WellCare reports GAAP net income of $6.4 million for first-quarter 2010

WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the first quarter ended March 31, 2010. As determined under generally accepted accounting principles ("GAAP"), the Company reported net income of $6.4 million, or $0.15 per diluted share, compared with a net loss of $36.9 million, or $0.89 per diluted share, for the prior year period. Adjusted net income for the first quarter of 2010 was $7.4 million, or $0.17 per diluted share, as compared with $12.3 million, or $0.29 per diluted share, for the same period in 2009.

“WellCare's first quarter financial and operating results were a solid start to the year”

"WellCare's first quarter financial and operating results were a solid start to the year," said Alec Cunningham, WellCare's chief executive officer. "This month, as WellCare celebrates its 25^th anniversary, we are renewing our commitment to serving many of our country's most vulnerable populations. Our mission has seldom been more important: to enhance our members' health and quality of life by collaborating with our government clients and providers to deliver quality, cost-effective health care solutions."

In addition to results determined under GAAP, net income and certain other operating results described in this news release are reported after adjustment for certain selling, general, and administrative ("SG&A") expenses, primarily related to previously disclosed government investigations, that management believes are not indicative of long-term business operations. Please refer to the schedules in this news release that provide supplemental information reconciling results determined under GAAP to adjusted results.

Highlights of Operations for the First Quarter

Adjusted net income for the first quarter of 2010 was unfavorable in comparison to the first quarter of 2009 primarily due to the loss of gross margin from the December 31, 2009 withdrawal of the Company's Medicare Advantage private fee-for-service ("PFFS") plans, as well as decreased premium revenue from Medicare Advantage coordinated care plans ("CCPs") and Medicare stand-alone prescription drug plans ("PDPs"). In addition, the Company recorded lower favorable development of prior periods' medical benefits payable in the first quarter of 2010 versus 2009. These factors were offset in part by a reduction in SG&A expense, as well as improvement in the PDP medical benefits ratio ("MBR").

Membership as of March 31, 2010, decreased to 2.2 million compared with 2.5 million members as of March 31, 2009. Medicaid segment membership decreased by 23,000 year-over-year to 1.3 million as of March 31, 2010, driven by the withdrawal in mid-2009 from certain Florida counties and programs, but offset in part by growth in Georgia and other states. Medicare Advantage membership decreased year-over-year by 152,000 members. The withdrawal from PFFS plans reduced membership by 111,000 year-over-year. Medicare Advantage CCP membership decreased 41,000 year-over-year, principally due to the impact of the previously disclosed 2009 CMS marketing sanction. PDP membership decreased 95,000 year-over-year, also largely due to the CMS marketing sanction.

Premium revenue for the first quarter 2010 decreased 24% year-over-year to $1.4 billion. The decrease is attributable to the withdrawal of PFFS plans and to the impact of the CMS marketing sanction on Medicare CCP and PDP premium revenue.

Investment and other income decreased $1 million year-over-year, primarily due to lower average investment and cash balances.

Medical benefits expense was $1.2 billion, a decrease of 25% from the first quarter of 2009. The MBR was 86.1% in the first quarter 2010, compared with 86.7% in 2009. Excluding the impact of premium taxes, the first quarter 2010 MBR was 86.8%, a decrease of 110 basis points from 87.9% in the first quarter of 2009. The decrease was driven by the improved performance of the Company's Medicaid plans and PDPs, as well as the withdrawal from PFFS plans.

SG&A expense as determined under GAAP was $173 million in the first quarter of 2010, compared with $272 million in the same period in 2009. Adjusted SG&A expense was $172 million in 2010, a decrease of 20% from $215 million in the same period last year. The decrease in adjusted SG&A expense resulted principally from the withdrawal from PFFS plans, as well as gains in operating efficiency. In addition, the elimination of the premium tax associated with the Georgia Medicaid program reduced SG&A expense in 2010 relative to 2009. These favorable variances were offset in part by increased costs for Medicare CCP marketing and infrastructure investments. Adjusted SG&A expense was 12.7% of total revenues in the first quarter of 2010, compared with 12.0% of total revenues in the same period in 2009.

Cash Flow and Financial Condition Highlights

Net cash used in operating activities as determined under GAAP was $171 million and $106 million for the quarters ended March 31, 2010 and 2009, respectively. Net cash used in operating activities, modified for the timing of receipts from and payments to the Company's government clients, was $109 million for the quarter ended March 31, 2010, compared with net cash provided by operating activities of $54 million for the quarter ended March 31, 2009. The use of cash in the first quarter of 2010 was driven primarily by claims run-out from the Company's withdrawal of its PFFS plans.

As of March 31, 2010, unregulated cash and short-term investments were approximately $121 million. Unregulated cash and short-term investments were approximately $120 million on December 31, 2009, and $213 million on March 31, 2009.

Days in claims payable were 55 days as of March 31, 2010, compared with 53 days as of December 31, 2009, and 51 days as of March 31, 2009. Excluding the impact of Medicare Advantage PFFS plans, days in claims payable were 50 days as of March 31, 2010, and 49 days as of December 31, 2009 and March 31, 2009.

Financial Outlook

The Company is updating its financial outlook for the year ended December 31, 2010.

• Adjusted net income per diluted share is anticipated to be between approximately $2.00 and $2.20, an increase from the previous guidance for adjusted net income per diluted share of approximately $1.90 to $2.15.
• Premium revenue is expected to be between approximately $5.30 and $5.40 billion, an increase from the previous guidance for premium revenue of approximately $5.25 and $5.40 billion.
• The following elements of WellCare's financial outlook are unchanged from the Company's previous guidance.
  • The 2010 Medicaid segment MBR is anticipated to be below the 2009 MBR.
  • The 2010 Medicare Advantage segment MBR will decrease relative to the 2009 MBR.
  • The 2010 PDP segment MBR is anticipated to decrease from the 2009 MBR.
  • The adjusted administrative expense ratio is expected to be in the high 12% range.

SOURCE WellCare Health Plans, Inc.