WellCare Health Plans, Inc. (WCG)

WCG 
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WellCare Health Plans (WCG)

Q2 2013 Earnings Call

August 07, 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

Analysts

Melissa Lockett - Susquehanna Financial Group, LLLP, Research Division

Michael J. Baker - Raymond James & Associates, Inc., Research Division

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

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

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

Joshua R. Raskin - Barclays Capital, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Carl R. McDonald - Citigroup 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 Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, August 7, 2013. And I would now like to turn the conference over to Gregg Haddad, Vice President of Investor Relations with WellCare. Please go ahead, 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 and quarterly reports on Form 10-Q, 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.

Following our prepared remarks, we will be pleased to address your 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.

Alexander R. Cunningham

Thank you, Gregg, and good morning, everyone. Today, we will update you on our second quarter results and also talk about our priorities and plans for the balance of the year. Following that, Tom will discuss the quarter's financial data and detail our updated 2013 financial guidance.

This quarter's performance highlights the continued expansion and diversification of our portfolio, driven by the effective execution of our 3-product strategy. Premium revenue of more than $2.3 billion was up 29% year-over-year, driven by both the acquisitions we closed during the past 10 months and strong organic growth.

Adjusted net income was slightly better than our expectation. Our results continue to be driven by our 3 top priorities, the first of which is improving healthcare quality and access. We continue to invest in quality improvement.

For the second quarter, our results reflect a 35% year-over-year increase in quality-related expenditures. Our ongoing initiatives included an extensive focus on identifying and closing care gaps and increasing care in the home for our members who face mobility challenges or other barriers to care.

Also, we recently strengthened the leadership of our quality program with the addition of Dr. Steve Goldberg as our Chief Medical Officer. Dr. Goldberg is a seasoned managed care executive with a track record of accomplishment in driving clinical care and quality improvement. We look forward to his leadership and contributions.

Our second priority is ensuring a competitive cost structure. Our ongoing work to improve productivity and leverage fixed costs has resulted in a better outlook for 2013. We now forecast an adjusted administrative expense ratio of approximately 8.7% compared to our prior guidance of 8.7% to 8.9%. We have achieved this improvement even with substantial expenditures for growth, acquisition integration and infrastructure investment. We will continue to pursue opportunities for efficiency as we prepare for 2014 and beyond.

I will now turn to our third priority, which is prudent profitable growth. Starting with the Medicaid segment, premium revenue for the second quarter increased 26% year-over-year to nearly $1.4 billion. Our Medicaid segment membership increased 18% year-over-year to 1.8 million as of June 30, mainly as a result of the Missouri and South Carolina acquisitions and our growth in Kentucky and Florida. The successful turnaround of our Kentucky program has continued.

Second quarter of 2013 performance was in line with our expectations and improved significantly year-over-year. Equally important, the program continues to grow. In early July, approximately 57,000 additional members were assigned to us as a result of a competitor's departure from the program. We are completing our member on-boarding and transition of care activities to ensure an effective service experience for both our new members and our network providers. We appreciate this opportunity to expand our close working relationship with our state customer. We commend Governor Beshear and Secretary Haynes for their leadership and ongoing commitment to our collective goal of ensuring that Kentucky's Medicaid program delivers quality, cost-effective care to our members on a long-term sustainable basis. We look forward to working with them on a 2014 Medicaid expansion that is expected to add over 300,000 members to the Kentucky program over the coming years. We also expect our growth in the Medicaid program to strengthen our MA product in Kentucky.

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