WellCare Health Plans, Inc. (WCG)

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WellCare Health Plans (WCG)

Q3 2013 Earnings Call

November 01, 2013 8:30 am ET


Gregg Haddad - Vice President of Investor Relations

David J. Gallitano - Chairman, Interim Chief Executive Officer, Chairman of Compensation Committee, Member of Nominating and Corporate Governance Committee and Member of Health Care Quality and Access Committee

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


Christian Rigg - Susquehanna Financial Group, LLLP, 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

David H. Windley - Jefferies LLC, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division



Ladies and gentlemen, thank you for standing by, and welcome to the WellCare Health Plans September 2013 Financial Results Conference Call. [Operator Instructions]

As a reminder, today's conference is being recorded on Friday, November 1, 2013.

It's now my pleasure to turn the conference over to Gregg Haddad, Vice President of Investor Relations. Please go ahead, Mr. Haddad.

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.

This morning we announced that our Board of Directors has appointed the Chairman of our Board, David Gallitano as interim CEO succeeding Alec Cunningham. Dave is with us for this morning's discussion along with Tom Tran, our Chief Financial Officer. I will now turn the discussion over to Dave.

David J. Gallitano

Thank you, Gregg, and good morning, everybody. I would like to take a moment to offer a few comments on the announcement we made earlier today.

First, on behalf of the Board, we want to express our sincere gratitude and appreciation to Alec. His contributions to WellCare as CEO and in his prior roles with the company were very significant. We wish him the best.

The Board is very excited about WellCare's future. Our growth over the past few years has been strong, as I think most of you know. More importantly, we believe the company's opportunities for growth over the long term remain quite significant.

The Board decided that to best ensure that we capitalize on these opportunities we needed a CEO with a demonstrated track record of leading a business of large scale and leading a company the size and scope we anticipate WellCare will obtain over the next several years. This change is not the result of any other issue.

As demonstrated by our third quarter results, the company is effectively implementing our growth, quality, service and cost initiatives. Our recent contract awards in the Florida Medicaid procurement and the acquisitions that we announced in September are indicative of our capabilities to continue to grow and diversify our business.

We are conducting a comprehensive search for a new CEO. We will keep you apprised of our progress as we go down this path.

In the meantime, the Board and management team remain fully committed to continuing to build upon WellCare's position as a leader in government healthcare programs. We will continue to execute on our strategy and on the important initiatives that you are all familiar with.

Now I will turn this call over to Tom Tran.

Thomas L. Tran

Thank you, Dave, and good morning, everyone. Today, we will bring you up to date on our third quarter result and also talk about our priorities and outlook for the balance of the year.

This quarter's performance highlights the benefits of the continuing expansion and diversification of our portfolio of programs and markets.

Premium revenue of $2.5 billion was up 38% year-over-year, driven mainly by the acquisitions we closed during the past year, growth in the Kentucky Medicaid program and organic sales of Medicare Advantage plans.

With respect to our initiatives to improve healthcare quality and access, our significant investments in 2012 and 2013 have yielded improvement as indicated by the recently published Medicare star ratings. Five of our plans' ratings increased year-over-year. As a result, 84% of our September 2013 membership will be served by plans rated 3 star or greater for 2014. The star rating for our Florida MA plans, which have 28% of our current membership, has increased from 3.0 to 3.5 stars for 2014.

Another top priority is ensuring a competitive cost structure. Our ongoing work to strengthen productivity and leverage fixed cost has resulted in further improvement in our 2013 outlook. We now forecast an adjusted administrative expense ratio of approximately 8.6% compared to our prior guidance of 8.7%.

Based on our updated guidance, we anticipate that our administrative expense ratio will have decreased approximately 200 basis point from 2010 to 2013.

This past summer we undertook a strategic review of our operations and organizational structure. As a result, over the past 2 months, we took several actions, including the elimination of certain positions and the alignment of complementary functions to reduce cost and optimize performance. The restructuring will also enable further investment in priority areas, such as care management and quality, operational infrastructure and business development that are designed to position us for future opportunities and new requirements in government programs.

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