WELLCARE ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2006 RESULTS
$1.2 BILLION IN QUARTERLY REVENUES; $1.38 DILUTED EARNINGS PER SHARE
| · | Fourth quarter revenues grew 129% to $1.2 billion year over year |
| · | Fourth quarter net income grew 425.5% year over year |
| · | Membership grew to 2,258,000; 164% growth year over year |
| · | PDP membership grew to 923,000 members |
| · | Georgia membership grew to 477,000 members |
| · | Medicare Advantage membership grew over 30% year over year |
Tampa, Florida (February 13, 2007)— WellCare Health Plans, Inc. (NYSE: WCG) today announced that net income for the fourth quarter of 2006 increased 425.5% to $57.0 million, or $1.38 per diluted share, based on 41.2 million weighted average shares outstanding, compared with net income of $10.8 million, or $0.27 per diluted share, based on 39.7 million weighted average shares outstanding for the same period last year. Fourth quarter 2006 revenues increased 129.0% to $1.2 billion compared with $511.5 million for the fourth quarter of 2005.
“2006 was a transformative year for WellCare,” said Todd S. Farha, Chairman and Chief Executive Officer. “We added over 1.4 million members and doubled our revenue without losing focus on delivering high service levels to our providers and members. We look forward to building on our strong 2006 results in 2007 and in future years.”
Results of Operations for the Fourth Quarter
Total Revenues: Total revenues in the fourth quarter of 2006 increased 129.0% to $1.2 billion compared with $511.5 million for the same period last year. Fourth quarter 2006 revenue increases were principally attributable to the Company’s strong growth in membership, primarily due to the addition of the Company’s PDP products and the launch of its Georgia Medicaid health plan.
Medical Benefits Expense: Medical benefits expense for the fourth quarter of 2006 was $905.2 million, representing 78.4% of premium revenues, compared with $405.3 million, representing 80.2% of premium revenues, for the same period last year.
Selling, General and Administrative Expense: Selling, general and administrative (SG&A) expense for the fourth quarter of 2006 was $166.0 million, representing 14.2% of total revenues, compared with $82.5 million, or 16.1% of total revenues, for the same period last year, which included costs to prepare for the launch of PDP and Georgia.
Net Income: Net income for the fourth quarter of 2006 was $57.0 million, or $1.38 per diluted share, based on 41.2 million weighted average shares outstanding, compared with net income of $10.8 million, or $0.27 per diluted share, based on 39.7 million weighted average shares outstanding, for the same period last year.
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 2
February 13, 2007
Results of Operations for the Year
Total Revenues: Total revenues for the year ended December 31, 2006 increased $1.9 billion, or 100.2%, to $3.8 billion, compared with $1.9 billion for the same period last year. 2006 revenue increases were principally attributable to the Company’s membership growth, including the launch of PDP and Georgia, and mix of members between product lines.
Medical Benefits Expense: Medical benefits expense for the year ended December 31, 2006 was $3.0 billion, representing 81.1% of premium revenues, compared with $1.5 billion, representing 81.2% of premium revenues for the same period last year.
Selling, General and Administrative Expense: SG&A expense was $492.8 million for the year ended December 31, 2006, representing 13.1% of total revenues, compared with $259.5 million, or 13.8% of total revenues, for the same period last year.
Net Income: Net income for the year ended December 31, 2006 was $139.2 million, or $3.43 per diluted share, based on 40.6 million weighted average shares outstanding, compared with net income of $51.9 million, or $1.32 per diluted share, based on 39.3 million weighted average shares outstanding, for the same period last year.
Balance Sheet and Cash Flow Highlights
As of December 31, 2006, the Company had cash and cash equivalents of $964.5 million as well as investments classified as current assets of $126.4 million, for a total of $1.1 billion in cash and short-term investments. For the quarter ended December 31, 2006, the Company’s net cash provided by operations was $178.4 million on a GAAP basis, which does not include adjustments for the timing of receipt of payments from the Company’s government partners. On an adjusted basis, excluding the cash used by the change in unearned premiums of $13.2 million, the cash used in the change in other receivables/payables from government partners of $145.3 million and the cash provided by the change in premiums receivable of $49.6 million, net cash provided by operations was $69.5 million, or 1.2 times net income, for the quarter ended December 31, 2006. Days in claims payable was 47 at the end of the fourth quarter of 2006 compared with 56 at the end of the third quarter of 2006 and 55 at the end of the fourth quarter of 2005. This decrease is primarily attributable to settlement of CMS reconciliation issues. The Company previously reserved for these settlement issues.
Membership and Other Operating Statistics
Total State Membership (excluding PDP) | | Dec. 31, 2006 | | Dec. 31, 2005 | |
| Florida | | | 525,000 | | | 545,000 | |
| Georgia | | | 477,000 | | | - | |
| New York | | | 117,000 | | | 95,000 | |
| Illinois | | | 98,000 | | | 92,000 | |
| Indiana | | | 70,000 | | | 85,000 | |
| Connecticut | | | 39,000 | | | 37,000 | |
| Missouri | | | 4,000 | | | - | |
| Louisiana | | | 3,000 | | | 1,000 | |
| Ohio | | | 2,000 | | | - | |
Total State Membership (excluding PDP) | | | 1,335,000 | | | 855,000 | |
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 3
February 13, 2007
Total Membership (including PDP) | Dec. 31, 2006 | Dec. 31, 2005 |
Medicaid Membership | | |
TANF | 1,069,000 | 621,000 |
SCHIP | 95,000 | 82,000 |
SSI | 51,000 | 58,000 |
FHP | 30,000 | 25,000 |
Total Medicaid Membership | 1,245,000 | 786,000 |
| | | |
Medicare Membership | | |
Medicare Advantage | 90,000 | 69,000 |
PDP | 923,000 | - |
Total Medicare Membership | 1,013,000 | 69,000 |
Total Membership (including PDP) | 2,258,000 | 855,000 |
| | Three Months Ended Dec. 31, |
| | 2006 | 2005 |
| Medical Benefits Ratio | 78.4% | 80.2% |
| SG&A Expense Ratio | 14.2% | 16.1% |
| | Dec. 31, 2006 | Sept. 30, 2006 | Dec. 31, 2005 |
| Days in Claims Payable | 47 | 56 | 55 |
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 4
February 13, 2007
Growth Initiatives
Medicare Prescription Drug Plans. In January 2006, the Company commenced offering its national stand-alone prescription drug plans under Medicare Part D in all 34 PDP regions established by the Centers for Medicare & Medicaid Services (CMS). As of December 31, 2006, the Company had approximately 923,000 PDP members.
Georgia Expansion. The Company launched new Medicaid health plans in Georgia in June 2006 in the Atlanta and Central regions. In September and October 2006, the four remaining Georgia regions transitioned to managed care. The Company was the only health plan selected to provide Medicaid services on a statewide basis in Georgia. As of December 31, 2006, the Company had approximately 476,000 Georgia Medicaid members.
Private Fee-For-Service (PFFS) Plans. In January 2007, the Company began offering PFFS plans in over 739 counties in 39 states and Washington, D.C. Current membership in the Company’s PFFS plans is approximately 18,000.
Ohio Expansion. In the fourth quarter of 2006, the Company began participation in the Ohio northeast region managed care expansion of the Covered Families and Children and the aged, blind and disabled population programs. Current membership in the Company’s Ohio plans is approximately 26,000.
Guidance. The Company is increasing its previously issued full-year 2007 guidance with new expectations of revenues of $4.95 billion and earnings per diluted share of $4.10 to $4.20, based on 41.8 million weighted average shares outstanding. In addition, the Company is raising its previously issued first quarter guidance to:
| § | Revenues of $1.2 billion; and |
| § | Earnings per diluted share of $0.53, based on 41.4 million weighted average shares outstanding. |
Conference Call
The live broadcast of WellCare’s fourth quarter and full-year 2006 conference call will begin at 8:30 a.m. Eastern time on February 14, 2007. A 30-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to the live broadcast and online replay can be found on the Company’s website at www.wellcare.com, under the Investor Relations section, or at www.earnings.com.
Supplemental Information
The Company reports cash provided by operations on a non-GAAP basis to exclude cash provided by the change in unearned premiums and cash used in the change in premiums and other receivables. The Company believes that excluding changes in unearned premiums, premiums receivable and other receivables from government partners is a better measure of cash flow from operations, as these changes are strictly a function of the timing of cash receipts from federal and state agencies at the end of a period.
About WellCare Health Plans, Inc.
WellCare Health Plans, Inc. provides managed care services exclusively for government-sponsored healthcare programs, focusing on Medicaid and Medicare. Headquartered in Tampa, Florida, WellCare offers a variety of Medicaid and Medicare plans, including health plans for families, children, the aged, blind and disabled and prescription drug plans, currently serving over 2,258,000 members nationwide. For more information about WellCare, please visit the Company’s website at www.wellcare.com.
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 5
February 13, 2007
Cautionary Statement Regarding Forward-Looking Statements
Statements contained in this release which are not historical fact may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The Company intends such statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “predicts,” “potential,” “continues” and similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company’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: the potential expiration, cancellation or suspension of the Company’s state or federal contracts; the Company’s lack of prior operating history, including lack of experience with network providers and health benefits management in expansion markets, including Georgia, Missouri and Ohio; the Company’s lack of prior operating history in its Medicare PDP and PFFS plans and potential inability to accurately predict the number of members in these plans; the Company’s ability to accurately predict and effectively manage health benefits and other operating expenses, including the Company’s ability to reinsure certain risks related to medical expenses; the potential for confusion in the marketplace concerning PDP and PFFS programs resulting from, among other things, the proliferation of health care options facing Medicare beneficiaries and the complexity of the PDP and PFFS offerings, including the benefit structures and the relative lack of awareness of these programs among health care providers, pharmacists and patient advocates; the Company’s ability to accurately estimate incurred but not reported medical costs; risks associated with future changes in healthcare laws, including repeal or modification of the Medicare Modernization Act of 2003 or any portion thereof; potential reductions in funding for government healthcare programs, including reductions in funding resulting from the escalating costs of prescription drugs; risks associated with periodic government reimbursement rate adjustments, the timing of the CMS risk-corridor payments to PDP providers and the accounting treatment for the PDP program; the Company’s ability to develop processes and systems to support its operations and future growth; regulatory changes and developments, including potential marketing restrictions, sanctions, governmental investigations or premium recoupments; potential fines, penalties or operating restrictions resulting from regulatory audits, examinations, investigations or other inquiries; risks associated with the Company’s acquisition strategy; risks associated with the Company’s efforts to expand into additional states and counties; risks associated with the Company’s substantial debt obligations; risks associated with the volatility of the Company’s common stock; and risks associated with the Company’s rapid growth, including the Company’s ability to attract and retain qualified management personnel. Additional information concerning these and other important risks and uncertainties can be found under the headings “Forward-Looking Statements” and “Risk Factors” in the Company’s 2005 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission in February 2006, and in the Company’s periodic reports filed from time to time with the Securities and Exchange Commission, which contain discussions of the Company’s business and the various factors that may affect it. The Company specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
5
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 6
February 13, 2007
WELLCARE HEALTH PLANS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share and per share data) | |
| | |
| | | Three Months Ended December 31, | | Year Ended December 31, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Revenues: | | | | | | | | | |
| Premium | | $ | 1,154,134 | | $ | 505,541 | | $ | 3,713,045 | | $ | 1,862,497 | |
| Investment and other income | | | 17,036 | | | 5,986 | | | 49,881 | | | 17,042 | |
| Total revenues | | | 1,171,170 | | | 511,527 | | | 3,762,926 | | | 1,879,539 | |
| | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | |
| Medical benefits | | | 905,236 | | | 405,268 | | | 3,012,163 | | | 1,512,109 | |
| Selling, general and administrative | | | 166,042 | | | 82,476 | | | 492,808 | | | 259,491 | |
| Depreciation and amortization | | | 4,429 | | | 2,828 | | | 17,170 | | | 9,204 | |
| Interest | | | 3,405 | | | 3,161 | | | 14,087 | | | 13,562 | |
| Total expenses | | | 1,079,112 | | | 493,733 | | | 3,536,228 | | | 1,794,366 | |
| | | | | | | | | | | | | | |
| Income before income taxes | | | 92,058 | | | 17,794 | | | 226,698 | | | 85,173 | |
| Income tax expense | | | 35,096 | | | 6,955 | | | 87,511 | | | 33,245 | |
| Net income | | $ | 56,962 | | $ | 10,839 | | $ | 139,187 | | $ | 51,928 | |
| | | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | | |
| Basic | | $ | 1.43 | | $ | 0.28 | | $ | 3.54 | | $ | 1.38 | |
| Diluted | | $ | 1.38 | | $ | 0.27 | | $ | 3.43 | | $ | 1.32 | |
| | | | | | | | | | | | | | |
| Weighted average | | | | | | | | | | | | | |
| common shares outstanding: | | | | | | | | | | | | | |
| Basic | | | 39,874,802 | | | 38,172,945 | | | 39,335,313 | | | 37,714,286 | |
| Diluted | | | 41,208,639 | | | 39,746,587 | | | 40,621,471 | | | 39,293,344 | |
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 7
February 13, 2007
WELLCARE HEALTH PLANS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) | |
| | | | | | |
| | | | | | |
ASSETS | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 964,542 | | $ | 421,766 | |
| Investments | | | 126,422 | | | 94,160 | |
| Premiums, net | | | 102,465 | | | 47,567 | |
| Other receivables from government partners | | | 40,902 | | | - | |
| Prepaid expenses and other current assets | | | 87,507 | | | 19,036 | |
| Income taxes receivable | | | - | | | 11,575 | |
| Deferred income taxes | | | 16,576 | | | 11,353 | |
| Total current assets | | | 1,338,414 | | | 605,457 | |
| Property , equipment, and capitalized software, net | | | 62,005 | | | 37,057 | |
| Goodwill | | | 189,470 | | | 185,779 | |
| Other intangibles, net | | | 18,855 | | | 21,668 | |
| Restricted investment assets | | | 53,382 | | | 37,308 | |
| Other assets | | | 1,839 | | | 220 | |
| Total Assets | | $ | 1,663,965 | | $ | 887,489 | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | | | | | | | |
| Medical benefits payable | | $ | 465,581 | | $ | 241,375 | |
| Unearned premiums | | | 23,806 | | | 12,606 | |
| Accounts payable | | | 8,015 | | | 4,867 | |
| Other accrued expenses | | | 172,043 | | | 52,976 | |
| Other payables to government partners | | | 104,076 | | | - | |
| Taxes payable | | | 13,181 | | | - | |
| Deferred income taxes | | | 1,735 | | | 1,260 | |
| Note payable to related party | | | - | | | 25,000 | |
| Current portion of long-term debt | | | 1,600 | | | 1,600 | |
| Funds held for the benefit of members | | | 113,652 | | | - | |
| Other current liabilities | | | 418 | | | 358 | |
| Total current liabilities | | | 904,107 | | | 340,042 | |
| Long-term debt | | | 154,021 | | | 155,461 | |
| Deferred income taxes | | | 34,666 | | | 16,577 | |
| Other liabilities | | | 8,116 | | | 5,285 | |
| Commitments and contingencies | | | - | | | - | |
| Total liabilities | | | 1,100,910 | | | 517,365 | |
| 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, 40,900,134 and 39,428,032 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively) | | | 409 | | | 394 | |
| Paid-in capital | | | 294,443 | | | 240,337 | |
| Retained earnings | | | 268,559 | | | 129,372 | |
| Accumulated other comprehensive income | | | (356 | ) | | 21 | |
| Total stockholders’ equity | | | 563,055 | | | 370,124 | |
| Total Liabilities and Stockholders’ Equity | | $ | 1,663,965 | | $ | 887,489 | |
7
WCG Announces Fourth Quarter and Full Year 2006 Results
Page 8
February 13, 2007
WELLCARE HEALTH PLANS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | |
| | |
| | | Year Ended December 31, | |
| | | 2006 | | 2005 | |
| Cash from operating activities: | | | | | |
| Net income | | $ | 139,187 | | $ | 51,928 | |
| Adjustments to reconcile net income | | | | | | | |
| to net cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | | | 17,170 | | | 9,204 | |
| Gain on extinguishment of debt | | | (1,000 | ) | | - | |
| Realized gain on investments | | | (377 | ) | | - | |
| Loss (gain) on disposal of fixed assets | | | 1,658 | | | 42 | |
| Equity-based compensation expense | | | 23,848 | | | 5,959 | |
| Accreted interest | | | 160 | | | 160 | |
| Incremental tax benefit received for option exercises | | | (3,649 | ) | | - | |
| Deferred taxes, net | | | 13,341 | | | 7,028 | |
| Provision for doubtful receivables | | | 17,429 | | | 1,635 | |
| Changes in operating accounts: | | | | | | | |
| Premiums receivable | | | (74,592 | ) | | 2,885 | |
| Other receivables from government partners | | | (40,902 | ) | | - | |
| Prepaid expenses and other, net | | | (66,206 | ) | | (11,720 | ) |
| Medical benefits payable | | | 224,206 | | | 50,780 | |
| Unearned premiums | | | 11,200 | | | (50,843 | ) |
| Accounts payable and accrued expenses | | | 121,077 | | | 22,425 | |
| Other payables to government partners | | | 104,076 | | | - | |
| Taxes receivable, net | | | 24,756 | | | (9,960 | ) |
| Other, net | | | 1,272 | | | 1,924 | |
| Net cash provided by operating activities | | | 512,654 | | | 81,447 | |
| Cash from investing activities: | | | | | | | |
| Purchase of business, net of cash acquired | | | (7,976 | ) | | (5,931 | ) |
| Proceeds from sale and maturities of investments | | | 113,536 | | | 208,457 | |
| Purchases of investments | | | (145,798 | ) | | (227,078 | ) |
| Purchases and dispositions of restricted investments, net | | | (16,074 | ) | | (5,835 | ) |
| Additions to property, equipment, and capitalized software, net | | | (35,540 | ) | | (28,943 | ) |
| Net cash used in investing activities | | | (91,852 | ) | | (59,330 | ) |
| Cash from financing activities: | | | | | | | |
| Proceeds from common stock issuance, net | | | 21,995 | | | - | |
| Proceeds from option exercise | | | 9,000 | | | 3,850 | |
| Purchase of treasury stock | | | (722 | ) | | (228 | ) |
| Incremental tax benefit received for option exercises | | | 3,649 | | | - | |
| Repayments on debt | | | (25,600 | ) | | (1,600 | ) |
| Funds received for the benefit of members, net of disbursements | | | 113,652 | | | - | |
| Net cash provided by financing activities | | | 121,974 | | | 2,022 | |
| Cash and cash equivalents: | | | | | | | |
| Increase during the period | | | 542,776 | | | 24,139 | |
| Balance at beginning of period | | | 421,766 | | | 397,627 | |
| Balance at end of period | | $ | 964,542 | | $ | 421,766 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | |
| Cash paid for taxes | | $ | 50,266 | | $ | 33,150 | |
| Cash paid for interest | | $ | 13,539 | | $ | 12,983 | |
