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WELLCARE REPORTS THIRD QUARTER 2015 RESULTS TAMPA, Fla. (Nov. 4, 2015) WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the quarter ended As determined under generally accepted
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WELLCARE REPORTS THIRD QUARTER 2015 RESULTS TAMPA, Fla. (Nov. 4, 2015) WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the quarter ended As determined under generally accepted accounting principles (GAAP), net income for the third quarter of 2015 was $36.4 million, or $0.82 per diluted share. Adjusted net income for the third quarter of 2015 was $44.6 million, or $1.00 per diluted share. Our third quarter 2015 results reflect continued progress and improved operational performance, said Kenneth Burdick, WellCare s chief executive officer. We are especially pleased that we were selected to serve Medicaid recipients in Iowa beginning in 2016 and to continue serving Georgia s Medicaid members under a new program beginning July 1, We expect our Iowa Medicaid business to be a meaningful contributor to our results in the long-term after investments that we are making to ramp up operations and transition members to this new managed Medicaid program, Burdick continued. We are optimistic about our future and believe we are well-positioned to achieve margin expansion on our current business in Key Metrics 3Q15 Earnings per Diluted Share (GAAP) $0.82 Adjusted Earnings per Diluted Share* $1.00 Total Premium Revenue (GAAP) ($ millions) $3,437.3 Adjusted Premium Revenue* ($ millions) $3,359.5 Segment Premium Revenue ($ millions): Medicaid Health Plans (GAAP) $2,273.9 Adjusted Medicaid Health Plans* $2,196.1 Medicare Health Plans $961.1 Medicare Prescription Drug Plans (PDP) $202.3 Segment Medical Benefits Ratios (MBR): Medicaid Health Plans (GAAP) 87.6% Adjusted Medicaid Health Plans* 90.7% Medicare Health Plans 86.9% Medicare Prescription Drug Plans (PDP) 60.0% Selling, General and Administrative (SG&A) Ratio (GAAP) 8.1% Adjusted SG&A Ratio* 7.9% *Refer to the basis of presentation for a discussion of non-gaap financial measures. 1 Highlights from the Third Quarter of 2015 Medicaid Health Plans membership grew to approximately 2.4 million members at 2015, an increase of 147,000 members from 2014, and 5,000 members from June 30, Medicare Advantage membership grew to approximately 355,000 members at 2015, an increase of 1.7 percent from June 30, The Medicare Health Plans MBR of 86.9 percent improved 380 basis points compared with the third quarter of The Medicare PDP MBR improved from 89.6 percent in the third quarter of 2014 to 60.0 percent in the third quarter of 2015 as a result of the effect of improved pharmacy rebate management and bid positioning for the 2015 plan year. As previously announced on September 11, 2015, WellCare received a Notice of Intent to Award (NOIA) a contract from the Georgia Department of Community Health (DCH) to continue serving Medicaid recipients in Georgia. Services under the new contract are expected to begin on July 1, 2016, with an initial one-year term and five additional one-year renewal options at the discretion of Georgia DCH. As previously announced, on October 9, 2015, WellCare signed a contract with the Iowa Department of Human Services (DHS) to serve Iowa s Medicaid Managed Care program, IA Health Link, statewide. Services under the contract are expected to begin on January 1, The contract is for three years and may be extended for two additional one-year terms at Iowa DHS discretion Financial Outlook WellCare is updating its full-year 2015 adjusted earnings per diluted share guidance, excluding the impact of Iowa, to a range of $3.35 to $3.45 from its previous guidance of $3.30 to $3.45 per diluted share. The revised guidance does not include the effect of an expected premium deficiency reserve (PDR) and startup costs the company expects to record in the fourth quarter of 2015 in connection with the new Iowa Medicaid Managed Care program. In consideration of the initial rate structure, the estimated medical benefit and other costs expected to be incurred during the three-year contract period of Iowa s Medicaid Managed Care program, the company will be completing a PDR evaluation in the fourth quarter of WellCare currently expects to record a pretax PDR in the range of $85.0 million to $95.0 million, or approximately $1.20 to $1.35 per diluted share, in the fourth quarter of The company expects to incur approximately $6.0 million to $9.0 million in pretax start-up costs related to Iowa in the fourth quarter of Refer to the 2015 guidance table included with this release for guidance ranges on specific financial metrics. Consolidated Operations Results GAAP net income for the third quarter of 2015 was $36.4 million, or $0.82 per diluted share, compared with GAAP net income of $19.3 million, or $0.44 per diluted share, for the third quarter of Adjusted net income for the third quarter of 2015 was $44.6 million, or $1.00 per diluted share, compared with adjusted net income of $26.3 million, or $0.59 per diluted share, for the third quarter of The year-over-year improvement in adjusted net income is the result of operational improvement, including improvement in the Medicare Health Plans and Medicare PDP segments. GAAP total premium revenue for the third quarter of 2015 was $3.4 billion compared with GAAP total premium revenue of approximately $3.4 billion for the third quarter of Adjusted premium revenue of approximately $3.36 billion in the third quarter of 2015 increased slightly from approximately $3.34 billion in the third quarter of GAAP SG&A expense was $279.6 million in the third quarter of 2015 compared with $261.5 million for the same period in Adjusted SG&A expense was $266.4 million in the third quarter of 2015 compared with $250.8 million in the third quarter of The adjusted SG&A expense ratio was 7.9 percent in the third quarter of 2015 compared with 7.5 percent in the third quarter of The increase in SG&A expenses was consistent with the company s expectations for SG&A progression during the year. Medicaid Health Plans Segment Results Membership in the company s Medicaid Health Plans increased by 147,000, or 6.5 percent year over year, to approximately 2.4 million members as of The increase was primarily a result of organic membership growth in Florida, Illinois and Kentucky. Adjusted Medicaid Health Plans premium revenue was $2.2 billion for the third quarter of 2015, an increase of 6.1 percent year over year, and was mainly the result of membership growth. The adjusted Medicaid Health Plans MBR was 90.7 percent for the third quarter of 2015, an increase of 140 basis points from the third quarter of 2014 and 190 basis points sequentially. The year-over-year and sequential increases were in-line with the company s expectations. Medicare Health Plans Segment Results As previously announced, on July 1, 2015, WellCare completed the sale of Sterling Life Insurance Company (Sterling), the Medicare supplement business that the company acquired as part of the Windsor Health Group transaction in January Sterling was sold at a pretax gain of $4.6 million, which was excluded from adjusted earnings in the third quarter. The effect of the company s bid positioning for the 2015 plan year and the sale of Sterling were the primary drivers in the year-over-year decline in Medicare membership as of 2015 and the decrease in Medicare segment premium revenues as outlined below: Medicare Health Plans membership as of 2015, was 355,000 members, a decrease of 14.7 percent from Segment premium revenue in the third quarter of 2015 decreased 5.0 percent year over year to $961.1 million. The Medicare Health Plans segment MBR in the third quarter of 2015 was 86.9 percent, an improvement of 380 basis points compared with the third quarter of The improvement was primarily the result of the company s 2015 bid outcome. Medicare Prescription Drug Plans (PDP) Segment Results WellCare s Medicare PDP segment produced substantial improvement in the third quarter of 2015 compared with the third quarter of 2014, primarily driven by the company s 2015 bid strategy, continued operational execution and improved pharmacy rebate management. The outcome of the 2015 bid strategy was the primary driver of the year-over-year decreases in membership and premium revenue as reflected below: The company s Medicare PDP segment membership as of 2015, decreased 337,000 year over year, or 24.6 percent, to approximately 1.03 million members. Premium revenue for the third quarter of 2015 was $202.3 million, a 21.0 percent decrease from the third quarter of The Medicare PDP segment MBR in the third quarter of 2015 was 60.0 percent, a significant improvement from 89.6 percent in the third quarter of 2014 and 79.2 percent in the second quarter of The year-over-year improvement was primarily the result of the 2015 bid strategy and improved pharmacy rebate management. Operating Cash Flow and Financial Condition Net cash provided by operating activities was $312.6 million for the three months ended 2015, compared with net cash provided by operating activities of $426.0 million for the three months ended For the nine months ended 2015, net cash provided by operating activities was $237.9 million compared with net cash provided by operating activities of $179.4 million for the nine months ended As of 2015, unregulated cash and investments were approximately $385.0 million compared with $369.9 million as of June 30, Days in claims payable (DCP) was 45.6 days as of 2015, compared with 43.0 days as of June 30, 2015, and 45.2 days as of Conference Call and Webcast A discussion of WellCare s third quarter 2015 results will be available via a conference call and live webcast today at 8:30 a.m. Eastern time (ET). The conference call will be webcast live from the company s website and be accessible in the Events and Presentations section at ir.wellcare.com. A replay of the webcast will be available approximately one hour following the conclusion of the conference call. The conference call can also be accessed by pre-registering using the following link: 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 . 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 (toll free): International participant dial in: A telephonic replay will be available until midnight ET on Wednesday, November 11, This replay may be accessed by dialing one of the numbers below and entering the replay access code of : Domestic replay (toll free): International replay: 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 3.8 million members nationwide as of For more information about WellCare, please visit the company s website at Basis of Presentation In addition to results determined under GAAP, WellCare provides certain non-gaap measurements that management believes are useful in assessing the Company s performance. Net income and certain other operating results have been adjusted for the effect of certain SG&A expenses related to previously disclosed government investigations and related litigation and resolution costs, transitory costs related to the company s decision to change its pharmacy benefit manager (PBM) as of January 1, 2016, and costs related to the divestiture of Sterling. Net income and certain operating results have also been adjusted for the effect of a gain on divestiture of Sterling. Management believes these items are not indicative of longterm business operations performance. Following is a description of the adjustments made to GAAP measures used to calculate the non-gaap measures used in this news release. Please refer to the schedules in this news release that provide supplemental information that reconcile results determined under GAAP to non-gaap results. Adjusted premium revenue = Total premium revenue (GAAP) less Medicaid state premium taxes revenue and Medicaid state 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. Adjusted SG&A expense (non-gaap) = SG&A (GAAP) expense less certain SG&A expenses related to previously disclosed government investigations and related litigation and resolution costs, PBM transitory costs and Sterling divestiture costs. SG&A ratio (GAAP) = SG&A expense (GAAP) divided by total premium revenue (GAAP). Adjusted SG&A ratio (non-gaap) = adjusted SG&A expense divided by adjusted premium revenue. Adjusted income before taxes (non-gaap) = income before income taxes (GAAP) less the government investigations and related litigation and resolution costs, PBM transitory costs, the Sterling gain and Sterling divestiture costs. Adjusted income tax expense (non-gaap) = income tax associated with the adjusted income before taxes, based on the applicable effective income tax rate. Effective income tax rate (GAAP) = Income tax expense (GAAP) divided by income before taxes (GAAP). Adjusted effective income tax rate (non-gaap) = adjusted income tax expense divided by adjusted income before taxes. Adjusted net income = adjusted income before taxes less adjusted income tax expense. 5 Adjusted earnings per diluted share (non-gaap) = Adjusted net income divided by weighted average common shares outstanding on a fully diluted basis. The schedules contained in this news release may contain totals that do not add due to rounding. Cautionary Statement Regarding Forward-Looking Statements This news release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 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, the pending Medicaid contract with Georgia DCH and the commencement of services under Iowa s new Medicaid managed care program, including any anticipated premium deficiency reserve, 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 forwardlooking statements. These risks and uncertainties include, but are not limited to, the outcome of any protests related to the Medicaid awards, the approval of the Medicaid contracts by CMS, any changes to the programs or contracts, WellCare s ability to address operational challenges related to new business, including, but not limited to, WellCare s ability to meet the requirements of readiness reviews. WellCare s progress on top priorities such as improving health care quality and access, ensuring a competitive cost position, and delivering prudent, profitable growth, WellCare s ability to effectively estimate and manage growth, WellCare s ability to 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, and WellCare s ability to comply with the terms of the Corporate Integrity Agreement. Given the risks and uncertainties inherent in forwardlooking 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 ( SEC ), included under the captions Forward-Looking Statements and Risk Factors in the Company s Annual Report on Form 10-K for the year ended December 31, 2014, and the Company s Quarterly Report on Form 10-Q for the period ended June 30, 2015, and other filings by WellCare with the SEC, which contain discussions of WellCare s business and the various factors that may affect it. Subsequent events and developments may cause actual results to differ, perhaps materially, from WellCare s forward-looking statements. WellCare 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. CONTACTS: Investor: Media: Angie McCabe Crystal Warwell Walker Vice President, Investor Relations Senior Director, External Communications Tel: Tel: WellCare Health Plans, Inc Guidance (Excludes the Impact of Iowa in the Fourth Quarter of 2015) Guidance Metric 2015 Guidance As of November 4, Guidance As of August 5, 2015 Segment premium revenue: Adjusted Medicaid Health Plans (1) $8.70B to $8.75B $8.65B to $8.75B Medicare Health Plans $3.90B to $3.95B $3.9B to $4.0B Medicare PDP $925M to $975M $950M to $1.0B Adjusted premium revenue (1) $13.525B to $13.675B $13.5B to $13.75B Segment MBR: Adjusted Medicaid Health Plans, excluding Iowa (2) 89.75% to 90.25% 89.75% to 90.25% Medicare Health Plans 86.50% to 87.00% 86.50% to 87.00% Medicare PDP 80.75% to 81.25% 81.75% to 82.25% Investment & other income $13M to $16M $13M to $16M Adjusted SG&A ratio, excluding Iowa (3)(6) 7.7% to 7.8% 7.7% to 7.8% ACA industry fee expense $227.3M $229M to $231M Depreciation and amortization $71M to $73M $71M to $73M Interest expense $53M to $55M $53M to $55M Adjusted effective income tax rate, excluding Iowa (4)(6) 60.0% to 62.0% 60.0% to 62.0% Adjusted earnings per diluted share, excluding Iowa (5)(6) $3.35 to $3.45 $3.30 to $3.45 (1) Excludes an estimated $93.0 million to $95.0 million in Medicaid state premium taxes and an estimated $213.0 million to $215.0 million for Medicaid state ACA industry fee reimbursement. (2) Excludes the effect of the current Iowa PDR estimate of $85.0 million to $95.0 million on medical expenses and the estimated Medicaid state premium taxes and the Medicaid state ACA industry fee reimbursement on Medicaid Health Plans premium revenue. (3) Excludes the following items: an estimated $3.0 million to $4.0 million in Sterling divestiture costs; an estimated $6.0 million to $9.0 million in Iowa start-up costs; estimated Medicaid state premium taxes and Medicaid state ACA industry fee reimbursement; and PBM transitory costs and government investigationrelated costs that the company is unable to project for future periods. (4) Excludes the estimated income tax effect associated with the Iowa PDR and start-up costs, the government investigation-related costs, PBM transitory costs, the Sterling gain and Sterling divestiture costs. (5) The company estimates adjusted earnings per diluted share guidance, excluding Iowa, by adjusting net income for the estimated net of tax effect of government investigation-related costs, the Sterling gain and Sterling divestiture costs, PBM transitory costs, and the Iowa PDR and start-up costs. (6) WellCare is not able to project the amount of future costs associated with the PBM transition, government investigations or any potential changes in the gain related to t
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