selected Data From Consolidated Statements of Comprehensive Income

(Unaudited; dollars in millions except share and per share data)











For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2018


2017


2018


2017

Revenues:








Premium

$

4,885.8



$

4,361.4



$

13,934.5



$

12,540.9


Medicaid premium taxes

31.5



29.5



94.2



90.6


ACA industry fee reimbursement

71.5





199.0




Total premium

4,988.8



4,390.9



14,227.7



12,631.5


Products and services

34.6





34.6




Investment and other income

34.7



12.0



81.0



30.6


Total revenues

5,058.1



4,402.9



14,343.3



12,662.1










Expenses:








Medical benefits

4,195.0



3,740.7



12,023.0



10,938.3


Costs of products and services

33.5





33.5




Selling, general and administrative

433.2



372.3



1,167.0



1,040.2


ACA industry fee

86.5





247.0




Medicaid premium taxes

31.5



29.5



94.2



90.6


Depreciation and amortization

46.2



31.4



117.1



84.6


Interest

23.6



17.1



57.8



51.4


Total expenses

4,849.5



4,191.0



13,739.6



12,205.1


Income from operations

208.6



211.9



603.7



457.0


Loss on extinguishment of debt







26.1


Income before income taxes and equity in losses
of unconsolidated subsidiaries

208.6



211.9



603.7



430.9


Equity in earnings (losses) of unconsolidated
subsidiaries

6.6



23.2



(0.1)



22.1


Income before income taxes

215.2



235.1



603.6



453.0


Income tax expense

84.6



63.5



219.7



140.0


Net income

$

130.6



$

171.6



$

383.9



$

313.0


















Earnings per common share:








Basic

$

2.74



$

3.86



$

8.40



$

7.04


Diluted

$

2.70



$

3.82



$

8.29



$

6.97










Weighted average common shares outstanding:








Basic

47,712,712



44,509,692



45,692,804



44,458,096


Diluted

48,384,427



44,969,033



46,287,616



44,909,916










 

 

WellCare Health Plans, Inc.

Consolidated Balance Sheets

(Unaudited; dollars in millions except share data)






September 30, 2018


December 31, 2017

Assets




Current Assets:




Cash and cash equivalents

$

4,306.6



$

4,198.6


Short-term investments

1,034.4



469.5


Premiums receivable, net

969.6



453.4


Pharmacy rebates receivable, net

494.6



335.0


Funds receivable for the benefit of members

268.1



27.5


Prepaid expenses and other current assets, net

608.9



335.2


Total current assets

7,682.2



5,819.2






Property, equipment and capitalized software, net

384.1



319.5


Goodwill

1,753.5



660.7


Other intangible assets, net

1,326.6



367.9


Long-term investments

844.4



766.2


Restricted cash, cash equivalents and investments

234.8



211.0


Other assets

17.8



4.9


Assets of discontinued operations  (a)

215.1



215.2


Total Assets

$

12,458.5



$

8,364.6






Liabilities and Stockholders' Equity




Current Liabilities:




Medical benefits payable

$

2,901.4



$

2,146.3


Unearned premiums

20.8



65.9


Accounts payable and accrued expenses

868.8



788.1


Funds payable for the benefit of members

1,569.2



1,075.9


Other payables to government partners

444.2



367.0


Total current liabilities

5,804.4



4,443.2






Deferred income tax liability

117.2



93.4


Long-term debt, net

2,125.4



1,182.4


Other liabilities

34.0



13.7


Liabilities of discontinued operations (a)

215.1



215.2


Total liabilities

8,296.1



5,947.9






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, 49,979,666 and 44,522,988
shares issued and outstanding at September 30, 2018 and December 31, 2017,
respectively)

0.5



0.4


Paid-in capital

1,961.9



591.5


Retained earnings

2,211.4



1,827.5


Accumulated other comprehensive loss

(11.4)



(2.7)


Total Stockholders' Equity

4,162.4



2,416.7


Total Liabilities and Stockholders' Equity

$

12,458.5



$

8,364.6



(a) Refer to the basis of presentation for a discussion of discontinued operations.

 

 

WellCare Health Plans, Inc.

Consolidated Statements of Cash Flows

(Unaudited; dollars in millions)






For the Nine Months Ended
September 30,


2018


2017

Cash flows from operating activities:




Net income

$

383.9



$

313.0


Adjustments to reconcile net income to cash flows from operating activities:




Depreciation and amortization

117.1



84.6


Loss on extinguishment of debt



26.1


Stock-based compensation expense

51.5



32.8


Deferred taxes, net

(9.8)



(39.0)


Other, net

13.1



13.4


Changes in operating accounts, net of effects from acquisitions:




Premiums receivable, net

(144.1)



58.4


Pharmacy rebates receivable, net

(138.7)



(52.7)


Medical benefits payable

227.1



258.8


Unearned premiums

(74.7)



574.4


Other payables to government partners

64.8



36.6


Accrued liabilities and other, net

(292.2)



(60.9)


Net cash provided by operating activities

198.0



1,245.5






Cash flow from investing activities:




Acquisitions and acquisition-related settlements, net of cash acquired

(2,035.7)



(728.5)


Purchases of investments

(1,322.6)



(1,062.2)


Proceeds from sales and maturities of investments

822.8



324.1


Additions to property, equipment and capitalized software, net

(87.5)



(92.6)


Net cash used in investing activities

(2,623.0)



(1,559.2)






Cash flows from financing activities:




Proceeds from issuance of debt, net of financing costs paid

739.0



1,182.2


Borrowings on Revolving Credit Facility, net of financing costs paid

221.3




Proceeds from issuance common stock, net of issuance fees paid

1,342.3




Payments on debt

(25.0)



(1,026.1)


Repurchase and retirement of shares to satisfy employee tax withholding requirements

(23.3)



(13.6)


Funds received for the benefit of members, net

250.8



978.0


Other, net

29.5



13.4


Net cash provided by financing activities

2,534.6



1,133.9






Increase in cash, cash equivalents and restricted cash and cash equivalents

109.6



820.2


Balance at beginning of period

4,263.0



4,121.3


Balance at end of period

$

4,372.6



$

4,941.5






SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:




  Cash paid for taxes

$

174.6



$

149.5


  Cash paid for interest

$

65.5



$

56.3






SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:




Non-cash additions to property, equipment, and capitalized software

$

3.7



$

11.3


 

 

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION

SELECTED SEGMENT INFORMATION

(Unaudited; dollars in millions)






For the Three Months Ended
September 30,


For the Nine Months Ended

September 30,


2018


2017


2018


2017

Medicaid Health Plans Segment:








Premium Revenue (GAAP)

$

3,223.3



$

2,722.7



$

8,899.4



$

8,058.3


Medicaid premium taxes

(31.5)



(29.5)



(94.2)



(90.6)


ACA industry fee reimbursement

(71.5)





(199.0)




Adjusted premium revenue (a)

3,120.3



2,693.2



8,606.2



7,967.7










Medical benefits expense

2,738.1



2,341.7



7,601.1



7,039.2










Medical benefits ratio (GAAP)

84.9

%


86.0

%


85.4

%


87.4

%

Adjusted medical benefits ratio(a)

87.8

%


86.9

%


88.3

%


88.3

%

















Medicare Health Plans Segment (GAAP):








Premium revenue

$

1,582.0



$

1,466.3



$

4,684.9



$

3,877.6


Medical benefits expense

1,340.8



1,256.3



3,929.8



3,301.4


Medical benefits ratio

84.8

%


85.7

%


83.9

%


85.1

%

















Prescription Drug Plans Segment (GAAP):








Premium revenue

$

182.3



$

201.9



$

642.2



$

695.6


Medical benefits expense

115.1



142.7



491.1



597.7


Medical benefits ratio

63.1

%


70.7

%


76.5

%


85.9

%









Corporate and Other (GAAP):








Premium revenue

$

1.2



$



$

1.2



$


Medical benefits expense

1.0





1.0












Total Company:








Premium Revenue (GAAP)

$

4,988.8



$

4,390.9



$

14,227.7



$

12,631.5


Medicaid premium taxes

(31.5)



(29.5)



(94.2)



(90.6)


ACA industry fee reimbursement

(71.5)





(199.0)




Adjusted premium revenue (a)

4,885.8



4,361.4



13,934.5



12,540.9










Medical benefits expense

4,195.0



3,740.7



12,023.0



10,938.3










Medical benefits ratio (GAAP)

84.1

%


85.2

%


84.5

%


86.6

%

Adjusted medical benefits ratio(a)

85.9

%


85.8

%


86.3

%


87.2

%









(a) Refer to the basis of presentation for a discussion of non-GAAP financial measures.

 

 

WELLCARE HEALTH PLANS, INC.


SUPPLEMENTAL INFORMATION (Continued)


Reconciliation of Selling, General and Administrative Expense Ratios


(Unaudited; dollars in millions)













The Company reports its selling, general and administrative ("SG&A") expense ratio on an adjusted or non-GAAP basis modified to exclude the revenue effect of Medicaid premium taxes and ACA industry fee reimbursement from premiums. The Adjusted SG&A expense ratio also excludes the effect of investigation costs and acquisition-related transaction and integration costs.
















For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,





2018


2017


2018


2017


Company revenue:









As determined under GAAP

$

5,058.1



$

4,402.9



$

14,343.3



$

12,662.1



Medicaid premium taxes

(31.5)



(29.5)



(94.2)



(90.6)



ACA industry fee reimbursement

(71.5)





(199.0)





Adjusted revenue(1)

$

4,955.1



$

4,373.4



$

14,050.1



$

12,571.5














SG&A Expense:









As determined under GAAP

$

433.2



$

372.3



$

1,167.0



$

1,040.2



Adjustments:









Investigation costs

(0.1)



(0.9)



(0.3)



(7.2)



Transaction and integration costs

(13.1)



(6.6)



(25.5)



(33.3)



Adjusted SG&A Expense(1)

$

420.0



$

364.8



$

1,141.2



$

999.7














SG&A expense ratio:









As determined under GAAP

8.6

%


8.5

%


8.1

%


8.2

%


Effect of Medicaid premium taxes

0.1

%


0.1

%


%


%


Effect of ACA industry fee reimbursement

0.2

%


%


0.1

%


%


Effect of SG&A expense adjustments above(1) (2)

(0.4)

%


(0.3)

%


(0.2)

%


(0.2)

%


Adjusted SG&A expense ratio(1) (2)

8.5

%


8.3

%


8.1

%


8.0

%













(1) Refer to the basis of presentation for a discussion of non-GAAP financial measures.

 




(2) Effective July 1, 2018, the Company redefined our SG&A ratio (GAAP) to be a percentage of total revenues. Adjusted SG&A ratio was redefined to be a percentage of total revenues excluding Medicaid premium tax reimbursement and Medicaid ACA industry fee reimbursement. Accordingly, results for the three and nine months ended September 30, 2017 were adjusted to conform to this presentation, which decreased our SG&A ratio (GAAP) by 0.0% for each period and our Adjusted SG&A ratio (non-GAAP) for the three and nine months ended September 30, 2017 by 0.1% and 0.0%, respectively.




 

 

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION (Continued)

Reconciliation of Certain GAAP Financial Information

(Unaudited; dollars in millions, except per share data)















The Company reports adjusted operating results on a non-GAAP basis to exclude certain expenses and other items that management believes are not indicative of longer-term business trends and operations.  The following table presents applicable financial information, as determined under GAAP, reconciled to the adjusted financial information for the same periods. Refer to the basis of presentation for a discussion of non-GAAP financial measures.








For the Three Months Ended
September 30, 2018


For the Three Months Ended
September 30, 2017



GAAP


 Adjustments


Adjusted 
(Non-GAAP)


GAAP


 Adjustments


Adjusted
(Non-GAAP)









Selling, general, and administrative expense

$

433.2



$

(13.2)


(1)

$

420.0



$

372.3



$

(7.5)


(1)

$

364.8



Depreciation and amortization

$

46.2



$

(19.9)



$

26.3



$

31.4



$

(10.6)



$

20.8



Income tax expense

$

84.6



$

2.5


(2)

$

87.1



$

63.5



$

6.1


(2)

$

69.6



Effective tax rate

 

39.3

%


(4.2)

%

(2)

35.1

%


27.0

%


0.5

%

(2)

27.5

%


Net income

$

130.6



$

30.6



$

161.2



$

171.6



$

12.0



$

183.6



Net income margin (3)

2.6

%


0.7

%


3.3

%


3.9

%


0.3

%


4.2

%
















Earnings per share:













Basic

$

2.74



$

0.64



$

3.38



$

3.86



$

0.26



$

4.12



Diluted

$

2.70



$

0.63



$

3.33



$

3.82



$

0.26



$

4.08



















For the Nine Months Ended
September 30, 2018


For the Nine Months Ended
September 30, 2017



GAAP


 Adjustments


Adjusted
(Non-GAAP)


GAAP


 Adjustments


Adjusted
(Non-GAAP)









Selling, general, and administrative expense

$

1,167.0



$

(25.8)


(1)

$

1,141.2



$

1,040.2



$

(40.5)


(1)

$

999.7



Depreciation and amortization

$

117.1



$

(41.1)



$

76.0



$

84.6



$

(22.1)



$

62.5



Loss on extinguishment of debt

$



$



$



$

26.1



$

(26.1)



$



Income tax expense

$

219.7



$

10.9


(2)

$

230.6



$

140.0



$

32.7


(2)

$

172.7



Effective tax rate

36.4

%


(2.0)

%

(2)

34.4

%


30.9

%


1.0

%

(2)

31.9

%


Net income

$

383.9



$

56.0



$

439.9



$

313.0



$

56.0



$

369.0



Net income margin(3)

2.7

%


0.4

%


3.1

%


2.5

%


0.4

%


2.9

%
















Earnings per share:













Basic

$

8.40



$

1.23



$

9.63



$

7.04



$

1.26



$

8.30



Diluted

$

8.29



$

1.21



$

9.50



$

6.97



$

1.25



$

8.22






























(1) Comprised of investigation costs and transaction and integration costs, as disclosed in the "Reconciliation of Selling, General and Administrative Expense Ratios" table.















(2) Based on the effective income tax rates applicable to adjusted (non-GAAP) results, the company estimated the effect on income tax expense and the effective tax rate associated with the non-GAAP adjustments. Refer to the basis of presentation for a discussion of non-GAAP financial measures.















(3) Effective July 1, 2018, the Company redefined net income margin as net income as a percentage of total revenues. Adjusted net income margin was redefined as adjusted net income as a percentage of total revenue excluding reimbursements for Medicaid premium taxes and ACA fees. Accordingly, results for the three and nine months ended September 30, 2017 were adjusted to conform to this presentation.  Net income margin and adjusted net income margin for the three and nine months ended September 30, 2017 did not change from the results previously reported.

 

 

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION (Continued)

Presentation of Certain Adjusted Historical Financial Information

(Unaudited; dollars in millions)















Effective July 1, 2018, the Company redefined our SG&A ratio (GAAP) and net income margin (GAAP) to be a percentage of total revenues. Our Adjusted SG&A ratio and Adjusted net income margin were redefined to be a percentage of total revenues excluding Medicaid premium tax reimbursement and Medicaid ACA industry fee reimbursement. Accordingly, historical results were adjusted to conform to this presentation, as presented below.






2017


2018


Three Months Ended

March 31,


Three Months Ended

June 30,


Three Months Ended September 30,


Three Months Ended December 31,


Year Ended December 31,


Three Months Ended
March 31,


Three Months Ended
June 30,



Total Revenue:














As determined under GAAP

$

3,954.2



$

4,305.0



$

4,402.9



$

4,345.1



$

17,007.2



$

4,646.2



$

4,639.0


Medicaid Premium Taxes

(29.0)



(31.0)



(29.5)



(29.2)



(118.7)



(32.1)



(30.6)


ACA Industry Fee Reimbursement











(64.7)



(62.8)


Adjusted total revenue

$

3,925.2



$

4,274.0



$

4,373.4



$

4,315.9



$

16,888.5



$

4,549.4



$

4,545.6
















Total SG&A Expense:














As determined under GAAP

$

302.4



$

365.5



$

372.3



$

444.5



$

1,484.7



$

355.9



$

377.9


Adjustments:














Investigation Costs

(3.1)



(3.2)



(0.9)



(0.7)



(7.9)



(0.1)



(0.1)


Acquisition costs

(1.1)



(25.6)



(6.6)



(4.2)



(37.5)



(2.7)



(9.7)


Adjusted SG&A Expense

$

298.2



$

336.7



$

364.8



$

439.6



$

1,439.3



$

353.1



$

368.1
















As adjusted:














GAAP SG&A Ratio

7.6

%


8.5

%


8.5

%


10.2

%


8.7

%


7.7

%


8.1

%

Adjusted SG&A expense ratio

7.6

%


7.9

%


8.3

%


10.2

%


8.5

%


7.8

%


8.1

%















As reported:














GAAP SG&A Ratio

7.7

%


8.5

%


8.5

%


10.3

%


8.8

%


7.7

%


8.2

%

Adjusted SG&A expense ratio

7.6

%


7.9

%


8.4

%


10.2

%


8.5

%


7.8

%


8.1

%















Net income














As determined under GAAP

$

67.3



$

74.1



$

171.6



$

60.7



$

373.7



$

101.7



$

151.6


SG&A Adjustments

4.2



28.8



7.5



4.9



45.4



2.8



9.8


Acquisition-related amortization

3.2



8.3



10.6



10.6



32.7



10.5



10.7


Loss on extinguishment of debt



26.1







26.1






Tax effect of adjustments

(2.7)



(23.9)



(6.1)



(5.9)



(38.6)



(3.2)



(5.2)


TCJA benefit







(56.1)



(56.1)






Adjusted Net Income

$

72.0



$

113.4



$

183.6



$

14.2



$

383.2



$

111.8



$

166.9
















As adjusted:














GAAP Net Income Margin

1.7

%


1.7

%


3.9

%


1.4

%


2.2

%


2.2

%


3.3

%

Adjusted Net Income Margin

1.8

%


2.7

%


4.2

%


0.3

%


2.3

%


2.5

%


3.7

%















As reported:














GAAP Net Income Margin

1.7

%


1.7

%


3.9

%


1.4

%


2.2

%


2.2

%


3.3

%

Adjusted Net Income Margin

1.8

%


2.7

%


4.2

%


0.3

%


2.3

%


2.5

%


3.7

%

 

 

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SOURCE WellCare Health Plans, Inc.