WCG - WellCare Reports Fourth Quarter And Full-Year 2018 Results

TAMPA, Fla., Feb. 5, 2019 /PRNewswire/ -- WellCare Health Plans, Inc. (NYSE: WCG) ("WellCare") today reported results for the quarter ended December 31, 2018. As determined under generally accepted accounting principles (GAAP), net income for the fourth quarter of 2018 was $55.9 million, or $1.11 per diluted share. Adjusted net income for the fourth quarter of 2018 was $82.4 million, or $1.63 per diluted share.  GAAP net income for the full-year 2018 was $439.8 million, or $9.29 per diluted share.  Adjusted net income for 2018 was $522.3 million, or $11.03 per diluted share.

"While our recent focus has been on 2019 and beyond, we are pleased to report a strong finish to 2018, a year with multiple Medicaid RFP wins and the closing of two meaningful acquisitions," said Ken Burdick, WellCare's chief executive officer.  "We are excited that we were able to capitalize on opportunities that will provide continued revenue and earnings growth over the next few years."

"Based upon our strong finish to 2018 and better than expected membership growth in our Medicare PDP segment, we are increasing our full-year 2019 adjusted earnings per diluted share guidance to a range of $13.25 to $13.50," continued Burdick.     

Key Highlights

• GAAP and adjusted total revenue of $20.4 billion and $20.0 billion for the full-year 2018 increased 20.0 percent and 18.3 percent, respectively, compared with the full-year 2017.
• GAAP and adjusted earnings per diluted share of $9.29 and $11.03 for the full-year 2018 increased 11.8 percent and 29.5 percent, respectively, compared with the full-year 2017.
• Adjusted net income margin for the full-year 2018 was 2.6 percent, a 30 basis point improvement compared with the full-year 2017.
• GAAP and adjusted Medicaid Health Plans premium revenue of $13.0 billion and $12.6 billion for the full-year 2018 increased 21.1 percent and 18.5 percent respectively, compared with the full-year 2017.
• Medicare Health Plans premium revenue of $6.3 billion for the full-year 2018 increased 18.7 percent compared with the full-year 2017.
• Medicare Prescription Drug Plans MBR of 72.4 percent for the full-year 2018 improved 10 percentage points compared with the full-year 2017.
• GAAP and adjusted SG&A ratios of 8.3 percent for the full-year 2018 improved 40 basis points and 20 basis points, respectively, compared with the full-year 2017.
• On October 1, 2018, WellCare began the implementation of its new and expanded managed Medicaid contract in the state of Arizona.
• On November 30, 2018, WellCare closed the acquisition of Aetna, Inc.'s entire standalone Medicare Part D prescription drug business ("Aetna Part D business"). Per the terms of the agreements, Aetna will provide administrative services to, and retain the financial risk of, the Aetna Part D business through 2019.
• On December 1, 2018, WellCare began the implementation of its new and expanded managed Medicaid contracts in the state of Florida.
• On February 1, 2019, WellCare began the state-wide implementation of the Children's Medical Services contract in Florida.
• On February 4, 2019, WellCare received notice from the North Carolina Department of Health and Human Services that it was awarded a contract to provide managed Medicaid services statewide, which is subject to a protest process.
• As of December 31, 2018, unregulated cash, cash equivalents and investments were approximately $516.0 million.

2019 Financial Outlook

WellCare is increasing its full-year 2019 adjusted EPS guidance to a range of $13.25 to $13.50 from its previous guidance range of $13.15 to $13.40 per diluted share.  Refer to the appendix in this news release for specific 2019 guidance metrics, related footnotes and basis of presentation.

Consolidated Operations Results

GAAP net income for the fourth quarter of 2018 was $55.9 million, or $1.11 per diluted share, compared with GAAP net income of $60.7 million, or $1.34 per diluted share, for the fourth quarter of 2017.  Adjusted net income for the fourth quarter of 2018 was $82.4 million, or $1.63 per diluted share, compared with adjusted net income of $14.2 million, or $0.32 per diluted share, for the fourth quarter of 2017.  The year-over-year decrease in GAAP net income was primarily due to the effect of the Tax Cut and Jobs Act of 2017 ("TCJA") and the associated one-time, noncash benefit in 2017 from the revaluation of the company's net deferred tax liability, offset by organic growth, continued operational execution and the effect of the TCJA that resulted in a lower statutory tax rate for 2018. The year-over-year increase in adjusted net income was primarily due to organic growth, continued operational execution and the effect of the TCJA that resulted in a lower statutory tax rate for 2018.

GAAP net income margin for the fourth quarter of 2018 was 0.9 percent compared with 1.4 percent for the fourth quarter of 2017. Adjusted net income margin for the fourth quarter of 2018 was 1.4 percent compared with 0.3 percent for the fourth quarter of 2017.

GAAP and adjusted total revenue of $6.1 billion and $5.9 billion for the fourth quarter of 2018 increased 39.7 percent and 37.5 percent, respectively, compared with the fourth 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, organic growth, and, for the GAAP revenue increase, the reinstatement of the Affordable Care Act Health Insurer Fee ("ACA HIF") and the associated Medicaid ACA HIF reimbursement for 2018.

GAAP SG&A expense was $534.0 million for the fourth quarter of 2018 compared with $444.5 million for the fourth quarter of 2017. Adjusted SG&A expense was $526.3 million for the fourth quarter of 2018 compared with $439.6 million for the fourth 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 8.8 percent in the fourth quarter of 2018 compared with 10.2 percent in the fourth quarter of 2017. The adjusted SG&A expense ratio was 8.9 percent in the fourth quarter of 2018 compared with 10.2 percent in the fourth quarter of 2017.  The year-over-year decrease in the company's GAAP and adjusted SG&A ratios were the result of the company's acquisition of Meridian and continued operational leverage. In addition, the reinstatement of the ACA HIF in 2018 and associated Medicaid ACA HIF reimbursement also contributed to the year-over-year decrease in the GAAP Medicaid MBR.

Medicaid Health Plans Segment Results

Medicaid Health Plans membership was 3.9 million as of December 31, 2018 and increased by approximately 1.2 million members, or 44.4 percent, compared with December 31, 2017. The increase was primarily due to the company's acquisition of Meridian.

GAAP and adjusted Medicaid Health Plans revenue was $4.1 billion and $4.0 billion, respectively, for the fourth quarter of 2018, an increase of 53.4 percent and 50.0 percent, respectively, compared with the fourth quarter of 2017. The increases in GAAP and adjusted premium revenue were primarily the result of the company's acquisition of Meridian, the addition of new members as a result of business expansion in Illinois and Arizona, partially offset by lower membership in certain of our markets. 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 87.2 percent for the fourth quarter of 2018 compared with 89.0 percent for the fourth 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 90.2 percent for fourth quarter of 2018 compared with 90.0 percent for the fourth quarter of 2017. The increase in the adjusted Medicaid Health Plans MBR was primarily a result of the acquisition of Meridian and new business expansion in Arizona, partially offset by continued operational execution.

Medicare Health Plans Segment Results

Medicare Health Plans membership was approximately 545,000 as of December 31, 2018 and increased by approximately 49,000 members, or 9.9 percent, compared with December 31, 2017. The increase was driven by a combination of the company's acquisition of Meridian and organic growth.

Medicare Health Plans revenue of $1.6 billion for the fourth quarter of 2018 increased 12.9 percent compared with the fourth quarter of 2017. The increase was primarily driven by organic growth due to the company's 2018 bid strategy and the acquisition of Meridian.

The Medicare Health Plans MBR for the fourth quarter of 2018 was 87.1 percent compared with 88.4 percent for fourth quarter of 2017. The decrease was primarily due to the reinstatement of the ACA HIF in 2018, the company's 2018 bid strategy, and continued operational execution.

Medicare Prescription Drug Plans (PDP) Segment Results

Medicare PDP membership was approximately 1.1 million as of December 31, 2018, and decreased by approximately 95,000 members, or 8.2 percent, compared with December 31, 2017. The decrease was primarily a result of the company's 2018 bid positioning.

Medicare PDP revenue of $192.8 million for the fourth quarter of 2018 decreased by 11.6 percent compared with the fourth 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 fourth quarter of 2018 was 59.0 percent compared with 71.4 percent for the fourth quarter of 2017. The decrease was primarily the result of favorable trends in the fourth quarter of 2018 as compared to the fourth quarter of 2017.

Operating Cash Flow and Financial Condition

Net cash provided by operating activities was $81.0 million for the three months ended December 31, 2018 compared with net cash used by operating activities of $195.5 million for the three months ended December 31, 2017.

Net cash provided by operating activities was $279.0 million for the twelve months ended December 31, 2018 compared with net cash provided by operating activities of $1.1 billion for the twelve months ended December 31, 2017.

As of December 31, 2018, unregulated cash, cash equivalents and investments were approximately $516.0 million, compared with $617.0 million as of December 31, 2017.  Sequentially, unregulated cash, cash equivalents and investments increased $53.4 million from $462.6 million as of September 30, 2018.

Days in claims payable (DCP) was 52.2 days as of December 31, 2018 compared with 51.9 days as of December 31, 2017 and 54.2 days as of September 30, 2018.

Conference Call and Webcast

A discussion of WellCare's fourth quarter and full-year 2018 results will be available via a conference call and live webcast today at 9:30 a.m. ET.

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/wcg190205.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/10127015. 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 ET on Tuesday, February 12, 2019. This replay may be accessed by dialing either of the numbers below and entering the replay access code 10127015:

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 December 31, 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") in 2017 and 2018; amortization expense associated with acquisitions ("acquisition-related amortization expenses"); the 2017 costs associated with the redemption of the company's 2020 notes, including the early redemption premium, write-off of associated deferred financing costs and write-off of associated premiums paid on the 2020 notes ("loss on extinguishment of debt"); the tax effect of the deferred tax revaluation after the Tax Cuts and Jobs Act of 2017 was enacted in December 2017 ("deferred tax revaluation"); and certain one-time transaction and integration costs related to the acquisitions of Universal American, Meridian and Aetna Part D business ("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 other costs mentioned above are related to specific events, which do not reflect the underlying ongoing performance of the business.

In addition, because reimbursements for Medicaid premium tax and the Medicaid-associated 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 in 2018, 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 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, loss on extinguishment of debt, 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, excluding the income tax expense effect due to the deferred tax revaluation.

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 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 identify, estimate and manage growth, 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 September 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.

2019 Financial Outlook

WellCare is increasing its full-year 2019 adjusted EPS guidance to a range of $13.25 to $13.50 from $13.15 to $13.40, which excludes any impact from the recently announced North Carolina award.