WellCare Reports Fourth Quarter And Full-Year 2017 Results

TAMPA, Fla., Feb. 6, 2018 /PRNewswire/ -- WellCare Health Plans, Inc. (NYSE: WCG) ("WellCare") today reported results for the quarter ended December 31, 2017. As determined under generally accepted accounting principles (GAAP), net income for the fourth quarter of 2017 was $60.7 million, or $1.34 per diluted share. Adjusted net income for the fourth quarter of 2017 was $14.2 million, or $0.32 per diluted share. GAAP net income for the full-year 2017 was $373.7 million, or $8.31 per diluted share. Adjusted net income for 2017 was $383.2 million, or $8.52 per diluted share.

"2017 was a very strong year for WellCare, and our performance demonstrates the continued progress we are making toward achieving our multi-year strategic plan," said Ken Burdick, WellCare's chief executive officer. "We closed two acquisitions and successfully implemented two Medicaid contracts that contributed to our growth in 2017. As we enter 2018, we are well-positioned to continue to grow and deliver value to our stakeholders."

Due to the enactment of the Tax Cuts and Jobs Act of 2017 in December 2017, WellCare's results include a $56.1 million, or $1.25 per diluted share, noncash benefit from the revaluation of the company's net deferred tax liability. This one-time item has been excluded from adjusted earnings per diluted share for the fourth quarter and full-year 2017.

Key Highlights

• GAAP earnings per diluted share for the full-year 2017 of $8.31 increased 53.0 percent compared with the full-year 2016.
• Adjusted earnings per diluted share for the full-year 2017 of $8.52 increased 43.0 percent compared with the full-year 2016.
• GAAP net income margin for the full-year 2017 was 2.2 percent, a 50 basis point improvement compared with the full-year 2016.
• Adjusted net income margin for the full-year 2017 was 2.3 percent, a 40 basis point improvement compared with the full-year 2016.
• GAAP Medicaid Health Plans premium revenue of $10.7 billion for the full-year 2017 increased 12.9 percent compared with the full-year 2016.
• Adjusted Medicaid Health Plans premium revenue of $10.6 billion for the full-year 2017 increased 16.0 percent compared with the full-year 2016.
• Medicare Health Plans premium revenue of $5.3 billion for the full-year 2017 increased 37.2 percent compared with the full-year 2016.
• Adjusted Medicaid Health Plans MBR for the full-year 2017 was 88.8 percent, an improvement of 70 basis points compared with the full-year 2016.
• In the fourth quarter of 2017, WellCare recorded a $45.6 million, or $0.64 per diluted share, premium deficiency reserve ("Illinois PDR") in connection with its new Medicaid managed care contract with Illinois HFS that was effective on January 1, 2018. The PDR reflects the initial premium rate structure, estimated medical benefits and other costs expected to be incurred during the initial four-year contractual term of the contract.
• As of December 31, 2017, unregulated cash and investments were approximately $617.0 million.

2018 Financial Outlook

WellCare is increasing its full-year 2018 adjusted EPS to a range of $9.55 to $9.85 from its previous guidance range of $8.40 to $8.65 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

As a result of the enactment of the Tax Cuts and Jobs Act of 2017, WellCare's fourth quarter 2017 results include a $56.1 million, or a $1.25 per diluted share, noncash benefit from the revaluation of the company's net deferred tax liability. This one-time item is included in the company's GAAP net earnings results but has been excluded from adjusted earnings for the fourth quarter and full-year 2017.

GAAP net income for the fourth quarter of 2017 was $60.7 million, or $1.34 per diluted share, compared with $44.9 million, or $1.00 per diluted share, for the fourth quarter of 2016. The year-over-year increase in GAAP net income was primarily a result of the effects of the enactment of the Tax Cuts and Jobs Act of 2017; organic growth; the company's acquisitions of Universal American Corp., Care1st Arizona and Phoenix Health Plan assets in 2017; and continued operational execution across all three lines of business, partially offset by the Illinois PDR that was recorded in the fourth quarter of 2017.

Adjusted net income for the fourth quarter of 2017 was $14.2 million, or $0.32 per diluted share, compared with $46.0 million, or $1.03 per diluted share, for the fourth quarter of 2016. The year-over-year decrease in adjusted net income was primarily the result of the Illinois PDR, partially offset by organic growth, the company's acquisitions of Universal American, Care1st Arizona and Phoenix Health Plan assets in 2017, and continued operational execution across all three lines of business.

GAAP net income margin for the fourth quarter of 2017 was 1.4 percent compared with 1.3 percent for the fourth quarter of 2016. Adjusted net income margin for the fourth quarter of 2017 was 0.3 percent compared with 1.3 percent for the fourth quarter of 2016.

GAAP and adjusted total premium revenue of $4.33 billion and $4.30 billion, respectively, for the fourth quarter of 2017 increased 23.1 percent and 25.5 percent, respectively, compared with the fourth quarter of 2016. The year-over-year increases in GAAP and adjusted total premium revenue were primarily the result of the company's acquisitions of Universal American, Care1st Arizona and Phoenix Health Plan assets and organic growth across all three lines of business.

GAAP SG&A expense was $444.5 million for the fourth quarter of 2017 compared with $317.7 million for the fourth quarter of 2016. Adjusted SG&A expense was $439.6 million for the fourth quarter of 2017 compared with $313.9 million for the fourth quarter of 2016.

The GAAP SG&A expense ratio was 10.3 percent for the fourth quarter of 2017 compared with 9.0 percent for the fourth quarter of 2016. The adjusted SG&A expense ratio was 10.2 percent for the fourth quarter of 2017 compared with 9.2 percent for the fourth quarter of 2016.

The year-over-year increases in the GAAP and adjusted SG&A expenses and expense ratios were primarily the result of the company's acquisitions of Universal American and Care1st Arizona, staffing and infrastructure costs to support organic growth, and variable management incentive compensation due to improved performance.

Medicaid Health Plans Segment Results

Medicaid Health Plans membership was 2.7 million as of December 31, 2017, and increased by 179,000 members, or 7.0 percent, compared with December 31, 2016. The increase is primarily a result of new members from the statewide expansion of the Missouri Medicaid program and the addition of the company's new Medicaid businesses in Nebraska and Arizona. The increase was partially offset by membership declines in Georgia due to the addition of a fourth managed care organization effective July 1, 2017. Sequentially, Medicaid membership at December 31, 2017 increased slightly from September 30, 2017.

GAAP and adjusted Medicaid Health Plans premium revenue was $2.67 billion and $2.64 billion, respectively, for the fourth quarter of 2017, an increase of 12.8 percent and 15.9 percent, respectively, compared with the fourth quarter of 2016. The increases in GAAP and adjusted premium revenue were primarily the result of the addition of new Medicaid businesses in Arizona and Nebraska and new members from the statewide expansion of the Missouri Medicaid program.

The GAAP Medicaid Health Plans MBR was 89.0 percent for the fourth quarter of 2017 compared with 87.2 percent for the fourth quarter of 2016. The adjusted Medicaid Health Plans MBR was 90.0 percent for the fourth quarter of 2017 compared with 90.6 percent for the fourth quarter of 2016. The increase in the GAAP MBR was primarily the result of the ACA industry fee moratorium for 2017 and the effect of the Illinois PDR. The decrease in the adjusted Medicaid MBR was primarily the result of continued operational execution partially offset by the effect of the Illinois PDR.

Medicare Health Plans Segment Results

Medicare Health Plans membership was 496,000 members as of December 31, 2017 and increased by 151,000 members, or 43.8 percent, compared with December 31, 2016. The increase was primarily a result of the company's acquisition of Universal American, 2017 bid positioning and continued execution on sales and retention initiatives.

Medicare Health Plans premium revenue of $1.44 billion for the fourth quarter of 2017 increased 50.9 percent compared with the fourth quarter of 2016. The increase was primarily due to the company's acquisition of Universal American as well as its 2017 bid strategy that resulted in year-over-year organic membership growth.

The Medicare Health Plans MBR for the fourth quarter of 2017 was 88.4 percent compared with 85.8 percent for the fourth quarter of 2016. The year-over-year increase was primarily due to the acquisition of Universal American, the company's 2017 bid strategy and increased investments in quality initiatives.

Medicare Prescription Drug Plans (PDP) Segment Results

Medicare PDP membership was approximately 1.2 million as of December 31, 2017, and increased by 143,000 members, or 14.2 percent, compared with December 31, 2016. The increase was primarily a result of the company's 2017 bid positioning.

Medicare PDP premium revenue of $218.2 million for the fourth quarter of 2017 increased 12.4 percent compared with the fourth quarter of 2016. The increase was primarily due to the company's 2017 bid positioning.

The Medicare PDP segment MBR for the fourth quarter of 2017 was 71.4 percent compared with 58.9 percent for the fourth quarter of 2016. The year-over-year increase was primarily the result of the company's 2017 bid strategy.     

Operating Cash Flow and Financial Condition

Net cash used by operating activities was $195.5 million for the three months ended December 31, 2017, compared with net cash used by operating activities of $332.0 million for the three months ended December 31, 2016.

For the twelve months ending December 31, 2017, net cash provided by operating activities was $1.05 billion compared with net cash provided by operating activities of $748.3 million for the twelve months ending December 31, 2016.

As of December 31, 2017, unregulated cash and investments were approximately $617.0 million compared with $915.3 million as of December 31, 2016. Sequentially, unregulated cash and investment increased $34.8 million from $582.2 million as of September 30, 2017.

Days in claims payable (DCP) was 51.9 days as of December 31, 2017 compared with 51.0 days as of September 30, 2017 and 50.7 days as of December 31, 2016.

Conference Call and Webcast

A discussion of WellCare's fourth quarter and full-year 2017 results will be available via a conference call and live webcast today at 9:30 a.m. EST.

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/wcg180206.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/10115466. 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, February 13, 2018. This replay may be accessed by dialing either of the numbers below and entering the replay access code 10115466:

Domestic replay (toll-free) number:  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 exclusively on providing government-sponsored managed care services, primarily through Medicaid, Medicare Advantage and Medicare Prescription Drug Plans, to families, children, seniors and individuals with complex medical needs. The company served approximately 4.4 million members nationwide as of December 31, 2017. For more information about WellCare, please visit the company's website at www.wellcare.com.

Basis of Presentation

Discontinued Operations

In 2016, Universal American 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, results in the reinsurance of all of the life insurance policies underwritten by the retained subsidiary. Accordingly, the discontinued business did not materially affect WellCare's results of operations for the three and twelve months ended December 31, 2017. 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, which will be filed within 60 days following the last day of the year 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 in 2017 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"); certain one-time transaction costs related to the acquisition of Universal American ("Universal American-related transaction costs");  certain one-time costs associated with the integration of Universal American's operations expected to be incurred through 2019 ("Universal American-related integration costs"); the 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"); and 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").

In 2016, these financial measures have been adjusted for investigation costs; acquisition-related amortization expenses; Universal American-related transaction costs, the effect of transitory costs related to the company's decision to change its pharmacy benefit manager as of January 1, 2016 ("PBM transitory costs"); certain nonrecurring incurred Iowa-related SG&A expenses relating to readiness costs, certain wind-down costs of WellCare's Iowa operations and certain legal costs ("Iowa SG&A costs"); and costs related to the 2015 divestiture of Sterling Life Insurance Company ("Sterling divestiture 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 2016 and 2017 events, which do not reflect the underlying ongoing performance of the business.

In addition, because reimbursements for Medicaid premium tax and the ACA industry fee 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 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, Universal American-related integration costs and deferred tax revaluation to be incurred during 2018, 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 premium revenue (non-GAAP) = Total premium revenue (GAAP) less Medicaid premium taxes revenue and Medicaid reimbursements of the ACA industry fee. 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 total 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 premium revenue (GAAP).

Adjusted SG&A expense (non-GAAP) = SG&A expense (GAAP) less investigation costs, Universal American-related transaction and integration costs, PBM transitory costs, Sterling divestiture costs and Iowa SG&A costs.

Adjusted SG&A ratio (non-GAAP) = adjusted SG&A expense divided by adjusted premium 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, Universal American-related transaction and integration costs, PBM transitory costs, Sterling divestiture costs, loss on extinguishment of debt, and Iowa SG&A 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 premium revenue (GAAP).

Adjusted net income margin (non-GAAP) = adjusted net income divided by adjusted premium 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," "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 estimate and manage growth, WellCare's ability to effectively execute and integrate acquisitions, 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 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, 2016,  and in the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, 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 $9.55 to $9.85 from its previous guidance range of $8.40 to $8.65.