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WellCare Health Plans, Inc. (WCG)
Q4 2012 Earnings Conference Call
February 13, 2013, 08:30 AM ET
Alec Cunningham - CEO
Thomas L. Tran - SVP and CFO
Gregg Haddad - VP, IR
Carl McDonald - Citigroup
Tom Carroll - Stifel Nicolaus
Scott Green - Bank of America Merrill Lynch
Chris Rigg - Susquehanna Financial Group
Josh Raskin - Barclays Capital
Matthew Borsch - Goldman Sachs
Michael Baker - Raymond James
Sarah James -Wedbush Morgan
Peter Costa - Wells Fargo Securities, LLC
Scott Fidel - Deutsche Bank
» WellCare Health Plans, Inc. Q3 2007 Earnings Call Transcript
» Mine Safety Appliances Company's CEO Discusses Q4 2012 Earnings Results - Earnings Call Transcript
I would now like to turn the conference over to Gregg Haddad, Vice President. Please go ahead, sir.
Good morning and thank you for joining us. Today, we will be making forward-looking statements, including but not limited to, our 2013 financial guidance. Various risks and uncertainties such as those described in our filings with the SEC, including our 2012 Annual Report on Form 10-K that we expect to file later today, may materially impact those statements. While these risks and uncertainties may cause our future results to differ from today's statements, we are not undertaking any obligation to update or revise any forward-looking statements.
Certain financial information that we will discuss this morning, includes adjustments to expenses related to previously disclosed government investigations and related litigation that we believe are not indicative of long-term business operations. We will identify results that have been adjusted. In addition, please refer to our news release published this morning for supplemental schedules that reconcile results determined under generally accepted accounting principles, or GAAP, to our adjusted results.
Our news release is published on our website at www.wellcare.com. In addition, today, we will be discussing medical benefits ratios or MBRs for the Kentucky Medicaid program that are modified to reflect the development of medical benefits payable in the period in which the services were provided. A reconciliation of these non-GAAP and GAAP measures was published in our news release.
Following our prepared remarks, we will address your questions. We request each participant to ask no more than two questions. Our discussion today is led by Alec Cunningham, WellCare's Chief Executive Officer; and Tom Tran, Chief Financial Officer.
I will now turn the discussion over to Alec.
Thank you, Gregg, and good morning, everyone. Today, I will update you on our recent activities including results for 2012 and also talk about our priorities and plans for 2013. Following that, Tom will discuss the fourth quarter and full year 2012 financial results and detail our 2013 financial guidance.
2012 was a remarkably active year for WellCare. Premium revenue of $7.3 billion was up 22% year-over-year. And at year-end, we served nearly 2.7 million members for the first time in the company's history. We obtained new contracts, service area expansions or contract extensions for our Medicaid programs in Florida, Georgia, Hawaii, Kentucky and New York. We organically grew our Medicare advantage membership by 29%, including growth in our dual special needs plan or DSNP membership of more than 50%.
We repositioned our prescription drug plan or PDP business to strengthen our focus on Medicare eligibles who choose a Part D plan. And since last July, we have closed or signed agreements on four acquisitions that have established or expanded our presence in attractive states with meaningful growth opportunities that complement our three-product strategy.
Of course, 2012 also brought challenges as we will discuss during today's call. That said, as a result of our 2012 accomplishments, we are better positioned than ever to deliver profitable growth over the long term. We begin 2013 with the most diversified portfolio of revenue and earnings streams in our history in a number of markets that have sizable government programs growth prospects. We intend to capitalize on those opportunities through ongoing improvements to our infrastructure and processes designed to further advance our health care and service quality as well as our operating efficiency and effectiveness.
Turning to health care quality and access, our highest priority for 2012 was investing to accelerate our progress on this important dimension of our business. In fact, our operating expenditures for quality improvement increased by more than 60% in 2012 compared to 2011. For 2013, we again expect to meaningfully increase our investments in this top priority.
Our recent quality accomplishments include the commendable NCQA accreditation of our Florida health plan for both our Medicaid and Medicare products. We continue to target accreditation of all of our health plans and anticipate further progress in 2013. In addition, our New York health plan met the 2012 performance requirements for the state's quality incentive for Medicaid managed care plans and is now designated a quality health plan. As a result, our New York Medicaid plan is eligible for member auto-assignment and enhanced premiums.
With respect to our second priority, which is ensuring a competitive cost structure, 2012 was a year of continued progress. Our adjusted administrative expense ratio decreased 120 basis points year-over-year to 8.7%. Since 2010, the ratio has decreased by 190 basis points. As we enter 2013, our growth and other initiatives create the need for certain investments. In particular, the integration of our four acquisitions will result in incremental expenditures this year. In addition, we will make investments to enhance the performance of these businesses and to position them well for future growth.
We also plan to invest in other business initiatives, including technology for care management and quality as well as service infrastructure enhancements. Finally, as we plan for 2014, we will be making investments in anticipation of the implementation of the provisions of the Affordable Care Act.
I will now turn to our third priority, which is prudent profitable growth. Starting with Medicaid, 2012 was a year of significant activity in a number of our states. Medicaid premium revenue for 2012 increased 25% year-over-year to nearly $4.4 billion. Our Medicaid segment membership increased 9% year-over-year to almost 1.6 million as of year-end.
Of course, the largest driver of our 2012 growth was our Kentucky Medicaid program upon which we have continued to focus intensely over the last several months. In particular, we have worked closely with our customers in the Commonwealth to achieve our collective goal which is ensuring that Kentucky Medicaid managed care program delivers quality, cost effective care to our members on a long-term sustainable basis.