WellCare Health Plans, Inc. (WCG)

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WellCare Health Plans (WCG)

Q1 2013 Earnings Call

May 03, 2013 8:30 am ET

Executives

Gregg Haddad - Vice President of Investor Relations

Alexander R. Cunningham - Chief Executive Officer and Director

Thomas L. Tran - Chief Financial Officer and Senior Vice President

Charles G. Berg - Non-Executive Chairman and Member of Regulatory Compliance Committee

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Ana Gupte - Dowling & Partners Securities, LLC

David H. Windley - Jefferies & Company, Inc., Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the WellCare Health Plans First Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, May 3, 2013. It is now my pleasure to introduce Gregg Haddad, Vice President of Investor Relations. Please begin, sir.

Gregg Haddad

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, 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 statement.

Certain financial information that we will discuss today 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.

Separately, we closed the Missouri Care acquisition at the end of the first quarter. Our first quarter of 2013 membership, revenues and expenses do not include any Missouri Care activity. Certain balance sheet and cash flow items were affected by the transaction.

Following our prepared remarks, we will address your questions. We request that each participant ask no more than 2 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 Alex.

Alexander R. Cunningham

Thank you, Gregg, and good morning, everyone. Today, we will bring you up-to-date on our work for the first quarter of 2013 and also talk about our priorities and plans for the balance of the year.

Following that, Tom will discuss the quarter's financial results and detail our updated 2013 financial guidance. Our first quarter results highlight the continued expansion and diversification of our portfolio, driven by the successful execution of our 3-product strategy. Premium revenue of more than $2.2 billion was up 26% year-over-year. And as of March 31, we served more than 2.7 million members. The performance of our Kentucky Medicaid program was in line with our expectations and improved significantly compared to last year. We closed acquisitions that added 2 new Medicaid states to our portfolio and made a meaningful progress on their integration.

Membership in our Medicare Advantage HMO plans grew 71% year-over-year to 256,000 people, and we continue to benefit from the repositioning of our PDP segment to target low income, value-conscious choosers. Our results continue to be driven by our 3 top priorities, the first of which is improving health care quality and access. Our achievements were recognized during the past quarter with a commendable NCQA accreditation of our Florida health plan for both our Medicaid and Medicare products. We continue to target accreditation for all of our health plans and anticipate further progress in 2013. More broadly, we continued to invest in quality improvement.

For the first quarter, our results reflect a 50% year-over-year increase in quality expenditures, and we expect to sustain this level of investment for the balance of the year. With respect to our second priority, which is ensuring a competitive cost structure, the quarter's results reflect the investments we are making in growth and other initiatives. We are investing in the acquisitions that we closed during the past 6 months in terms of both integration and performance enhancement to position them for future growth and improve profitability. We are also investing in other key initiatives, including technology and infrastructure enhancements. One of our primary objectives is to make further progress in our service effectiveness by better aligning our operations with our government customers' goals. Our experience increasingly tells us that serving our health and drug plan members with associates who are their state and local neighbors is important to our success in terms of cost, quality, member retention and other important factors. An example of the deployment of this strategy is our recently opened call center in Orlando, Florida, which resulted in the creation of approximately 300 Florida jobs, replacing positions that were previously staffed overseas. We are excited about the opportunity to enhance our service to members and providers through this second on-shoring effort in Florida in the past year, and we continue to evaluate similar changes to our operations designed to strengthen our ties to the communities that we serve.

I'll now turn to our third priority, which is prudent profitable growth. Starting with the Medicaid segment. Premium revenue for the first quarter increased 22% year-over-year to nearly $1.3 billion. Our Medicaid segment membership increased 14% year-over-year to almost $1.7 million as of March 31, driven by growth in Kentucky and Florida and our South Carolina acquisition. In Kentucky, following the program, the policy changes that were implemented earlier this year, performance this quarter improved significantly. Although membership in the new Louisville Region 3 is below what was anticipated, other aspects of the implementation of that region are in line with or better than our expectations. We continue to strengthen our clinical care, quality and cost management statewide and expect further progress in those areas during the balance of the year.

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